Why Does the Cost of Employer Sponsored Coverage Keep Rising?

Abstract

Over the past 25 years, the gap between the increase in health insurance costs and workers’ wages has significantly expanded. This trend has led to significant concerns about healthcare affordability, with surveys revealing conflicting opinions regarding whether hospitals or health insurance companies bear the blame for escalating costs. To better understand these dynamics, we examined consumer price indices for health insurance, hospital services, and professional services over from 2006 to 2023 using Bureau of Labor Statistics data. Our analysis shows that the hospital price index rose steadily between 2006 and 2023, faster than insurance premiums or professional services. To examine whether differences in underlying costs are driving higher hospital price increases, we evaluated the profit margins of hospitals and health insurance companies using the National Academy for State Health Policy's Hospital Cost Tool and National Association of Insurance Commissioners Industry Reports. Our findings reveal that hospitals (for-profit and non-profit) have consistently maintained higher profit margins than insurance companies. As health insurance costs continue to weigh heavily on working Americans, our analysis suggests that high hospital prices drive insurance premiums.