Healthcare
Risk management will be the right prescription as current threats worsen and new ones emerge.
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What to Expect in 2025
Ongoing pressure on reimbursements, massive labor shortages and nuclear verdicts will continue to pressure economic viability, while climate change, an uncertain political environment and cybercrime add additional difficulties in maintaining resiliency. Providers that have a rigorous focus on enterprise risk management and insurance coverage design can improve their health in 2025.
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1
Economic viability
The payment-cost gap will keep squeezing margins, but there may be relief.
2
Vitality
Employee shortages will continue. Can providers find a cure?
3
Resiliency
In an environment rife with risk, sophisticated risk management will drive resiliency.
4
Cybersecurity
Better safeguards against cyber breaches will take on new urgency.
The payment-cost gap will keep squeezing margins, but there may be relief.
1 | Economic viability
$522 billion
Cumulative Medicare and Medicaid underpayments to providers from 2018 to 2022.1
Employee shortages will continue. Can providers find a cure?
2 | Vitality
In an environment rife with risk, sophisticated risk management will drive resiliency.
3 | Resiliency
In 2025, high medical cost growth and lagging reimbursements will create fiscal difficulties for providers, particularly hospitals. In fact, hospital operating margins of 1% to 2% could be a “new normal,” as opposed to the pre-pandemic standard of 3%.2
Medicare and Medicaid reimbursements to hospitals amounted to 82 cents for every dollar of patient care, resulting in a gap of $100 billion.3 Meanwhile, skyrocketing drug prices (with an average annual increase of 15.2% since 20174) — with many drugs in short supply — have also put the squeeze on margins.
Healthcare executives are fully aware of the fiscal challenges facing them. According to the HUB International’s 2025 Outlook Executive Survey,5 53% of healthcare executives identified rising costs as a major threat to their economic viability, more than any other challenge.
Rural hospitals remain in their own category of distress as 50% of them now operate in the red and 418 — or about 20% — of all rural hospitals are at risk of closing.6 Federal policymakers are
starting to pay attention, proposing critical access reclassification that would relieve rural hospitals of some financial burdens.7
Credit ratings of several hospital and health systems have fallen,8 although healthcare organization bankruptcies were expected to decline 27% in 2024.9 Senior care, clinics and physician practices have felt similar pressures.
Healthcare organizations can look at mining potential new revenue streams. For instance, there are emerging opportunities to provide support services to the life sciences and clinical research sectors as these partnerships can be extremely lucrative and provide a lifeline for institutions.
But with the rewards come risks: A third-party financial loss tied to a mismanaged drug trial protocol, for example, is typically excluded from healthcare policies. Such opportunities can quickly become headaches without counsel from an experienced broker with knowledge in the healthcare and biopharma industries.
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The long-term labor shortage will continue to affect healthcare organizations’ services, finances and their overall work environment.
In 2023, labor costs at hospitals reached $839 billion, accounting for 60% of an average institution’s expenses; they also spent more than $50 billion on expensive contracted labor10 necessary to remain fully staffed.
Even with the amount of spending on salaries, the supply of medical professionals is falling short. The shortage of full-time registered nurses alone is expected to exceed 350,000 by 2026, leaving 10% of open positions unfilled.11 Meanwhile, the direct care workforce, critical for today’s aging population, needs to add 4 million workers to its current force of 5 million to meet projected job openings through 2031.12
High salaries can’t address worker burnout, an issue with 50% of physicians alone.13 And the growing severity and frequency of violence against healthcare workers drain their emotional health and industry resources.
For all their promise, artificial intelligence and technology can’t supplant absent workers. A cure will require public efforts to address educational shortfalls and private efforts to improve working conditions, including a benefits strategy that creates an optimal employee experience through personalized benefits.
Especially important to healthcare employees are improved mental health services, increased safety and improved working conditions. These benefits can help prevent burnout, increase a sense of being valued and improve work-life balance — which are some of the most common reasons healthcare workers leave the profession.14
Healthcare organizations need to explore other long-term strategies to address staffing concerns. For instance, health systems can partner with nursing schools to design programs that offer the opportunity for employment upon graduation.15 And while telehealth volume has diminished significantly since its peak during the COVID-19 pandemic,16 it represents an opportunity to lessen work pressure on physicians.
