This 2025 Employee Bene ts Market Update provides an overview of the key factors shaping the future of employee bene ts.
The landscape of employee benefits continues to evolve in response to rising healthcare costs, shifting workforce expectations, and changing regulations.
This update outlines the key trends and insights shaping employee benefits in 2025, providing organizations with actionable strategies to navigate these changes effectively. From innovative cost management approaches to legislative updates, the insights in this report are designed to help employers optimize their benefits offerings and support their workforce.
About the Lead Author:
Ray Korson
In This Update:
HEALTHCARE AFFORDABILITY
Cost Projections, Key Factors, and Strategies in 2025.
TRENDING BENEFITS
Mental/Behavioral Health, Functional Medicine, and more.
ELECTION IMPACTS
Trump Administration Expected Impacts on Healthcare.
HEALTHCARE COMPLIANCE
Compliance Issues and Supreme Court Rulings to Note. Ray Korson is a partner and benefits strategist at Gibson, a U S Top 100 insurance consulting firm A Certified Employee Benefits Specialist and Health Rosetta Accredited Advisor, Ray leverages his deep expertise in innovative risk management and valuebased population health approaches to help organizations strategically optimize their health and welfare benefits investment driving sustainable outcomes for both employers and employees.
EXECUTIVE SUMMARY
As healthcare costs continue to rise projected to increase by 8-9% this year employers are faced with the challenge of balancing cost management with delivering meaningful benefits to their workforce.
This report identifies major cost drivers while highlighting cost-saving strategies like biosimilar adoption and holistic affordability initiatives.
Emerging benefit trends, including variable copay plans and individual coverage health reimbursement arrangements (ICHRAs), reflect a shift towards personalized and value-driven healthcare options. Mental and behavioral health remains a critical focus area, with rising demand prompting the expansion of programs and services tailored to address these challenges.
This update also examines compliance and legislative developments, from changes to mental health parity rules to the evolving responsibilities of plan sponsors in fiduciary duties. With the Trump Administration returning to office, employers can expect deregulation efforts and healthcare market reforms to influence policy and practice.
To navigate these changes, actionable strategies for employers, include leveraging centers of excellence, optimizing pharmacy benefit management, and preparing for potential legislative shifts. By adopting these strategies, organizations can enhance their benefits offerings, improve employee engagement, and ensure cost sustainability.
2025 Cost Projections & Key Factors
Healthcare costs are projected to increase 8-9% in 2025, likely to eclipse $16,000 per employee per year.
MAJOR COST DRIVERS
Increased adoption of GLP-1 drugs and specialty medications
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Weight loss prescriptions (e g , Wegovy, Ozempic) are the single biggest driver of employer health costs, adding 1 percent to total expected premium expense for 2025. This is driven by increased adoption, new formulations entering the market, and increase clinical indications that expands insurance coverage.
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Virtual and augmented reality technologies are removing the distance to people, information, and experiences, transforming the ways people live and work.
JAMA research suggests that almost 50% of GLP-1 users discontinue their medication within one year due to side effects like nausea and vomiting. In most of these cases, patients regain any weight lost as well as increased risk factors for heart disease and Type 2 diabetes.
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INTERNET OF THINKING
The specialty drug pipeline continues to grow rapidly, driven primarily by emerging cell and gene therapies (CGTs). It is projected that by 2027, 2 to 3 percent of members will be using specialty medications and will account for 56 percent of employers’ total drug spend.
Healthcare inflation driven by rising employment levels and wage increases within the industry
Increased frequency & severity of high-cost claims.
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Higher instances of cancer in younger people resulting both from earlier detection/occurrences paired with more effective, but costly cancer treatments.
Updated Medicare/Medicaid payment models announced by CMS will increase pressure on commercial insurers to subsidize potential underperforming Medicare/Medicaid revenue for healthcare providers.
60% of health plans surveyed by PWC ranked “managing total cost of care” among top three cost deflators.
This reflects the continued inflationary pressures that demand a refocused attention to total cost of care management, creating a more sustainable path forward for both plan sponsors and plan participants
KEY DEFLATORS
Increased adoption of biosimilars (i.e., lower-cost, highly similar in structure and function to biologic medicines) and greater utilization of compound drug versions for high-cost specialty medications, including GLP-1 injectables.
New private label biosimilars offer lower price points for key medication and also pressure traditional brand name manufacturers to offer lower list prices or increase rebates for lower overall costs.
Holistic and focused approach to address affordability and total cost of care.
Rise in Self-Funded Health Plans
While traditionally viewed as an option only for the largest organizations, larger percentages of small to medium-sized businesses are opting to self-fund their health plans.
The benefits of self-funding include greater access to claims data; control over plan design and point solutions; and potential savings from avoiding taxes, carrier profit margins, and forfeited surplus claims funding. A robust third-party administrator marketplace, an array of vital cost containment solutions, and innovative stop-loss solutions (including captives and coalitions) all work in harmony to make selffunding a safe and attractive option for employers of all sizes.
65% of U.S. workers are covered by a self-funded health plan.
Top Cost Management Strategies
GLP-1 Utilization Management.
