U.S. Health Insurance Premiums Outpace Worker Earnings Due to Hospital Cost Increases

Health insurance premiums in the U.S. have increased significantly from 1999 to 2024, rising at a rate three times faster than worker earnings. This premium inflation is largely attributable to rising hospital service costs, particularly due to health system consolidation that enables hospitals to raise prices well above their costs. While costs for physician services and prescription drugs have grown more slowly, hospital outpatient visits and coverage of newer drugs like GLP-1 also contributed to premium increases. Research indicates that hospital CEOs, particularly in nonprofit health systems, are financially incentivized to increase profits and organizational size rather than focusing on quality of care or expanding charity care. Boards of hospitals, mainly comprised of finance and business professionals, set executive compensation criteria that prioritize financial success. Greater transparency in executive compensation for nonprofit hospitals could enable public pressure to shift focus towards affordability and quality. Policy experts have proposed regulating hospital prices by capping costs at the highest-priced hospitals and controlling price growth across the board. Such regulatory frameworks would involve service-specific oversight to adapt quickly to market changes. In parallel, employers who bear most insurance premium costs could design benefits to increase price sensitivity, aiming to curb cost escalation. Alternative insurance models such as tiered copayment plans based on hospital pricing tiers have proven effective in reducing costs without compromising care quality. Trends show about one-third of large employers adopting nontraditional plans in 2026 to manage rising insurance expenses. Nonprofit health systems often emphasize community health improvement in their missions. Implementing price growth restraints on these entities could enhance market price competition, potentially leading to lower prices from for-profit providers as well. This evolving landscape underscores the intersection of healthcare consolidation, executive incentives, regulatory interventions, and employer-driven plan design in shaping future insurance premium trends.