The cost of health care in the United States, already known for being the highest among developed nations, is poised to escalate further. As a result, millions of Americans could soon see a significant increase in their health insurance expenses.
In the upcoming year, approximately 154 million people with employer-sponsored health insurance might face higher deductions from their paychecks, increasing by an average of 6% to 7%. This is due to employers experiencing an almost 9% surge in the cost of providing the same coverage, marking the steepest rise in 15 years according to a recent survey by Mercer.
To cope with these rising expenses, 59% of employers plan to implement “cost-cutting changes,” such as increasing deductibles, copays, or other out-of-pocket expenses, as reported by Mercer. Larry Levitt, executive vice president for health policy at the nonprofit KFF, describes this situation as “a perfect storm” impacting employers, with the rising costs inevitably trickling down to workers.
The timing of these cost increases coincides with lingering economic challenges following the pandemic, including inflationary pressures that have left consumers uneasy about the economy. Although inflation rates have diminished over the past two years, prices are again starting to climb, partly due to the implementation of tariffs from the previous administration.
These developments highlight a critical aspect of the American health care system: for most people under 65, the cost of health insurance is predominantly determined by their employers. These employers, in turn, are influenced by powerful entities within the health care sector, such as drug companies and hospitals, which contribute to the overall cost escalation.
Levitt notes, “It’s kind of hidden, because [premium deductions are] coming out of your paycheck and if you’re not paying close attention, it may not be obvious. But your take-home pay is going down.”
The Factors Behind Rising Prices
Ironically, some of the factors driving up health care costs are positive developments. Pharmaceutical advances, such as new cancer treatments and weight-loss drugs, have improved health outcomes but also come with higher price tags. Additionally, a post-pandemic surge in demand for non-urgent medical care has contributed to rising costs.
However, the consolidation of hospitals, insurance companies, and other health care providers has reduced competition, allowing these entities to increase prices. Sunit Patel, Mercer’s chief actuary for health and benefits in the U.S., explains, “What’s missing in health care is: It’s not a traditional free market. You don’t have those competitive forces.”
Historically, health care costs have been a persistent issue for employers. Last year, the average employer in the U.S. spent over $19,000 per employee for family coverage, with employees contributing about $6,000, according to KFF. This total family premium of $25,572 represents a 52% increase over the past decade.
Beth Umland, director of health and benefits research at Mercer, points out that employers have tried to shield employees from these cost increases to retain talent in a competitive job market. Yet, “I think just something had to give,” she remarks.
While employees can negotiate salary raises, their ability to influence employer-set health care costs is limited. Levitt summarizes, “In general for workers, it’s kind of take it or leave it. And they really don’t have much of a choice but to take it.”
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