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As we approach the 2025 Open Enrollment Period, small businesses in Colorado face a significant challenge: the continued rise in healthcare costs. This upward trend is impacting employers nationwide, but what does it mean for you here in the Centennial State?
With health insurance being the top benefit employees look for when making employment decisions, how can small businesses balance the rise in costs with the need to attract and retain top-tier talent? This post examines market dynamics and workforce trends affecting rising healthcare costs and provides key insights for Colorado small business employers.
Although consumer inflation in metro Denver dropped below 2% in July 2024, entering the Federal Reserve’s comfort zone for the first time since March 2021, the impact of sky-high inflation rates we experienced in 2022 and 2023 is still felt today. According to a report by The Common Sense Institute, Colorado consumers have seen prices rise 20% since 2020, resulting in the typical household spending $34,194 more cumulatively since 2020.
Although general economic inflation has begun to cool more recently, medical inflation is still on the rise. Since the impact of inflation on healthcare spending lags by approximately two years, increases in general inflation experienced in 2021-2023 are impacting healthcare spending and, thus, healthcare cost growth target programs for the years 2023-2025.
What’s causing prices to shoot up? Here are the three big things responsible for the rise in medical costs in 2025.
Healthcare providers – think hospitals and all – are feeling the pinch when it comes to providing patient care. The costs are shooting through the roof, and part of the reason is increased labor costs. The surge in labor costs, combined with the shortage of healthcare workers, is one of the main reasons. A recent PwC report says that U.S. hospitals’ labor expenses spiked by about 16%. They had to shell out bigger bucks to hold on to overworked employees and use temporary staff through “traveler agencies.” Colorado has been impacted as well. A recent report done by Mercer predicted that Colorado will be short 54,000 healthcare workers by 2026.
The financial burden extends beyond labor costs as hospital systems embark on real estate ventures and expansive construction undertakings, compounding the financial load for providers. For example, in Colorado, UCHealth launched a $119 million expansion initiative in Highlands Ranch in 2023, slated for completion in late 2025. The expansion will create 14 new beds in the emergency department, including one dedicated to caring for victims of assault or domestic violence. There will also be an expanded outpatient lab, a new electrophysiology lab, expanded oncology and stroke programs, and a new spine program. Similarly, UCHealth University of Colorado Hospital on the Anschutz Medical Campus recently celebrated the opening of the hospital’s new tower, Anschutz Inpatient Pavilion 3. The 11-story tower adds much-needed patient beds and services for metro Denver, including a new inpatient behavioral health unit. These expansions signify healthcare providers’ commitment to enhancing their capabilities and addressing the state’s healthcare needs. However, this commitment also contributes to escalating underlying costs, a pivotal actor in the saga of medical inflation.
Pro-tip for Employers: Looking ahead to 2025 and beyond, health insurance companies will need to factor in the inflationary impacts on healthcare providers as they respond to pressures to increase reimbursements for the growing costs of medical services. Keep in mind that it’s not a quick fix. Insurance companies must renegotiate contracts to match the actual expenses and then have them reviewed by insurance carriers. Folding these cost hikes into employers’ premium rates also takes additional time. Be prepared that although the cost growth has already started, it will likely last for years. The smart move is to get ahead of the curve and add some padding to your healthcare budget for years to come. Read more about How to Prepare for Open Enrollment: Control Costs and Reduce Stress.
Rising drug expenses are a significant player in the 2025 medical inflation game. Prescription drug spending was expected to increase by 10–12% in 2024, the highest rate of all health benefit cost trend estimates. 3
Just last January, drugmakers hiked the prices of more than 700 drugs, including popular weight loss drugs Ozempic and Mounjaro.
In Colorado, we’re also grappling with a dose of reality. Almost half of all Coloradans take at least one prescription medicine. According to the Center For Improving Value In Health Care (CIVHC), specialty drugs represent only 1-2% of drug claims volume in our state but account for 37-49% of total drug spending.
The pandemic’s impact on healthcare utilization and patient behavior has been substantial. Throughout this period, individuals often postponed or canceled their healthcare appointments and treatments, leading to a backlog in care. This, in turn, has resulted in more prolonged hospital stays and a higher severity of conditions upon diagnosis.
