Healthcare costs are projected to rise by about 8% in 2025, compounding similar increases over the past two years1.
For businesses in the hospitality and food service industry, where margins can already be tight, these rising costs are becoming a significant challenge.
From quick-service restaurants to large hotel chains, many employers are feeling the pressure of escalating health insurance premiums and seeking ways to manage these increasing expenses.
What’s Fueling the Uphill Climb in Costs?
Healthcare costs continue to rise for a variety of reasons, and businesses in the hospitality and food service industry are not immune:
- Medical and general inflation are increasing faster than in non-healthcare industries, making healthcare more expensive overall.
- High rates of chronic conditions like obesity and diabetes, which are prevalent among both employees and guests, are driving up costs.
- Clinical personnel shortages are leading to higher labor costs and fewer medical professionals available to treat illnesses, increasing the need for more expensive treatments.
However, the greatest drivers of rising medical costs are the price of new technologies and drug costs, including specialty drugs such as GLP-1 medications like Ozempic and Wegovy, which can exceed $1,000 a month2.
In the hospitality industry, where large numbers of employees rely on health insurance benefits, rising prescription drug prices and specialty treatments are placing additional strain on healthcare plans.
Health Plan Sponsors – and Employees – Feel the Pinch
In recent years, the cost of providing health insurance to employees has risen significantly. Between 2014 and 2024, health insurance premiums for family coverage rose by 52%, from an average of $16,834 to $25,572.
Employers in the hospitality and food service sector—many of which are small- and mid-sized businesses—are paying an average of $19,276 of this cost, or 75% of the total premium.
As healthcare costs continue to rise, many businesses are faced with difficult decisions. To manage these rising expenses, some organizations may reduce benefits or move to high-deductible health plans, where employees shoulder a larger share of the premiums.
In an industry known for high turnover, this can hurt recruiting and retention efforts, as workers may seek employers who offer more competitive benefits.
To stay ahead of rising healthcare costs, hospitality and food service businesses can adopt several strategies. Here are a few tools and approaches to consider:
- Use Data Analytics: Once a tool primarily available to large corporations, health claim data is now accessible to businesses of all sizes. Hospitality and food service companies can partner with experienced health insurance advisors to leverage data that helps identify trends in employee health claims, allowing for a more tailored approach to reducing costs.
- Harness the Power of Clinical Informatics: While data analytics can show where healthcare costs are rising, clinical informatics helps businesses understand why costs are increasing and what can be done to mitigate them.
- Leverage Contract Compliance: Ensuring that contracts with healthcare providers and pharmacy benefit managers (PBMs) are structured properly can yield substantial savings. A thorough review of contracts, especially for pharmacy benefits, can uncover discrepancies and lead to renegotiation for better terms.
- Seek Alternative Insurance Vehicles: Exploring alternative insurance plans like self-funded health plans or group captives can help food service and hospitality companies reduce their insurance expenses while improving employee health outcomes. Consult with your insurance broker to explore which options may be the best fit for your business and workforce.
By working closely with an experienced health insurance advisor, hospitality and food service businesses can better navigate the rising costs of healthcare. While healthcare expenses are unlikely to decrease in the short term, proactive planning and strategic decision-making can help stabilize these costs and create a more sustainable benefits plan.
Learn more at Hub International – Hospitality Insurance.
1 PwC, Medical cost trend: Behind the numbers 2025, accessed February 13, 2025.
2 USA Today, “Wegovy costs $1,349 in the US vs. $92 in the UK. Why are weight loss drugs so pricey?” November 26, 2024.
3 Segal, What Are the Projected Health Plan Costs for 2025? Survey Finds Double-Digit Projected Rx Trends, September 18, 2024.
4 KFF, Employer Health Benefits, 2024 Summary of Findings, October 9, 2024.
5 McKinsey and Co., “The gathering storm: The transformative impact of inflation on the healthcare sector,” September 19, 2022.