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If revenue shortfalls and the labor shortage weren’t enough, climate change and an unsettled regulatory environment will test healthcare organizations’ resiliency in 2025.
Climate change, for one, has sparked heat waves, wildfires, convective storms and other issues that disrupt operations and put people at risk. Globally, the healthcare system faces total climate change-related costs of $1.1 trillion by 2050.17
That’s played out in insurance rates. Following years of double-digit rate increases for property-casualty, liability and catastrophe coverage, the market has settled somewhat, with reductions in some geographies.
As a whole, medical professional liability (MPL) insurance carriers were unprofitable in 2023,18 and those pressures appear to be continuing in 2024, which could lead to rates rising 15% or more in 2025. The number of nuclear verdicts, jury awards of $10 million or more, is rising across all aspects of American life. Driven by social inflation, the amounts awarded in nuclear verdicts are also increasing, making underwriters hesitant to fully cover liability for a single client.
Institutions are advised to employ hazard vulnerability analyses to inform long-term infrastructure planning and ensure their structures can handle extreme weather events that will affect roads, flooding and roof integrity. In addition, healthcare organizations may need to retrofit facilities to ensure catastrophes do not impede care.
Then there’s compliance risk, which already requires a disciplined and rigorous approach to abide by federal, state and local regulations. The confusing welter of state-level abortion restrictions has been topped with mixed signals on the future of fertility treatments like in-vitro fertilization (IVF). And healthcare organizations seeking revenue boosts through partnerships with life science companies must ensure they are compliant with all regulations — lest they risk sanctions, fines and the prospect of becoming uninsurable.
To stay resilient over the long haul, enterprise risk management (ERM) has become essential for the healthcare industry. Reviewing the fundamentals of what’s insurable, what can be retained or transferred is only part of it. Assessing and managing the scope of potential risks makes organizations more resilient and gives underwriters more reasons to look favorably on insureds.
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Cybercrime costs healthcare more than any other industry — and it’s not even close.
The average data breach for a healthcare organization between March 2023 and February 2024 cost $9.8 million, compared to $5.9 million for financial institutions and $4.7 million in the industrial sector. The amount of a healthcare breach is down from the same period a year earlier, when it was $10.9 million, but the sector remains the biggest target for cybercrooks.19
Because digital technology drives medical efficiency and effectiveness, it has become ubiquitous in healthcare settings worldwide. That massive footprint has made healthcare an attractive target for cybercriminals.
But the impact of cyberattacks on healthcare can cut far deeper than money. The Ascension ransomware attack in May 2024 was devastating: Entire processes and systems within hospitals were shut down, leading to patients being diverted to other hospitals. Lab tests were delayed or lost, and the breach raised the possibility of medical and prescription errors, as clinicians had to revert to paper recordkeeping.20
That kind of cyberattack puts patient care at risk, potentially leading to claims for medical professional errors, enterprise failures and management malpractice, affecting directors and officers.
Just as concerning are attacks on vendors: In February 2024, the most consequential cyberattack ever against the U.S. health system virtually shut down Change Healthcare, which provides billing and payment distribution technology, costing the healthcare system more than $1 billion.21
In the face of such threats, how can healthcare organizations minimize the risk? There are three essential elements to staying resilient against cyberthreats: thorough contingency plans; improved cybersecurity for new tools and software and vetting cybersecurity controls of third-party vendors; and staff training to help keep bad actors out of the system.
Insurance underwriters are examining the above steps before issuing coverage, as well as mandating two-factor authentication and stringent internal policies governing email and social media.
It’s essential to have an insurance broker who understands the scope of risks to healthcare organizations in this environment. But the right coverage for cybercrime is only one piece of the puzzle. Risk management that accounts for threats from within, as well as from vendors and bad actors, can ensure resiliency against cyberattacks that could potentially derail an organization.
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Better safeguards against cyber breaches will take on new urgency.
