The Financial Strain of Rising U.S. Health Care Costs
In the United States, where health care is already the priciest among developed nations, expenses are poised to climb even higher. Millions of Americans who receive health insurance through their employers may soon notice increased paycheck deductions as health benefit costs rise.
According to recent findings by Mercer, a benefits consulting firm, the cost for employers to provide health insurance is set to rise by nearly 9% per employee on average. This marks the most significant increase in 15 years, impacting around 154 million individuals who rely on employer-sponsored health plans.
A majority of employers, 59%, have indicated plans to pass these costs to employees through higher deductibles, copays, or other out-of-pocket expenses. “It’s almost a perfect storm that’s hitting employers right now,” comments Larry Levitt, executive vice president for health policy at KFF, a health policy research nonprofit.
Levitt further explains, “The price of health care is going up faster than it has in a long time.” Employers, faced with increased premiums from insurers, often transfer these costs to their workforce.
This trend emerges amidst ongoing economic challenges, with consumers still grappling with the aftermath of pandemic-induced inflation. Although inflation rates have moderated, prices are beginning to rise again as certain import taxes come into effect.
The escalating costs underscore a significant aspect of the U.S. health care system: employers largely determine the financial burden of health insurance for most under-65 Americans. Employers themselves are subject to the pricing strategies of powerful market players such as drug companies and hospitals, further complicating the landscape.
Levitt notes the subtlety of these changes, saying, “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 Dual Nature of Health Price Increases
Some factors driving up health care prices may be seen as positive, such as advancements in pharmaceutical treatments for cancer and weight loss. However, these new treatments often come at a higher price. Additionally, as more individuals resume regular medical visits post-pandemic, the increased demand contributes to rising costs.
Market consolidation also plays a role. The merging of hospitals, insurance companies, and other health care entities often leads to reduced competition and higher service prices. “What’s missing in health care is: It’s not a traditional free market. You don’t have those competitive forces,” remarks Sunit Patel, Mercer’s chief actuary for health and benefits in the U.S.
The financial strain on employers has been growing over the years. In 2024, the average employer spent over $19,000 per employee for family coverage, with employees contributing $6,000 on average, according to KFF. This reflects a 52% increase in average family premiums over the past decade.
To retain talent in a competitive job market, employers have previously absorbed many of the rising costs. However, Beth Umland, Mercer’s director of health and benefits research, notes that “something had to give” after years of elevated expenses.
With health care considered part of total employee compensation, higher spending on insurance often means smaller salary increases. Unlike salary negotiations, employees have limited influence over their health care costs. “In general for workers, it’s kind of take it or leave it,” Levitt explains. “And they really don’t have much of a choice but to take it.”
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