ARTICLE | September 26, 2025

Why Costs Are Rising – A Closer Look

Health plan costs are being driven upward by multiple compounding factors:

• Medical inflation outpaces general inflation – While overall inflation has cooled, healthcare costs are projected to rise at more than twice the pace of general inflation. Hospitals and physician services are expected to see significant growth, driven by wage pressures in a strained healthcare workforce.
• Pharmacy costs dominate – Specialty drugs and gene therapies are the fastest-growing category, with pipeline drugs like GLP-1 weight-loss medications poised to reshape both utilization and cost curves. Some employers report single claims exceeding $1M annually for rare-disease therapies.
• Stop-loss volatility – Reinsurance carriers are responding to surging catastrophic claims with higher premiums and tighter underwriting requirements.
• Broader market pressures – Broader economic factors — including inflationary pressures and ongoing labor shortages in healthcare — are compounding domestic cost drivers. Shifts in plan enrollment also play a role, as rising PPO costs and greater uptake of high-deductible health plans create imbalances in how costs are spread across covered populations.

The Business Impact: Why This Matters Beyond the Numbers

The burden of rising healthcare costs doesn’t stop at the finance department:

• Talent retention challenges – National surveys consistently rank healthcare benefits among the top three reasons employees choose to stay with or leave an employer. Across the marketplace, organizations that struggle to balance affordability with quality benefits often see greater turnover risks.
• Productivity drag – Rising healthcare costs can create financial stress for employees, which in turn impacts focus, well-being, and overall productivity at work.
• Competitive disadvantage – Small and mid-sized businesses (SMBs) are often hit harder, since they lack the scale of Fortune 500 employers to negotiate favorable contracts.

Proactive Strategies for Employers

Forward-looking organizations aren’t waiting for costs to dictate their decisions—they’re proactively rethinking how to manage benefits and support their people. One area of innovation is in funding models. By exploring options such as captives, consortiums, or level-funding arrangements, employers are finding ways to mitigate volatility. Some are even adopting reference-based pricing, which ties hospital reimbursements to Medicare rates for greater predictability.

Another focal point is pharmacy oversight, where employers are pushing for transparency in PBM contracts and introducing utilization management programs to ensure prescriptions align with clinical best practices. A few are even carving out high-cost specialty drugs to rein in spending.

Organizations are also re-examining plan design and cost-sharing strategies, balancing affordability for employees with the long-term sustainability of the plan. At the same time, they’re expanding investment in population health and preventive care—with chronic condition management, mental health programs, and wellness incentives designed to address root causes rather than just downstream costs.

The Bottom Line for Business Owners

Healthcare costs are no longer a back-office issue. They’re a boardroom conversation that ties directly to growth, profitability, and culture. Employers that invest in innovative funding models, smarter pharmacy management, and employee engagement will be best positioned to weather this era of cost volatility.

Now is the time to reassess your benefits strategy. Waiting another renewal cycle could mean significant lost opportunity — and lost talent.