Key Drivers of Rising Health Care Costs and Overtime Rule Updates for 2025

Key Drivers of 2025 Health Care Cost Increases 

Health care costs in the United States are projected to rise by 7%-8% in 2025, continuing a trend of compounding increases. Employers should be aware of the primary factors driving these escalating costs: 

• GLP-1 Drugs: Initially developed for Type 2 diabetes treatment, GLP-1 drugs have gained widespread popularity for weight loss when combined with diet and exercise. These medications, which cost approximately $1,000 per month, are intended for ongoing use, leading to long-term expenses for individuals and insurers alike. With demand for these drugs expected to grow, their impact on health care costs will likely be significant. 

• Cell and Gene Therapies (CGT): CGT represents groundbreaking medical advancements for conditions like cancer, sickle cell anemia, and spinal muscular atrophy. However, these therapies are highly expensive. By 2025, nearly 100,000 patients in the U.S. could be eligible for CGT treatments, with associated costs potentially reaching $25 billion. 

• Chronic Health Conditions: Approximately 90% of U.S. health care spending is directed toward individuals with chronic and mental health conditions, including heart disease, diabetes, cancer, and obesity. The prevalence of chronic illnesses is expected to continue rising, further driving health care expenses. 

• Aging Populations: With life expectancy increasing and birth rates declining, the percentage of Americans aged 65 and older is steadily growing. Health care spending for this demographic is roughly five times higher than for children and 2.5 times higher than for working-age adults, placing additional pressure on the system. 

Although these cost increases may be unavoidable, informed employers can take proactive steps to manage their health plan expenses effectively. 

Federal Court Vacates DOL’s Final Overtime Rule Nationwide 

In late 2024, a U.S. District Court ruling overturned key provisions of the Department of Labor’s (DOL) final rule regarding overtime exemptions under the Fair Labor Standards Act (FLSA). This decision has significant implications for employers nationwide. 

Background 

The FLSA white-collar exemptions apply to employees in executive, administrative, and professional (EAP) roles, as well as certain outside sales and computer-related positions. Highly compensated employees (HCEs) may also qualify for these exemptions based on specific salary thresholds. 

2024 Final Rule Changes 

In April 2024, the DOL announced a rule raising the salary thresholds for EAPs and HCEs. Effective July 1, 2024, the standard salary level increased from $684 to $844 per week ($35,568 to $43,888 annually) for EAPs, and from $107,432 to $132,964 annually for HCEs. Additional increases were planned for January 2025, with automatic adjustments set to occur every three years starting in 2027. 

Court Ruling 

The U.S. District Court for the Eastern District of Texas vacated these salary increases and the automatic adjustment provisions, ruling that the DOL exceeded its statutory authority. As a result: 

• The standard salary levels for EAPs and HCEs have reverted to $35,568 and $107,432, respectively. 

• Employees who lost their exempt classification due to the July 2024 increases may now qualify for exemption once again. 

The DOL may appeal the court’s decision, but for now, employers must revert to the pre-July 2024 thresholds. 

The Bottom Line 

Rising health care costs and regulatory changes present unique challenges for employers in 2025. Staying informed about these trends and their implications is essential for maintaining compliance and managing costs effectively.