Health Insurance Rates Soar, Expected to Rise Again in 2025

(From left) Greg Hatcher, owner of The Hatcher Agency, and John Starling, owner and president of JTS.

The cost of private health insurance plans rose 7% over the last year in the U.S., and it is expected to rise again in 2025.

“This is the worst renewal year I think I’ve had in 34 years,” said Greg Hatcher, president and CEO of the Hatcher Agency, an insurance firm based in Little Rock.

Family premiums for employer-sponsored health coverage climbed 7% in 2024 to an average of $25,572 a year, according to KFF, a nonprofit health policy research, polling and news organization.

On average, workers contribute $6,296 a year to the cost of family coverage, KFF said in an October news release.   

The increase marks the second year in a row that premiums are up 7%, it said.

The increased price has employers scrambling to find ways to curb costs, including choosing plans with higher deductibles or turning to self-insurance.

Those in the health insurance industry blame the soaring rates on higher health care labor costs, inflation, the federal transparency rule and the rise of prescription drug prices.

“The cost of medicine keeps on going up, because the cost of labor and everything else goes up,” said John Starling, owner and president of JTS, a full-service employee benefits and insurance consulting firm in Little Rock. “But the biggest thing is just the pharmacy side of it where we’ve seen exorbitant increases every year.”

The large claims these days aren’t linked to heart attacks, cancers or strokes, but to prescription medications, he said.

John Denery, executive vice president of Stephens Insurance LLC of Little Rock, told Arkansas Business last week that private health insurance plan rates in Arkansas might climb by about 10% in 2025.

As a result of the high prices, companies are looking at every possible way to fund health care costs “because it’s just an unsustainable number every year and it continues to increase,” Denery said. “That’s why we’ve seen deductibles go up. We’ve seen out-of-pocket maximums go up. And it’s just the employer trying to figure out … how do we keep pace?”

Starling said some companies for the first time are considering shifting to self-funded plans to control costs. “Self-funding allows you to have more control over your plan,” he said. “You get to keep any profits in good years, and you have better control over your drug coverage.”

Being self-funded could be a good option for an employer, but not always, said Walker Bowden, vice president at Stephens Insurance and director of self-funded marketing.

“That has to be thoroughly vetted, and they need to understand the risk associated with that,” Bowden said. “It’s all about timing, when it comes to self-funding.”

Self-funding could save an employer money if the employer has “a good risk population, but it can also go the other way for a population that does not have a good risk,” he said.

In a national survey, about half the employers polled said they would use cost-cutting measures, such as raising deductibles, to lower the cost of their health plans in 2025. The Mercer division of insurance brokerage firm Marsh McLennan of New York reported those numbers in a November news release.

Mercer’s survey of employers found that the average per-employee cost of employer-sponsored health insurance reached $16,501 in 2024, an increase of about 5% from 2023. Employers are expecting an increase of about 6% in 2025, according to Mercer’s National Survey of Employer-Sponsored Health Plans, which included 2,194 employers in 2024.

Starling said when he started in the insurance business in 1998, the cost to insure an employee was about $200 a month. Now it’s between $550 and $600 a month and in some cases, $700 or more.

He said one solutions would be having price transparency for drug costs. “Why can another country outside of the United States get a drug at a fraction of the price of what it costs in America?” Starling said. “It doesn’t make sense.”

Rising Drug Costs

Mercer said the fastest-growing piece of health benefit costs is prescription drugs.  Pharmacy benefit costs rose 7.7% in 2024, after an increase of 8.4% in 2023.

Fueling the increase is the expanding use of GLP-1 drugs for diabetes and weight loss. On average, the GLP-1s cost about $1,000 a month.

While nearly all health plans cover GLP-1 drugs for diabetes, that is not the case for obesity treatment, Mercer said. In 2024, coverage for obesity drugs rose to 44% of all large employers with more than 500 employees, up from 41% in 2023. Of the largest employers, those with 20,000 or more employees, 64% now offer coverage, up from 56% last year, Mercer said.

“But then the next biggest problem is getting them off of the drug,” said JTS’s Starling. “And then maintaining that in perpetuity at $1,000 a month is not sustainable for any employer, either.”

Stephens Insurance’s Denery said that the number of patients diagnosed with cancer has also risen, which increases health care costs. The costs associated with cancer, including the infusions, are “significant,” he said.

Hatcher said that new medications are being released all the time, and those come with a large price tag. “There were five new medications that came out last year that cost over a million dollars a year,” he said. 

Prescription drugs used to cost 5% of the overall health care spend, he said. Now that percentage is between 25% and 30%, he said.

“Sometimes our biggest claims in a group are prescription drugs,” Hatcher said. “And the people using them have no idea what they cost. They just know what it costs them.”

Transparency Rule Cited

Health insurance experts also link rising premium costs to the federal Hospital Price Transparency Rule, which requires hospitals to post their prices for services and items online. The rule took effect Jan. 1, 2021.

Hatcher said that the rule “lets every hospital and doctor in the country see what everybody else is getting paid. And now, if your doctor or hospital is not getting paid as much as the next guy, they want more money. … So that raises the floor on health care pricing.”

In Arkansas, a number of hospital administrators also have used the price transparency information to negotiate high reimbursement rates with insurance providers, said Stephens Insurance’s Bowden.

Earlier this year, Baptist Health of Little Rock, the largest health care provider in Arkansas, was out of UnitedHealthcare’s insurance network for six weeks after both sides failed to reach an agreement over reimbursement rates.

Bowden said contract negotiations between providers and insurance companies will continue. “If anything, you’re going to start seeing that rise with all of the facilities in the state of Arkansas and all the carriers,” he said. “So I think you’re going to start seeing rates affected by that.”

Hatcher also said another contributor to rising costs is health care reform.

When the Affordable Care Act of 2010 went into effect, insurance companies couldn’t deny coverage for pre-existing conditions.

In addition, insurance companies were required to cover other services, such as inpatient and outpatient hospital care and mental health services.

“All of these things I think are good. It provides more health care for us, but it’s the equivalent of you going and buying a basic Camry versus a Camry with leather seats, blacked-out rims, spoiler, moonroof and cool striping,” Hatcher said. “We all know that the cost is not the same.”

Labor costs have also increased for providers since the pandemic. And they aren’t expected to drop anytime soon.

By 2028, there’s expected to be a shortage of 100,000 health care workers, according to a report by Mercer.

“To attract and retain talent, health care systems may need to offer higher wages and better benefits to compete with other industries, which may trickle down to consumers as higher insurance premiums,” Dan Lezotte, Mercer’s partner in the U.S. Workforce Strategy & Analytics Practice, said in an email to Arkansas Business.

“Additionally, the inability to provide adequate primary care due to workforce shortages may lead to poorer health outcomes, greater reliance on emergency services, and more expensive care options, further driving up costs.”

Still, even with the rising insurance rates, Hatcher said employers will continue to provide health insurance to their employees. “But the reason we provide health care to our employees is because we care about them and we can’t hire them without it,” Hatcher said. “The pain may be there, but they’ll make those adjustments when they have to.”