Healthcare costs are projected to rise by around 8% in 2025, further exacerbating a similar increase over the past two years1. These rising costs are becoming a critical challenge for businesses in the hospitality and foodservice industry, where margins can already be tight. From quick service restaurants to large hotel chains, many employers feel pressure to escalate their health insurance premiums and are looking for ways to manage these increasing costs.
What costs difficult climbs?
Healthcare costs continue to rise for a variety of reasons, and companies in the hospitality and foodservice industry are not immune.
Healthcare and general inflation are increasing faster than in the non-health industry, and healthcare is becoming more expensive overall. A high proportion of chronic diseases, such as obesity and diabetes, common in both employees and guests, is increasing costs. Clinical staffing shortages have led to increased labor costs available to treat the disease and a decrease in medical professionals, increasing the need for more expensive treatments.
However, the biggest driving force behind rising healthcare costs is the price of new technologies and drug costs, including special drugs such as GLP-1 drugs such as Ozempic and Wegovy. In the hospitality industry, where many employees rely on health insurance benefits, rising prescription drug prices and specialized treatment put an additional burden on health care plans.
Health Plan sponsors and employees feel in trouble
In recent years, the cost of providing health insurance to employees has increased significantly. Between 2014 and 2024, family coverage health premiums increased by 52%, up from an average of $16,834 to $25,572. Employers in the hospitality and foodservice sector pay an average of $19,276 for this cost, or 75% of the total premium, as many of them are small and medium-sized businesses.
As healthcare costs continue to rise, many businesses face difficult decisions. To manage these upward costs, some organizations may either reduce benefits or move to a high health plan where employees take on a larger share of premiums. This can undermine recruitment and retention efforts, as in an industry known for its high sales, workers may seek employers who provide more competitive benefits.
To stay ahead of rising healthcare costs, hospitality and foodservice businesses can adopt several strategies. Below are some tools and approaches to consider:
Using Data Analytics: Once the tools were available primarily to large companies, health claims data is now accessible to businesses of all sizes. Hospitality and foodservice companies partner with experienced health insurance advisors to leverage data that helps identify employee health claim trends and enable a more tailored approach to reduce costs. Take advantage of the power of clinical information: Data analysis shows where healthcare costs are rising, but clinical informatics helps companies understand why costs are rising and what can be done to alleviate them. Leverage contract compliance: Ensuring that your contracts with your healthcare provider and pharmacy benefits manager (PBM) are properly structured can result in significant savings. In particular, a thorough review of contracts on pharmacy benefits can reveal inconsistencies and lead to renegotiation of better terms. Find alternative insurance vehicles: Exploring alternative insurance plans, such as self-funded health plans and group prisoners of war, can help food service and hospitality companies improve employee health outcomes while reducing insurance costs. Talk to your insurance broker to find out which options are best for your business or workforce.
Working closely with experienced health insurance advisors, hospitality and foodservice businesses can better navigate rising healthcare costs. Although health costs are unlikely to decline in the short term, aggressive planning and strategic decision-making may help stabilize these costs and create a more sustainable benefit scheme.
For more information, please visit: https://www.hubinternational.com/industries/hospitality-insurance/
1 PWC, healthcare expenditure trends: Behind the numbers accessed on February 13th, 2025.
2 USA Today, “Wegovy costs $1,349 in the US vs. $92 in the UK. Why are weight loss pills so expensive?” November 26, 2024.
3Segal, what is the projected health plan cost for 2025? The survey discovered a double-digit predicted RX trend on September 18, 2024.
4 KFF, Employer Health Benefits, Summary of 2024 Survey Results, October 9, 2024.
5 McKinsey and Co., “The Gathering Storm: Transforming Impact of Inflation on the Healthcare Sector,” September 19, 2022.
