National healthcare spending and consumer cost trends likely to continue rising

The Buzz This Week

Over the past 15 years, health insurance premiums have surged at an alarming rate, outpacing overall inflation. Federal data suggests that average premiums for families with employer-provided coverage nearly doubled from 2008 to 2023. In California, for instance, the average monthly premium jumped from $1,000 to nearly $2,000. As a result, employees are shouldering an increasing share of these costs, placing greater financial strain on individuals and families.

A key driver behind these rising costs is market consolidation—on both the payer and the provider side. According to a US Government Accountability Office report, the individual, small-group, and large-group marketplaces all became more concentrated between 2011 and 2022, with three or fewer insurance companies holding 80% or more of the market share in many states. With fewer competitors in the market, pricing dynamics have shifted, contributing to higher costs that employers and employees increasingly shoulder.

For small-business employees whose employers do not provide coverage, the situation is particularly concerning. Federal subsidies that help make individual health plans more affordable are at risk of expiring if Congress does not act. Without these subsidies, workers may face even steeper premiums. For instance, since 2022, premiums on Covered California have increased by approximately 25%. While state and federal assistance has helped lower costs for many enrollees, the financial burden remains significant for those who do not qualify for aid.

The rising costs of hospital stays, doctor visits, and prescription drugs, as well as the increased utilization of these services, are not only impacting consumers but also placing significant financial strain on the insurance industry. Moody’s recently downgraded the credit outlook for health insurers to negative, citing rising medical costs and ongoing cost pressures.

Analysts predict that premium increases will not fully offset the projected increase in expenditures, especially given competitive pressures in provider contract negotiations. As a result, consumers may face higher out-of-pocket costs, reduced coverage options, or increased premiums. Medicare and Medicaid plans may mitigate some of these cost increases through benefit adjustments, but commercial insurers will face significant challenges, which may lead to higher deductibles and copays for patients.

Why It Matters

The spike in health insurance premiums has serious implications for affordability, prompting many individuals to delay or forgo necessary medical treatment, including preventive care. It also has the potential to disproportionately affect certain populations. States are looking for solutions to combat these rising expenses. For example, California’s new Office of Health Care Affordability has set a target to reduce annual spending growth to 3.5%, eventually lowering it to 3% by 2029.

The growing medical debt among Americans further underscores the widespread financial burden. A recent West Health-Gallup survey found that more than 31 million people in the US borrowed money to pay for healthcare in the past year, totaling approximately $74 billion. Notably, a significant proportion had health insurance.

Those aged 18 to 49 were the most likely to take on medical debt, highlighting the potential impact this financial strain could have on future generations. Additionally, the survey found that Black and Hispanic adults were more likely to have borrowed funds compared to white adults, which could augment racial health disparities.

Women have been disproportionately affected by high healthcare costs. In 2024 alone, women spent $8.8 billion more on prescription medications than men. This disparity is largely due to higher healthcare utilization, chronic condition management, and the costs associated with female-specific treatments. Women in the 18-44 age group faced the largest price gap, paying significantly more for medications related to mental health, reproductive health, and chronic conditions.

Concerns also have been raised regarding the proposed regulatory changes to the Affordable Care Act (ACA), which could impact coverage options and affordability for millions of Americans. A new rule proposed by the Centers for Medicare & Medicaid Services (CMS) seeks to shorten the ACA open enrollment period and eliminate the special enrollment period for low-income individuals.

The agency argues that these changes aim to reduce improper enrollments, citing concerns that expanded subsidies have led to fraudulent sign-ups. If implemented, these changes could reduce federal spending by an estimated $11 billion to $14 billion by 2027. However, they also risk limiting coverage options for individuals who rely on these provisions for access to healthcare.

The convergence of increasing health insurance premiums, escalating deductibles, and the prevalent burden of borrowing underscores the pressing need for comprehensive policy reforms to make healthcare affordable and accessible for Americans.