State of the Insurance Market:
2025 Outlook

Employee Benefits

Employers in 2025 should prepare for rising pharmacy costs driven by GLP-1 drugs, specialty therapies, and evolving PBM strategies, requiring careful oversight and innovative cost-management approaches. Key trends include advancements in HR technology, emphasizing artificial intelligence (AI) for pay equity, learning, and engagement, alongside the growing focus on compliance with pay transparency and absence management regulations.

Employers are urged to prioritize holistic well-being programs addressing physical, mental, and financial health, while adapting to heightened scrutiny of benefits management and navigating regulatory complexities. Staying proactive and leveraging data-driven strategies will be crucial to balancing cost, compliance, and employee satisfaction.

Market Conditions

 

In 2025, employers should expect the following considerations when it comes to employee benefits programs.

  • Pharmacy’s influence on cost trends: Pharmacy innovation will continue with new opportunities for employers to offer more cost-effective treatments in higher cost drug categories by using competitively priced alternatives. Ongoing inquiries remain around GLP-1 drugs and their potential health benefits, which will likely lead to higher usage and a significant cost burden for employers.
  • Emphasis on fiduciary responsibility: Legislation that increases scrutiny of, or highlights, the fiduciary responsibilities of, employers has led to a growing number of lawsuits. Although a high-profile case (Johnson & Johnson) was dismissed, employers should be careful not to let their guard down.
  • Strong emphasis on HR technology: With artificial intelligence (AI) integration ramping up for Human Resources (HR) teams, the need for increased and better technology will not only be needed to explore its use in key areas, such as pay equity/pay transparency, but also in learning and development, benefits administration, and employee engagement. Implementing any type of technology presents a challenge for most organizations and HR will need to explore the increasing demands of delivering the training needed to upskill their workforce.
  • Pay equity/pay transparency: Pay is becoming an increasingly hot topic, and many employers are looking at how they measure up against their peers, driving up the need for better technology and AI to compare and benchmark pay data. Due to some regulation, employers have been able to provide better pay transparency. Most of this has been around hiring and posting jobs, but with the rise in the use of AI, pay information is becoming more accessible.
  • Growing regulatory impacts related to absence management: Recognition of paid and unpaid leaves will continue, as well as expand into new areas such as menopause-related challenges, unsuccessful IVF treatment, managing behavioral health or burnout, among others. Given the complicated nature of this area, higher utilization of absence-specific data is projected as employers seek to understand the trends and patterns of their workforce. Multi-state employers will contend with emerging state-based paid family and medical leave legislation requirements (such as related required contributions in some states), as well as the availability of paid sick leave.

Coverage Considerations

 
  • Holistic well-being support: With a rising emphasis on holistic well-being, employers need to consider comprehensive programs that address physical, mental, and financial health. This includes providing more robust financial planning resources to support retirement savings and financial insecurity, as well as mental health services and flexible work arrangements.
  • Pharmacy trends: Significant consideration needs to be given to current and expected pharmacy trends. 45% of the total cost of all large claims comes from pharmacy spend, and it now exceeds 40% of the total per member per month (PMPM) cost. These numbers will increase going forward. Key areas for employers to focus on include GLP-1 drugs (for diabetes, obesity, and moderate-to-severe obstructive sleep apnea in adults with obesity with the recently FDA-approved drug Zepbound), specialty pharmacies including biosimilars and cell and gene therapy (ultra-high-cost drugs), and fiduciary responsibility.
    • GLP-1 drugs: GLP-1s will continue to be a major driving factor, given the drug class has a significant pipeline with alternate formulations (oral) and multiple indications being studied.
    • Biosimilars: Several pharmacy benefit managers (PBMs) will announce their Humira biosimilar strategies through 2025. This is the first drug class where we expect PBMs to manufacture their own biosimilars. As more biologics become available as biosimilars, employers may have the potential to offer additional cost-effective treatments in higher-cost drug categories by using competitively priced alternatives.
  • Cell and gene therapies: Ongoing approvals can be expected, with numerous therapies already Food and Drug Administration (FDA) approved, including the costliest therapy priced at $4.25M. Value-based arrangements are expected to be the core of the solution, complemented by stop loss insurance, clinical management, provider network management, and outcomes tracking to form a comprehensive solution. Some stop loss carriers are beginning to create care delivery and underwriting models to better manage the cost, clinical efficacy, and member experience related to these therapies. Emerging financial models that increase or improve disclosure and transparency on the cost of goods and services are anticipated.
  • Evolving contracting strategy: The historic contracting strategy, where PBMs and retail pharmacies cross-subsidize costs between generics and brands, is being revised. This will increase the cost of brand name drugs and decrease the price for generics, which ties to transparency. The result will benefit some patients while increasing costs for others and will be a factor in stabilizing the business model for retail pharmacies. There may be greater focus on channel and site of service management between how gene therapies and specialty drugs are covered under either the medical plan or the PBM.

Employee Benefits Rate Forecast

 
Rate Forecast
Medical: +7% to +11%*
*Trend will vary regionally based on the healthcare delivery system and funding mechanism
Prescription Drugs, Non-Specialty: +9% to +12.5%**
**Excludes GLP-1 drug coverage for weight loss
Prescription Drugs, Specialty: +6% to +16.5%
Stop Loss Premium, Leveraged Trend: +15% to +20%

Recommendations

 
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Anticipate continued scrutiny of benefits management: Employers (particularly large employers) should be aware of scrutiny and oversight of benefits management given the status and uncertainty of several agencies under the new administration, including the Federal Trade Commission (FTC), which has been investigating PBM practices. Employers should work with their PBM and benefits consultants to ensure that contractual language provides transparency, audit and disclosure, and includes appropriate audit scope and allowances.

Additionally, employers are advised to continue tracking the dizzying pace of health plan-related legislation, regulations, and rulings. Multistate employers should pay extra attention to local and regional litigation trends in various jurisdictions, particularly around absence management (leave) and pay equity/transparency. Reviewing your current programs to determine how and if they will integrate, as well as thinking through issues such as pay equity for employees on leave, is recommended.

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Analyze opportunities to manage spend: Employers are advised to look at all available possibilities to manage spend, including evaluating your current health plan financing model against alternative funding methods. Ultimately, it comes down to an employer’s tolerance for risk and ability to effectively administer programs that help achieve their benefits strategy. Keep in mind, the smaller the organization, the higher the impact of cost volatility, with fewer options to mitigate future increases.

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Keep a close eye on pharmacy and evaluate it regularly: Given the rapid pace of innovation in pharmacy, employers should plan for a strategy that balances pharmacy cost while ensuring sustainable coverage and outcomes. For example, larger self-funded employers are beginning to require contracts that allow annual market checks to keep costs competitive. However, this may not be an option for all employers. Financial models based on true net acquisition costs are also emerging. The consulting community will require different financial and related analyses and tools to adopt these models. Discount rebate and dispensing fee guarantees will become less relevant. PBM value propositions will move away from cost of goods and services to clinical, operational, and member experience metrics.

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Benefits compliance remains a top priority: Given the pace of change underway, health plan-related compliance will continue to evolve quickly, often with downstream impacts on many fronts. Employers should be aware that health and welfare benefits (along with retirement plan benefits) may be impacted due to the increasing scrutiny of worker classifications and resulting changes to plan eligibility. Anticipate a high touch will be needed throughout 2025, making compliance with federal, state, and local regulations both a challenge and a central focus for employers.

Employee-Benefits-Recommendations-2024-SOTM
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The contents of this report are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.