In light of the huge potential for increased cost and waste with this new category of medications and considering the fact that fewer than 1 percent of U.S. physicians are board-certified in obesity medicine plan sponsors are moving beyond standard clinical prior authorization requirements for new solutions that introduce overlapping fitness, nutrition, and behavioral health benefit programs.
Pharmacy bene t manager reviews & specialty carve-out programs. Dependent eligibility audits. Spousal surcharge/ carveout programs. Direct contracts and alternative provider network arrangements. Centers of excellence programs Mental and behavioral health programs
INDIVIDUAL COVERAGE HEALTH REIMBURSEMENT ARRANGEMENTS
(ICHRAs)
ICHRAs were first made available in January 2020, and while adoption was measured in the early years, employer adoption of the flexible ICHRA model continues has grown considerable in recent years ICHRAs grew by 30% between 2023 and 2024.
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ICHRAs offer employers a way out of the traditional group medical insurance model by offering eligible employees tax-free defined contributions they can use to purchase individual/family plans from the ACA Marketplace that meet their individual cost and coverage needs.
ICHRAs are a legal replacement to group health plan that satisfies the ACA employer mandate, as long as the premium subsidies are priced affordably relative to the individual insurance plans available in the market
◦ As inflationary cost pressures continue to squeeze fullyinsured plans, expect to see employers transition to ICHRAs or self-insured health plan arrangements to better control spend.
◦ An ICHRA is essentially the "de ned contribution" equivalent to a traditional group health plan, just as a de ned contribution plan is to a traditional pension bene t.
VARIABLE COPAY PLANS
In recent years, insurers introduced a new health plan concept specifically to simplify the healthcare purchasing process for consumers and drive better cost and quality outcomes for plan participants and plan sponsors. Examples include Surest (UHC) and SimplePay (Meritain/Aetna).
Conceptually, variable copay plans eliminate traditional plan cost sharing elements like deductibles and coinsurance, in lieu of all-inclusive, flat dollar copay amounts for every possible healthcare procedure.
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◦ Additionally copay amounts are offered at three levels with the lowest copays applying for providers offering the highest quality of care for the fairest price while the providers offering inferior care for lower quality are associated with higher copay costs.
The end result is a simplified health plan aligning financial incentives and making it easy for plan participants to understand their benefits This allows for value-based healthcare decisions to help plan sponsors maximize healthcare value and lower the total cost of care
Insurers introducing innovative health plans are seeing rapid growth, with adoption projected to increase even more in 2025 and beyond. Additionally, other large insurers and TPAs will most likely develop their own versions of variable copay programs to compete with these new offerings and protect market share. ◦
FUNCTIONAL MEDICINE
Popularized by outspoken doctors like Dr. Mark Hyman and Dr. Andrew Weil, Functional (or Integrative) medicine is a holistic, patient-centered framework focusing on restoring optimal health function by treating the root causes of diseases. This is accomplished through a framework that systematically identifies and addresses underlying processes and dysfunction that may cause imbalance and disease within each individual patient. Personalized plans are based on patient’s genetic, environmental, and lifestyle influences and tends to focus on frequent testing, detoxification, nutrition & supplementation, healthy lifestyle coaching, and stress relieving techniques to restore optimal health for patients.
This healthcare movement is part of a broader trend towards personalized medicine and is receiving an influx of investment to accelerate marketplace adoption, not only for individual patients, but commercial payers.
Progressive hospital systems, like the Cleveland Clinic, are investing in separate departments dedicated to functional medicine to advance treatment and study of this emerging medical discipline.
MENTAL AND BEHAVIORAL HEALTH
The amount of utilization and claims related to behavioral health issues continues to climb, highlighting a persistent need to expand access and introduce programs to meet rising demand
A recent LexisNexis Risk Solutions study found that mental health claims have increased 83% from 2019 to 2023. The rise in mental and behavioral health directly correlates with increased disease burden and frequency and severity of high-cost claims as mental disorder.
An estimated
1 in 5
U. S. adults live with a mental illness.
While typically functional medicine practitioners (and certain tests) are not covered by traditional insurers, there are a number of commercialized functional medicine benefits and programs emerging including:
FOOD AS MEDICINE (FAM)
FaM is a growing concept recognizing the importance of nutritious food for health and well-being Applications may include membership-based programs or prescriptions from insurers from “farmacies” that facilitate the delivery of nutritious, organic foods to treat improve healing, reduce disease, and promote overall health and wellbeing, with the overall goal of replacing medications seeking to achieve the same outcomes
PHARMACOGENOMICS PROGRAMS
These programs study a person’s genes in order to predict which drugs are going to be effective to patients or may cause an adverse reaction Useful for patients who take multiple medications, they are intended to optimize health outcomes and eliminate spend for ineffective medications.
FOOD SENSITIVITY/ALLERGY TESTING
These tests, not typically order by doctors, measure the body’s immune response to certain foods to identify which foods may be causing adverse health reactions or diagnosing systemic issues such as leaky bowel syndrome. The results from these tests can inform targeted food elimination diets eliminating digestive symptoms and restore health.
