Premiums this year may surprise you: Why health insurance is getting more expensive

Escalating grocery bills and car prices have cooled, but price relief for Americans does not extend to health care, a new survey shows.

The average cost for a family health insurance plan offered through an employer increased 7% this year to $25,572, according to the annual employer health benefits survey released Wednesday by KFF, a nonprofit health policy organization.

The cost of family health insurance jumped 7% for the second consecutive year after a decade of more modest yearly increases. Family insurance rates increased by just 1% in 2022.

Insurance costs for individuals bumped up 6% to $8,951 this year, according to the survey. A year ago, individual plans increased 7%.

These rising health insurance costs add up for companies that pay the bulk of the tab and for families, many of whom are struggling to afford rent and groceries. Health insurance costs rose at higher rates than the 4.5% increase in workers' wages and the 3.2% jump in inflation, which cooled after spiking in 2021 and 2022.

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About 154 million working-age Americans and their families get health insurance through the workplace. KFF tracks trends in employer health insurance through an annual survey of 2,142 non-federal public and private employers nationwide.

Health insurance rates accelerating after a decade of more modest increases likely reflects the "growth of prices in the economy overall," said Matthew Rae, associate director of KFF's health care marketplace project. Rae said people also are accessing health care more frequently after skimping on doctor visits and routine medical screenings during the COVID-19 pandemic.

"We've rebounded to normal levels," Rae said.

Medical inflation tends to lag behind overall inflation, which is one explanation for health insurance prices increasing as overall inflation slows, said Tim Nimmer, senior vice president of insurance services and operations at TriNet, which offers human resource services for small businesses.

When will I know how much my health insurance will cost?

Consumers will see higher prices in the coming weeks when their employers start signups for 2025 health insurance plans. That means larger paycheck deductions at a time when the run-up in overall living expenses has pinched many families.

Employers are trying to limit the amount of the health insurance increase they pass on to employees, according to the survey.

As the average cost of family health insurance has surged 24% since 2019, paycheck deductions for workers increased just 5% over the same period. Employers are absorbing most of these expenses. For the average family plan that cost $25,572 this year, companies shelled out $19,276 while workers contributed $6,296 through payroll deductions, the survey found.

The average deductible for an individual was $1,787 this year, just $52 more than a year ago, according to the survey. The deductible is the amount consumers must pay out of pocket before the bulk of their coverage can kick in.

The rate companies pay for insurance is based on an employee's medical spending on hospital costs, doctors, prescription drugs and other medical services.

Some employers seek to rein in those costs by excluding pricier hospitals or other medical providers from their insurance plans' networks. Employees and their families pay lower negotiated rates for visiting a hospital or doctor in that network.

Nearly 1 in 5 companies with 5,000 or more employees have a "narrow network" of hospitals, doctors or other providers, the survey said.

Nevertheless, many small companies are struggling to find ways to limit the spiraling cost of health care.

Health insurance prices for Epting Distributors, a small business in South Carolina that distributes heating and air conditioning systems, jumped nearly 30% this year, said Laura Ivey, the company's human resources and payroll coordinator.

Epting pays for health insurance for about 130 employees, many of whom are older and dealing with chronic medical conditions such as obesity, diabetes and heart disease. Some are likely eligible for Medicare, the federal health program for people 65 and older, but they choose to remain on their company's health insurance, Ivey said. Medicare-eligible employees can choose to stay on their workplace insurance plan, but doing so puts a strain on employers.

Ivey is frustrated because health insurers and medical providers aren't transparent about the costs of medical services. If she had this information, she said, she could advise workers to choose lower-cost options – such as getting an X-ray or blood test at an outpatient center instead of a hospital.

Hospitals must disclose some price information to the public. A federal rule that took effect in 2021 requires hospitals to post the cash prices and rates negotiated with health insurers for a broad list of procedures in a computer-readable format so the information can be analyzed.

However, Ivey said, the transparency hasn't helped her company lower costs, in part because companies or consumers need special programs on high-powered computers to unlock the pricing data.

"It's not accessible at all – and I've tried," Ivey said.

The American Hospital Association, a trade group, has said the vast majority of hospitals comply with the existing price transparency rule. Hospitals also say they publicly share a price estimator tool in a format consumers can easily understand.

Ivey said that if small businesses knew how much hospitals, doctors and other providers charged, they would have a better idea of how to check costs. Instead, Epting and its employees pay ever-higher insurance rates each year, a point of contention for some workers.

"We do have people who say, 'I'm going to go work for somebody down the street because they're going to cover more of my health insurance,'" Ivey said.

Employers skimp on coverage of weight loss drugs such as Wegovy

Most large employers don't cover the cost of expensive weight loss drugs such as Wegovy, and those that do cover these drugs often impose requirements, the survey said.

Companies that pay for weight loss drugs might require employees to abide by strict guidelines, such as visiting a dietitian, psychologist, case worker or therapist to get a prescription. Other companies require that employees enroll in a weight loss program before or while taking one of the new class of weight drugs called glucagon-like peptide 1, or GLP-1, agonists.

Among the 1 in 4 large employers that cover weight loss drugs, 46% said covering them has a “significant impact” on their prescription drug spending.

Most companies, however, don't cover these drugs and don't plan to do so anytime soon. Among companies with 200 or more employees that do not cover GLP-1 agonists, primarily those used for weight loss, 62% said they are “not likely” to pay for the drugs next year.

Though many companies will cover drugs such as Ozempic for diabetes, that same coverage doesn't apply to similarly formulated weight loss drugs that sometimes cost more than $10,000 a year.

The weight loss drugs have proven popular in a nation where nearly 2 in 5 adults have obesity, according to the Centers for Disease Control and Prevention estimates.  

The high list price combined with the number of projected users among state employees was too much to sustain, North Carolina state officials decided. To continue to afford coverage of the drugs for weight loss, the state would have had to raise premiums to nearly $50 a month for about 750,000 employees and their dependents covered by the state health plan.

More than 23,000 people on North Carolina's health plan were using these prescription drugs for weight loss. The medication was costing the state more than $800 per member per month, on average, after rebates. The state treasurer projected the state's bill for the medication would soar to more than $1 billion over the next six years, a major reason the state chose to discontinue coverage.

Rae, of KFF, said employers contemplating coverage are having a difficult time "threading the needle on the astronomical costs of these drugs and the potential health benefits" of reducing obesity and making employees happy.

"Employers have a difficult question they need to figure out," Rae said.

Ken Alltucker is on X at @kalltucker. Contact him by email at [email protected].