Millions of Americans who receive health insurance through their employers may soon face the sharpest rise in costs in more than a decade. New surveys from major consulting firms show that businesses across the United States are preparing for a significant increase in health benefit expenses in 2025, a shift that could directly impact workers’ paychecks and household budgets.
According to Mercer’s latest national survey of employer-sponsored health plans, companies are expecting the steepest increase in health benefit costs in 15 years, with employee premiums projected to rise by an additional 6% to 7%. Consulting firm PwC has echoed these concerns, forecasting continued growth in employer medical costs driven by expensive treatments and rising healthcare utilization.
What’s Driving the Surge in Health Insurance Costs?
Health economists say the current spike is largely the result of a delayed rebound in healthcare usage following the COVID-19 pandemic. During the height of the pandemic, hospitals postponed elective surgeries, routine checkups, and in-person visits as healthcare systems focused on emergency care and infection control.
Professor Mark Pauly, a leading health economist and emeritus professor at the Wharton School of the University of Pennsylvania, explains that healthcare spending dropped sharply during the pandemic — but that decline was temporary.
“What we are seeing now is an echo effect,” Pauly says. “Healthcare use fell significantly during COVID, but that decline has reversed, and spending is catching up.”
Government projections suggest that healthcare spending growth likely peaked in 2024, though official figures have yet to be finalized. However, that momentum has carried into 2025, pushing employer health insurance costs higher than many businesses anticipated.
Cancer Care and Prescription Drugs Lead Cost Increases
Among the biggest drivers of rising costs are cancer treatments and high-priced prescription drugs, both of which have been steadily increasing expenses for employers over the past four years. New therapies, specialty medications, and biologic drugs have improved patient outcomes but come with steep price tags.
Employers are also seeing increased hospital utilization as patients return for delayed procedures such as joint replacements, cardiac interventions, and diagnostic testing. Together, these trends are placing sustained pressure on employer-sponsored health plans.
Employers Shift More Costs Onto Workers
During the pandemic and the tight labor market that followed, many employers absorbed a larger share of healthcare costs to retain workers. With unemployment low and competition for talent fierce, companies had limited ability to shift expenses onto employees without risking resignations.
That dynamic is now changing.
Recent labor market data shows signs of softening, giving employers more flexibility to pass costs along. While workers typically pay about 20% of health insurance costs directly through premiums, economists argue that the real burden is often hidden.
“The majority of what workers pay for employer health insurance doesn’t show up as a line item,” Pauly explains. “It comes out of wages they would have otherwise received.”
In other words, higher healthcare costs can mean smaller raises, fewer bonuses, or reduced overall compensation — even if premium increases appear modest.
A “Perfect Storm” for Workers
The convergence of several factors has created what economists describe as a “perfect storm” for employees:
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A rebound in healthcare utilization after COVID
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Rising costs for labor-intensive healthcare services
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Expensive prescription drugs and cancer treatments
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A cooling labor market that weakens workers’ bargaining power
Mercer’s survey results may even underestimate the impact, as they reflect employer expectations rather than finalized spending figures. Still, analysts agree that 2025 is shaping up to be a challenging year for workers dependent on employer-sponsored insurance.
Are Tariffs and Inflation Making Things Worse?
Some Americans have expressed concern that President Donald Trump’s tariff policies and broader cost-cutting agenda could be adding pressure to healthcare costs. While tariffs themselves are not a direct driver of medical expenses, broader inflationary forces do play a role.
Healthcare is a labor-intensive industry, and labor costs have been rising steadily. Healthcare employment has been one of the strongest growth areas in the U.S. economy for years, and higher wages for nurses, technicians, and support staff eventually translate into higher prices for medical services.
“If you hire more people and pay them more, the price of the final product has to rise,” Pauly notes.
Historically, healthcare spending as a share of GDP remained relatively stable from 2009 through 2023. However, projections now show healthcare costs growing slightly faster than GDP in the coming years, signaling renewed upward pressure.
Government Health Programs Also Under Pressure
The cost surge comes at a time when federal healthcare programs are facing scrutiny under the administration’s cost-cutting agenda. While it remains too early to determine the full impact of President Trump’s proposed healthcare legislation, changes to government-funded insurance programs could indirectly affect the broader healthcare market.
Reductions in public funding often lead providers to seek higher reimbursements from private insurers, which can then raise premiums for employers and workers. This cost-shifting dynamic has been observed in previous healthcare reform cycles.
What This Means for Workers
For American workers, the implications are clear:
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Higher monthly premiums
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Increased deductibles and out-of-pocket costs
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Slower wage growth
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Greater financial strain, especially for families
Employees may need to become more proactive during open enrollment periods, carefully comparing plan options, understanding drug coverage, and factoring in total healthcare costs — not just premiums.
Some employers are also expanding wellness programs, telehealth services, and high-deductible plans paired with health savings accounts (HSAs) as cost-control measures.
Looking Ahead
While experts expect the pace of cost increases to moderate after this post-pandemic surge, healthcare expenses are unlikely to decline meaningfully in the near future. Structural factors such as aging populations, medical innovation, and labor shortages continue to push costs upward.
For now, 2025 appears set to be one of the most difficult years in recent memory for U.S. workers relying on employer-sponsored health insurance — a reminder that healthcare affordability remains one of the nation’s most persistent economic challenges.