Health Insurance Premiums Rising Faster Than Wages
According to a recent study from experts at Rice University, health insurance premiums have surged at a rate three times that of wages over the last 25 years. They discovered that employer-covered health insurance premiums rose by 342% from 1999 to 2024, while wages only increased by 119%. Overall inflation during this period was 64%.
“This increase is absolutely astonishing,” noted Vivian Ho, a health economist at Rice University and co-author of the report published this week in JAMA Network Open. She emphasized that many American workers might not realize how significantly these rising premiums are affecting their take-home pay.
“Because you only buy health insurance once a year, your employer deducts from your paycheck, and you kind of forget about it,” Ho explained. This means that while people feel the crunch when paying for groceries or monthly bills, the cost of insurance is less tangible.
For the 160 million Americans with employer-sponsored insurance, the high costs can seem distant and unnoticeable.
Ho pointed out that people often lay blame on insurance companies for the increase in medical costs. “Sure, some companies are making huge profits, but that’s not the full picture,” she added. “The reality is that hospital prices are a major driver behind the rising premiums.”
She and her co-author, Sarpy Kanimian, argued that hospital CEOs are incentivized to raise prices aggressively. In an accompanying study, they revealed that between 2012 and 2019, nonprofit hospital CEOs, who oversaw the largest profit growth, also received the highest pay increases, even as the link between quality care and financial rewards became less clear.
While hospitals attribute their price hikes to increased costs for nurses, medical supplies, and medications, Ho contended, “That’s partially true, but they’re consolidating, and the prices are much higher than the costs. That’s where the concern lies. The public needs to ask tough questions.”
Both for-profit and nonprofit hospitals, she asserted, are contributing to escalating medical costs. Interestingly, most of the largest medical systems in the U.S. are nonprofits. “If they acted like true nonprofits and reduced prices, then for-profit entities would have to lower theirs just to attract patients,” Ho remarked.
She pointed out that integration in the healthcare system has grown over recent decades, enabling large organizations to hike prices due to diminished competition.
However, what’s troubling is that these price increases haven’t resulted in better quality care. “When we analyze the data, we find no correlation between price and quality,” Ho stated.
In their report, Ho and Kanimian also mentioned the Affordable Care Act (Obamacare) subsidies, which, if expired, could lead to significant increases in insurance premiums for many Americans or risk losing coverage entirely.
So, if Obamacare prices spike, what does that mean for employer-provided health insurance costs? “That’s a critical question, and honestly, health economists don’t have a consensus answer,” Ho replied, noting that impacts could vary. Some individuals losing Obamacare coverage may be healthy and not burden the system, while others in poor health may significantly increase demand on hospitals.
Americans purchasing health insurance through work often have limited options for reducing expenses. Ho suggested that nonprofit health systems should be required to disclose how executive compensation is decided, advocating for transparency regarding CEO pay structures.
“I hope, perhaps too idealistically, that boards understand the essence of serving a nonprofit and care for the well-being of everyday citizens in their communities,” she added. Ho and Kanimian proposed that employers could manage costs by modifying benefit designs, like implementing tiered or varying copayments, which may help achieve savings.
