Healthcare Costs Exceed Expectations, Pushing Employers Toward New Strategies

Healthcare costs in 2024 ran hotter than expected, according to a new WTW survey. More than a quarter (26%) of employers blew past their budgets by at least 3%, while another quarter went over by 1–3%.

Why it matters: Traditional tactics like shifting premiums and out-of-pocket costs to employees have reached their limit as employers are increasingly cautious about affordability and eroding plan value. With costs expected to keep climbing, rewards leaders face mounting urgency to rethink how they design and manage health plans.

What’s Driving Costs? Specialty pharmaceuticals (especially GLP-1), high-cost claimants and chronic conditions and cancer treatments.

Data the heart of the matter. Employers are no longer relying on standard vendor reports, but only 40% have a clear strategy for measuring effectiveness and just 29% are performing deep-dive analytics. WTW recommends the following cost management strategy:

1. Vendor Optimization & Operational Efficiencies. 60% of employers plan to take their medical or pharmacy plans to bid within the next three years.

• Fraud, waste, and abuse - only 10% are actively tackling this today, but 32% plan to do so by 2027.
  
  
• Plan audits rising - one-third of companies already act and another 44% planning enhancements like more robust auditing and deeper data analytics.

2. Examining Subsidies & Plan Design. Employers are tiering premiums for lower-waged workers.

• 41% use alternative plan designs (efficient provider incentives and decision-support tools) and that number is projected to reach 87%.
  
  
• 10% offer flexible choice models that let employees direct employer contributions to priorities like HSAs, student loan repayment, or retirement savings - and 17% are considering it.
  
  
• A bold group (8%) are exploring defined contribution healthcare models using a reimbursement arrangement.

3. Behavioral Requirements. About a quarter of firms are adding access rules, tighter networks or enhanced prior authorizations.

• GLP-1s: 48% cover and plan to continue, while 9% are considering removing their coverage.  
  
  
• Others are adding lifestyle modification requirements, step therapy or higher cost sharing.

Financial incentives waning? Interestingly, only 23% of employers view financial wellbeing incentives as effective at reducing costs, and 30% plan to decrease or eliminate them to redirect funds elsewhere.

The Takeaway: Healthcare inflation is outpacing budgets again. Employers are shifting from traditional cost-sharing to structural, data-driven strategies aiming to balance affordability, competitiveness, and long-term sustainability.