Health Care Costs for Workers Begin to Climb

The long post-Affordable Care Act era of moderate health care cost growth may well be ending.

Over the last 15 years, the share of the economy taken up by health care barely budged at all, holding at a little over 17% of GDP. Holding the line for that long is unprecedented and cumulatively saved the taxpayers and premium-payers trillions of dollars over that span. Back in 1996, it took a breadwinner 83 hours of work to earn enough to pay their family's portion of an employer health premium for the year. By 2010, that figure had ballooned to 138 hours of work. Fast forward more than a decade and again you see the Great Health Care Cost Slowdown--by 2023, it took 136 hours of work to pay that portion of the premium, as relative health care cost growth essentially halted in the ACA era.

But now costs are threatening to resume the pre-ACA jumps, exacerbated by a series of bad policy decisions by the current administration. Needless to say, reversing a decade and a half of unprecedented progress would be bad.

Health Care Costs for Workers Begin to Climb

Employees of large and small companies are likely to face higher health care costs, with increases in premiums, bigger deductibles or co-pays, and will possibly lose some benefits next year, according to a large survey of companies nationwide that was released on Thursday.

The survey of 1,700 companies, conducted by Mercer, a benefits consultant, indicated that employers are anticipating the sharpest increases in medical costs in about 15 years. Higher drug costs, rising hospital prices and greater demand for care are all contributing factors, experts said.

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Benefit experts say the rising costs are the result of numerous factors, including higher labor costs for health care workers and the introduction of expensive new treatments, including pricey weight-loss drugs. Prescription drug costs are increasingly a concern, with a lot of the blame placed on both the drug manufacturers and the middlemen overseeing drug benefits, the pharmacy benefit managers, for keeping prices high. . . Roughly a third of the overall increase is the result of higher prices charged by hospitals, doctors and other providers, he said.

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It is likely to get worse
A series of economic and policy changes will affect many health care sectors.

For one, President Trump’s decision to impose tariffs on imports from many countries could eventually increase the price of drugs and medical supplies, because much of the supply chain begins overseas and those items are largely produced in other nations.

Policy changes related to health care under the Trump administration and the Republican-controlled Congress could drop millions of Americans from Medicaid or subsidized Obamacare insurance, driving up costs for hospitals and other providers. They in turn often try to recoup losses indirectly by charging employer plans at higher rates.

“As hospitals and providers see more uninsured, we always worry that those costs will be absorbed in the system and passed along in terms of higher commercial prices,” said Don Moulds, the chief health director for CalPERS, which offers health benefits to state and local employees in California.

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Policy changes related to health care under the Trump administration and the Republican-controlled Congress could drop millions of Americans from Medicaid or subsidized Obamacare insurance, driving up costs for hospitals and other providers. They in turn often try to recoup losses indirectly by charging employer plans at higher rates.

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Translation: hospital prices are so outrageous that nobody can pay them out of pocket. Scratch that - they're so bad that even insurance isn't enough. You need subsidized insurance just to survive them. Those subsidies don't fix the problem, in fact they make it much worse. When the state steps in to cover the gap, hospitals have zero incentive to lower prices. They know someone else (taxpayers) will foot the bill. The subsidies hide the real cost from patients and let hospitals keep ratcheting prices higher, creating an endless cycle of inflated bills, more subsidies, and higher and higher prices.

aociswundumho said:

Translation: hospital prices are so outrageous that nobody can pay them out of pocket. Scratch that - they're so bad that even insurance isn't enough. You need subsidized insurance just to survive them. Those subsidies don't fix the problem, in fact they make it much worse. When the state steps in to cover the gap, hospitals have zero incentive to lower prices. They know someone else (taxpayers) will foot the bill. The subsidies hide the real cost from patients and let hospitals keep ratcheting prices higher, creating an endless cycle of inflated bills, more subsidies, and higher and higher prices.

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Hospital prices have lagged behind growth in the economy-wide price level during the ACA era.

Greenbeard said:

Hospital prices have lagged behind growth in the economy-wide price level during the ACA era.