This is true in Colorado, too. The Denver Gazette recently ran a story interviewing a half-dozen local providers. They expressed that the ramifications of that delayed care will burden the healthcare system for years, and hospitals are already feeling it: Patients are coming in higher numbers, far sicker than what could’ve been expected based on pre-COVID years.
The heightened acuity of patients, as highlighted by the American Hospital Association, has driven up costs across various fronts, including hospital labor, medications, and supplies. Unsurprisingly, this has posed significant financial challenges for healthcare providers.
A comprehensive survey of large employers further affirms this trend. Around 43% of employers have observed a surge in medical services due to the delays caused by the pandemic. Additionally, 21% have noted an uptick in disability claims related to long COVID. These insights underline the far-reaching effects of the pandemic on healthcare services and financial considerations, reinforcing the need for strategic responses and future planning.
Aging Population
Like other states, Colorado is experiencing the effects of an aging population striving for enhanced medical care and extended lifespans. The Baby Boomer generation, born in the 1940s to 1960s, currently falls within the 60-80 age bracket, leading to an amplified need for medical services and healthcare resources. As people age, their medical requirements become more frequent, resulting in heightened healthcare utilization. This, in turn, contributes to increased small business health insurance costs for employers furnishing healthcare benefits to their workforce. It is worth noting that Colorado holds the #6 spot of having the highest life expectancy for individuals over 65 in the United States.
Rise in Chronic Health Conditions
In Colorado chronic diseases like heart disease and cancer are the leading causes of death in the state. Continuously managing these conditions frequently leads to increased usage of healthcare services and expenses for all parties, including employers. A survey among employers unveiled that 34% of them encounter a surge in healthcare costs attributed to the growing prevalence of chronic diseases.
Escalating Mental Health Crisis
Finally, the pandemic has sparked a notable upswing in mental health challenges, encompassing depression, anxiety, and substance use disorders. The social isolation, uncertainty, and fear stemming from the pandemic have cast enduring shadows on the mental well-being of employees. While the pandemic witnessed a substantial surge in the utilization of mental health services, a PwC report underscores that its cost remains comparatively lower than other medical services. Nonetheless, employers are undoubtedly feeling the impact. An Aflac survey conducted in 2023 sheds light on this, revealing that 42% of employers observed escalated benefit costs in the preceding year due to heightened incidents of mental health concerns.
The surge in healthcare costs for Colorado employers in 2025 stems from a blend of factors, with medical inflation as a key driver. Escalating patient care expenses, driven by rising provider costs and soaring drug prices, puts substantial financial stress on healthcare systems and insurers. Additionally, the pandemic’s aftermath has brought about delayed care, extended hospital stays, and a surge in mental health issues, further contributing to the uphill trajectory of healthcare expenditures.
Amidst these challenges, two core truths become evident: firstly, patient care costs are climbing, and secondly, people are living longer lives without necessarily experiencing better health. As we approach 2025 and beyond, it’s vital for Colorado employers to recognize these realities and prepare for the impact of medical inflation on healthcare costs over the coming months and years.
Proactively addressing these challenges involves allocating larger budgets for healthcare expenses and considering the implementation of preventive wellness programs. Prioritizing employee well-being and fostering healthier lifestyles, particularly in areas like mental health, can improve overall health outcomes for the workforce and may help mitigate the long-term financial effects on employers.
Aligning with a PEO in your state presents an opportunity for businesses to optimize their expenditure on healthcare benefits. There are two primary advantages when teaming up with a PEO to manage your health insurance requirements.
When every dollar counts, partnering with Obsidian HR allows you access to lower premiums, more consistent rates, and substantial long-term savings in employer healthcare.
We guarantee lower annual renewal rates compared to market offerings, ensuring that our client companies consistently have access to highly competitive healthcare options.
Ready to start saving? Schedule a consultation with an HR Consultant today to discover how partnering with a local Colorado PEO can enhance the prosperity of your business.
Download this guide to learn about how you can provide better benefits for your employees while managing costs.