4 | Cybersecurity
Navigating Your Next Steps
HUB healthcare insurance specialists will work with you to develop a tailored strategy for 2025.
1
Thoughtfully lean into risk.
As risks in healthcare have increased, so have premiums. A higher deductible can reduce premiums and improve experience rating, while an alternative risk transfer vehicle can help lower costs. Ask your broker what kind of insurance options meet your needs, whether that’s professional medical liability, property or catastrophe coverage.
Increase engagement through benefits.
2
Employees — especially healthcare workers — expect you to support their health, safety and wellbeing. A personalized benefits strategy based on fostering quality employee experiences (QEX) will boost engagement, recruiting and retention and lower risk.
Climate change, the need to protect workers against violence and increasing cybercrime mean that healthcare organizations need to ensure they have proper protections against disasters and contingency plans if disasters occur. Collaborating with your broker to develop a comprehensive enterprise risk management strategy is a first step in ensuring resilience.
Prepare for the unexpected.
3
Understand the root cause of your large losses and explain to carriers what you’re doing to prevent future losses. Develop a strategy with your insurance broker to determine the best time and frequency to review alternative markets.
Understand your loss trends.
4
Be Prepared
Download our 2025 Healthcare Outlook and Insurance Market Rate Report to see what to expect in the coming year.
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Practice Leader, North America
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Ray Nolen
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Gigi Acevedo-Parker
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Jim Burke
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When you partner with us, you’re at the center of a vast network of experts who will help you reach your goals. For more information on how to manage your insurance costs, reduce your risk and take care of your employees, talk to a HUB healthcare insurance specialist.
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$1.1 trillion
Global costs of climate change on healthcare by 2050.
$839 billion
The amount of hospital labor costs in 2023.
The average cost of a cyberbreach in healthcare, more than any other industry.
$9.8 million
3. American Hospital Association, “America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities,” May 2024.
4. Office of the Assistant Secretary for Planning and Evaluation, “Changes in the List Prices of Prescription Drugs, 2017-2023,” October 6, 2023.
1. American Hospital Association, “America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities,” May 2024.
2. Becker’s Healthcare, “Hospital margins’ ‘new normal’,” August 12, 2024.
5. HUB’s Outlook Executive Survey polled 900 C-Suite and VP-level executives on the issues facing them on profitability, employee vitality and organizational resilience.
6. Chartis, Unrelenting Pressure Pushes Rural Safety Net Crisis into Uncharted Territory, accessed September 16, 2024.
7. U.S. Sen. Dick Durbin, “Durbin, Lankford Introduce Bipartisan Bill to Support Rural Hospitals,” May 5, 2023.
8. Becker’s Healthcare, “15 health system rating downgrades,” August 16, 2024.
9. Fierce Healthcare, “Healthcare bankruptcy filings slow in 2024, largely driven by middle market companies, analysis finds,“ August 16, 2024.
10. American Hospital Association, “America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities,” May 2024.
11. HRSA, “Nurse Workforce Projections, 2021-2036,” March 2024.
12. SHRM, “Critical Shortage: Direct Care Workforce Crisis Looms,” May 20, 2024.
13. Medscape, “Physician Burnout & Depression Report,” January 26, 2024.
14. Penn LDI, “Top 5 Reasons Why U.S. Nurses Are Leaving Their Jobs,” May 23, 2024.
15. University of Miami, “University of Miami and Steward Health Care Launch Clinical Education Partnership,” August 2022.
16. Trilliant Health, “Telehealth Demand: An Update Four Years After the Onset of the COVID-19 Pandemic,” June 9, 2024.
17. World Economic Forum, “On Earth Day we consider the impact of climate change on human health,” April 22, 2024.
18. Fitch Ratings, “US Medical Professional Liability Insurance Underwriting Loss Widens,” June 10, 2024.
19. IBM, Cost of a Data Breach Report 2024, July 2024.
20. NPR, “Cyberattack led to harrowing lapses at Ascension hospitals, clinicians say,” June 19, 2024.
21. Security Intelligence, “Change Healthcare attack expected to exceed $1 billion in costs,” May 8, 2024.
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