Opinion: The increase of health care costs

Erica Gaynor

Employers continue to struggle with rising health care costs and providing employees with affordable and quality care options. Projections indicate that spending in 2025 will mirror that of 2024, continuing a trend of escalating costs.

As a result, various industry surveys and reports suggest that employers expect health care costs to increase by 7% to 8% in 2025. For employees, that can mean higher premiums, deductibles, and copayments. Why are costs rising?

GLP-1 drugs
Glucagon-like peptide-1 drugs’ use for weight loss are already widespread, but these costly medications are expected to grow in popularity. According to KFF data, around 1 in 8 Americans have already used a GLP-1 drug, while 6% are currently taking one. However, this number is projected to rise in the coming years. JP Morgan estimates that 9% of the U.S. population could be on GLP-1s by 2030. GLP-1 medications typically cost around $1,000 per month.

Many plans only cover GLP-1s for diabetes or won’t cover these prescriptions at all. These costly medications are intended to be taken in perpetuity to achieve their benefits. This means that GLP-1 users may experience health benefits but will be required to use these high-cost treatments on an ongoing basis.

Drug cost increases
Several commonly used drugs are expected to have price increases this year. Health care services company Vizient projects that drugs used to treat osteoporosis, cancer, atopic dermatitis and Type 2 diabetes are expected to rise anywhere from 4% to 10% or more. 

Cell and gene therapies
Advanced treatments such as cell and gene therapies are designed to treat conditions like blood and lung cancer, sickle cell anemia and spinal muscular atrophy. While these therapies represent major medical breakthroughs, they come with a steep cost. Some can run into the thousands of dollars per week, while others may cost between $250,000 and $4.25 million for a single dose. Due to these high prices, even if only a few participants in a plan require these treatments, overall health care spending can increase significantly.

Many of these therapies have recently been approved, and hundreds more are currently in clinical trials with the potential to be available in the coming years. By 2025, it is projected that nearly 100,000 patients in the U.S. will be eligible for CGT, which could amount to $25 billion in costs.

Biologics
Specialty drugs, including biologics, are among the fastest-growing areas of pharmacy spending. Biologics are medications derived from living organisms, such as proteins, sugars and DNA, and are used to treat a variety of conditions, including cancer, psoriasis, rheumatoid arthritis and inflammatory bowel diseases. While these drugs are highly effective for treating complex health issues, they come with a significant cost.

Labor costs
The current supply of health care workers does not meet the growing demand for utilization. This shortage is due to rising health care demands, an aging population, retiring workforces and insufficient talent entering the health care industry. When key players in the health care industry are required to spend more on labor, those expenses are often passed on to both employers and users of the health care benefit, employees and their dependents.

Chronic health conditions
Around 90% of U.S. health care spend is on people with chronic and mental health conditions. Chronic conditions include heart disease, stroke, cancer, diabetes, arthritis and obesity. In general, chronic disease is increasing in prevalence in the United States and is projected to continue to do so in 2025 and the upcoming years.

Aging populations
The percentage of the U.S. population that is 65 or older continues to rise, with over 55 million Americans over 65. Estimates show that there will be almost 80 million people aged 65 and older in the United States by 2040. Per-person personal health care spending for the 65 and older population is around 5 times higher than spending per child and almost 2.5 times the spending per working-age person.

Although one can’t control the factors driving health care costs, becoming an informed health care consumer can help manage expenses more effectively. While many employers may not directly pass rising health care costs onto employees, how they communicate changes and information about increasing medical expenses is crucial. This provides employers with an opportunity to build trust, enhance employee loyalty, and reduce the risk of turnover.

Erica Gaynor is a senior group benefits adviser with Ollis/Akers/Arney. She can be reached at erica.gaynor@ollisaa.com.