SPECIFICALLY, PRESIDENT TRUMP VOWED TO PURSUE THE FOLLOWING INITIATIVES DURING HIS SECOND TERM:
PBM REFORM
PBMs, common targets given their opaque business practices, are under increased pressure and scrutiny as of late.
President Trump recently called out Pharmacy Benefit Managers (PBMs) as ‘horrible middlemen’ that make more money than drug manufacturers and drive-up costs for the average American.
Healthcare and the Trump Admin
Looking ahead, given the change in guard to the Trump Administration and the reality of Republican control of the House and Senate, the question is: what kind of changes are in store for employee benefits and U.S. healthcare in the years to come?
Based on President Trump’s agenda in his first term as president, the following themes are likely for U.S. healthcare:
Increased healthcare access and marketplace competition with price and quality transparency. ▪ Greater choice and flexibility in healthcare for both states and individuals.
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Government de-regulation via reversal and/or modification of Biden-era policies.
A House Oversight Committee recently investigated PBMs for their role over prescription drug prices and the FTC filed a suit against the big three PBMs (Caremark, Optum, and Express Scripts) over allegedly increasing profits by limiting access to cheaper insulin and steering towards more expensive alternatives.
In December, legislators proposed bills requiring insurers and PBMs to offload their pharmacy businesses in an effort to break up monopolistic practices in the industry
DEPARTMENT OF GOVERNMENT EFFICIENCY (DOGE)
This new effort announced by President Trump and led by Elon Musk intends to “dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal agencies. ”
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While it is unclear how quickly this initiative will act or what impact it will have on healthcare, it is possible that the department will focus on initiatives that reduce federal healthcare regulation, reform the FDA, and re-focus the efforts of the U S Department of Health and Human Services.
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It is still to be seen whether bolder notions like dismantling the Affordable Care Act or reforming tax treatment of employer sponsored healthcare are within scope for DOGE and the Trump Administration.
HEALTHCARE COMPLIANCE
ROLES OF A HEALTH PLAN FIDUCIARY
According to the U.S. Department of Labor:
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Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
FIDUCIARY DUTY LITIGATION
Remember the Lewandowski versus Johnson & Johnson case? While this case which focused on fiduciary responsibilities of healthcare plan sponsors was ultimately thrown out, it signals a new era of litigation risk and new cases challenging plan sponsors and raising awareness of what it means to exercise the duties of a health plan fiduciary.
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The plaintiffs allege that Johnson & Johnson violated its fiduciary “duty of prudence” by partnering with a Pharmacy Benefit Manager offering demonstrably higher prices for medications that can be obtained directly by individual consumers.
Given the rise of disclosure and transparency requirements levied on health plan sponsors over recent years, this may be the first of many cases that continues to drive refinement and increase scrutiny on plan management to ensure that fees are reasonable and plan sponsors are managing plans prudently in sole interest of plan participants according to fiduciary management principles. ▪
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Carrying out their duties prudently.
▪ Following the plan documents (unless inconsistent with ERISA).
▪ Paying only reasonable plan expenses. ▪
Holding plan assets (if the plan has any) in trust.
PREVENTATIVE CARE MANDATE
Braidwood v. Becerra case is likely heading to the Supreme Court in 2025.
A Texas Federal Court determined that a portion of the ACA preventive care mandate is unconstitutional, and this was decision was upheld by the appellate court.
If the Supreme Court grants a review of the case, it is likely that the Secretary of HHS will not defend the suit.
The end result is that the ACA preventive care mandate will continue to exist but all recommendations made by the U.S. Preventive Services Task Force after March 23, 2010, will be considered unconstitutional. Plan sponsors could then choose which preventive care to cover with input from carriers and plan administrators
Healthcare Compliance
MENTAL HEALTH PARTIY & ADDICTION EQUITY ACT (MHPAEA)
Final rules for MHPAEA were issued in 2024 effective at the beginning of 2025 plan years. The rules expand on requirements to prepare comparatives analysis ensuring that mental and behavioral health benefits achieve parity when compared to medical/surgical benefits
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Historically, this involved a quantitative analysis (day/visit treatment limits, financial cost sharing, etc.) but now extends to non-quantitative factors like prior authorization, network adequacy, and clinical coverage to ensure access to these benefits is less restrictive than medical and surgical benefits.
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The new rules not only outline requirements for the new parity tests, but also requires plans to provide “meaningful benefits” (i.e., at least a core treatment) for mental health or substance use disorder in each classification of benefits that medical or surgical benefits is offered.
DRUG COUPONS & ACCUMULATOR PROGRAMS
Many plan sponsors have implemented programs that limit participant out-of-pocket accumulator credits to the actual amount spent instead of the full value applied by the drug coupon.
PRE-DEDUCTIBLE TELEHEALTH COVERAGE
Safe harbor created by the CARES Act and extended by the CAA of 2023 expired at the end of 2024.
Bipartisan support remains to make a telehealth safe harbor, permanent in 2025.
Potential legislation may backdate a safe harbor but for now HSA qualified health plans need to ensure copays apply before the minimum HSA deductible is met to avoid disqualifying members from contributing to their HSA accounts.
SOURCE: https://benefitslink com/articles/gallagher-year-ahead-01022025 pdf