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That doesn't work, because patients never see the real bill. That's why hospitals luv the current system - they know subsidies, insurers, and ultimately the taxpayers, will pick up the tab. You won't see that distortion in a cpi line chart, but you will in $1,100 band-aids and endless premium hikes:

A new analysis of initial rate filings for Affordable Care Act (ACA) Marketplace plans submitted by 312 insurers in all 50 states and the District of Columbia finds the median proposed increase for 2026 is 18%, more than double last year’s 7% median proposed increase. The proposed rates are preliminary and could change before being finalized in late summer.

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aociswundumho said:

That doesn't work, because patients never see the real bill. That's why hospitals luv the current system - they know subsidies, insurers, and ultimately the taxpayers, will pick up the tab. You won't see that distortion in a cpi line chart

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That’s why I showed PPI for health services, not CPI.

The PPI collects reimbursements paid to health care providers from all payer types. Alternatively, the Consumer Price Index (CPI) only collects direct payments from patients, private insurance companies, and Medicare parts B and C. The CPI does not collect Medicare Part A and Medicaid reimbursements because these services are paid for by the government, not directly by consumers.

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This is total prices paid to hospitals, hidden from consumers or not.

Charges are not prices.

It's only going to get worse as demand exceeds supply.

aociswundumho said:

Translation: hospital prices are so outrageous that nobody can pay them out of pocket. Scratch that - they're so bad that even insurance isn't enough. You need subsidized insurance just to survive them. Those subsidies don't fix the problem, in fact they make it much worse. When the state steps in to cover the gap, hospitals have zero incentive to lower prices. They know someone else (taxpayers) will foot the bill. The subsidies hide the real cost from patients and let hospitals keep ratcheting prices higher, creating an endless cycle of inflated bills, more subsidies, and higher and higher prices.

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So why are hospitals increasing prices?

Greenbeard said:

That’s why I showed PPI for health services, not CPI.

Health Care Services in the Producer Price Index

www.bls.gov

This is total prices paid to hospitals, hidden from consumers or not.

Charges are not prices.

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Right, but that’s exactly the problem. PPI measures reimbursements - the negotiated payments between insurers and hospitals. Thats not the same thing as prices in any normal market, because the patient never sees or pays them directly.

It's a back-room number struck between providers and payers, with zero price discipline from the consumer side.

In fact, thanks to obamacare, in the long term higher prices actually benefit insurance companies due to the 80/20 rule.

So yes, charges aren't prices, but reimbursements aren't consumer prices either. That's why premiums keep exploding. The distortion is hidden from the cpi and ppi alike, but it still shows up in the only bill consumers actually feel: their monthly insurance premium.

On average, ACA Marketplace insurers are raising premiums by about 20% in 2026. Based on a more detailed analysis of available documents from insurers in 19 states and the District of Columbia, like in prior years, growth in health care prices stood out as a key factor driving costs in 2026.

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aociswundumho said:

Right, but that’s exactly the problem. PPI measures reimbursements - the negotiated payments between insurers and hospitals. Thats not the same thing as prices in any normal market, because the patient never sees or pays them directly.

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The amount paid for the service is indeed the price. And hospital prices have lagged growth in the economy-wide price-level in the ACA era.

It's a back-room number struck between providers and payers, with zero price discipline from the consumer side.

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Yes, the buyer and seller reach an agreed upon figure for the service being provided. That is, a price.

If you're concerned about the level of price discipline holding down those reimbursements, let me show it again:

In fact, thanks to obamacare, in the long term higher prices actually benefit insurance companies due to the 80/20 rule.

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Then it's curious that price growth fell in the Obamacare era and, again, has lagged general inflation.

So yes, charges aren't prices, but reimbursements aren't consumer prices either. That's why premiums keep exploding. The distortion is hidden from the cpi and ppi alike, but it still shows up in the only bill consumers actually feel: their monthly insurance premium.

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Employee contributions to family premiums in 2010 when the ACA passed were 6.6% of family income (up from 4.0% of income in 1996). Last year, they were 6.2% of family income.

Marketplace premiums haven't risen in nominal dollars in seven years (which, of course, means they've dropped in real terms).

Apparently the distortion has been hidden from premiums, too.