Health insurance premiums in the U.S. have surged three times faster than wages over the past 25 years, according to new research from Rice University.
The study found that employer-sponsored health insurance premiums rose 342% between 1999 and 2024, while wages grew 119% and overall inflation increased 64%.
“The increase is absolutely astonishing,” said Vivian Ho, a health economist at Rice and co-author of the report published this week in JAMA Network Open.
Ho said many American workers underestimate how much health insurance premiums eat into their income. “Because you sign up for health insurance once a year, and your employer deducts it automatically, it doesn’t feel like a direct monthly expense,” she explained. “People notice the cost of groceries or bills, but the impact of premiums is often out of sight.”
The rising premiums affect roughly 160 million Americans on employer-sponsored plans. Ho noted that while insurers make significant profits, they are not the primary driver of higher costs.
“The main reason premiums have increased is because hospital prices have risen,” she said. Hospitals are raising prices aggressively, partly because CEOs are incentivized to grow profits and expand their organizations. A study cited by the researchers found that from 2012 to 2019, nonprofit hospital CEOs who increased profits and size received the largest pay raises, while financial rewards for improving quality of care declined.
Hospitals often justify price hikes by citing rising costs for nurses, medical supplies, and drugs. “While that’s true, hospital prices are far higher than their costs,” Ho said. “That’s what the public should question.”
Both for-profit and nonprofit hospitals are driving health care costs upward, though most of the nation’s largest health systems are nonprofits. Ho argued that if nonprofits lowered prices, for-profit hospitals would likely follow to remain competitive.
Decades of consolidation in the health care system have also empowered large hospital systems to charge more due to limited competition. However, higher prices have not led to better care. “There is no correlation between the price of health care services and patient outcomes,” Ho said.
The report did not examine the potential impact of expiring Affordable Care Act subsidies, which could leave millions of Americans facing higher premiums or losing coverage. Ho said economists are divided on how these changes might affect employer-sponsored insurance. Some individuals losing coverage may be healthy, while others could create added demand on hospitals.
Options to reduce costs for Americans with employer-based coverage are limited. Ho suggested requiring nonprofit health systems to disclose executive compensation and the factors behind it. “Board members should remember that nonprofits exist to serve the community,” she said.
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