Overview
Employee benefits continue to be affected by many factors. Increased transparency, inflationary pressure, workforce changes, technical innovation and digitization, ongoing regulations, provider costs, increased utilization, pharmaceutical innovation, consolidation in the payer segment and the continued penetration of Private equity in the industry. All of these will impact the rising costs for the private sector plans.
Expected Trends in 2025
While no one has a crystal ball, based on all the data BSI has accumulated and our work with both payers and providers here are some of the trends we expect to see in 2025. Ranges are based on data from regions across the US and actuarial data BSI analyzed:
Analysis
2025 will be a challenging year for employee benefits. The trend towards self-funding continues to grow but employers still face increasing costs.
Medical Trend – this is driven heavily by inflationary costs on the provider side. Salaries and supplies post COVID continue to rise for most health systems. Add other inflating costs and providers are demanding higher fees from networks and plans. The continued growth of carrier or private equity owned physician groups is driving higher unit costs in this segment. Add higher post Covid utilization and the increasing Medicaid population and trend is adversely affected. Obviously, there are other factors in medical trend, but these are leading drivers.
Prescription Drugs – this trend has been steadily increasing for the past four years with a small aberration toward the end of the pandemic. Many factors are contributing to this growing trend. On the retail side there are a number of new drugs, high utilization, inflationary costs both in manufacturing, distribution and delivery. On the specialty side there are many factors too. The three biggest are Cell and Gene therapy drugs, Biosimilars and GLP-1’s. All plans will face significant increases in all three areas, so managing this segment of drug costs is critical. The FDA has been approving new drugs at a very rapid rate and while biosimilars can provide some small offsets it is not enough curb this inflationary trend.
Stop Loss – as medical and prescription drugs costs continue to rise so will stop loss premiums. Two of the big drivers are Outlier Provisions in network contracts and the continued increase in prevalence of claims over $1 million dollars. Even with narrow high performance networks Outlier Provisions can derail a lot of the perceived savings. With inflation impacting health system profitability many rely on the outliers on large claims to balance the scales. The size of stop loss claims continues to rise and this will drive premium increases in 2025.
Other Rising Costs – a trend that is often overlooked but is driving increased costs is ownership of physicians in the US. A few years ago, we crossed a very critical milestone – more US physicians are owned than independent. With the influx of purchasers of medical practices like insurance companies and Private Equity, independent physicians are now the minority. Along with this comes the inevitable increase in prices that is starting to show up across the country. Interesting factoid – United Health owns more physicians than any other entity in the US.
Commentary
While these increases will have a big impact on the economy in 2025, we expect continued innovation in trying to curb them. This battle is not new, but we continue to garner more data and can create solutions based on this.
Th harsh reality is starting to become very evident and nearly impossible to hide – the unit cost of care in the US is just too high. Economically we will reach a tipping point where healthcare is too large a portion of our GDP. When this will happen is not clear but when it does national healthcare will rise to the forefront of the voting public again and may become our only solution. 2025 trend should be a wake-up call to payers and providers alike – it’s time to cut costs.
