The Price of Progress: Why U.S. Health Insurance Premiums Keep Rising

Authored by: Ella Levy

Art by: Laura Lee

For many Americans, opening a health insurance bill has become an exercise in frustration. Premiums continue to rise, often faster than wages, leaving families and employers struggling to keep up. According to data from the Kaiser Family Foundation, the average annual premium for family coverage reached over $24,000 in 2024, a figure that has nearly tripled since the early 2000s (1). These costs are not only straining household budgets but also forcing many small businesses to cut back on benefits or shift expenses to employees. But why exactly are Americans paying more for coverage than people in other high-income countries? The answer lies in a combination of medical innovation, administrative costs, and market consolidation-three forces that together drive the cost of care far beyond that of comparable nations.  

Advances in medicine are generally celebrated, as they should be. New biologic drugs, targeted cancer therapies, and state-of-the-art medical devices dramatically improve patient outcomes. Yet these innovations come with hefty price tags. Developing a new drug can take over a decade and cost billions of dollars, a burden that insurers ultimately pass on to consumers through the use of higher premiums (2). Even when these innovations save lives, the high costs of research, development, and implantation are felt throughout the system. In the United States, the pricing of pharmaceuticals is also far less regulated than in most other nations, where government agencies negotiate drug prices directly with manufacturers. Without such negotiation power, American insurers often pay list prices several times higher than those in Europe or Canada. For example, the cancer drug Revlimid costs roughly $16,000 per month in the U.S. but less than $8,000 in the United Kingdom (2). The difference is not due to quality, but it is the policy, the environment that rewards innovation, but lacks price discipline

The U.S. healthcare system is notoriously complex, and a large share of spending goes toward navigating its bureaucracy. Billing, insurance verification, claims processing, and other administrative tasks consume more resources than they do in other high-income nations. A 2008 study comparing health spending across Organization for Economic Co-operation and Development (OECD) countries found that the U.S. spends more than double per capita on healthcare compared to the median OECD country, yet only achieves average outcomes on various quality metrics (3). Every form filed, claim processed, or insurance policy updated adds a layer of cost that eventually shows up in your premium. 

Market consolidation is another piece to the puzzle. In many regions, hospitals and insurers have merged to dominate the market, which further reduces competition. When hospitals or insurance providers face less pressure to keep prices low, premiums rise.  According to Gaynor and Town, hospital mergers have been shown to increase prices by as much as 20-40% in concentrated markets, with little evidence of quality improvement (4). Similarly, insurer consolidation limits consumer choice and weakens negotiating power for both patients and employers. This concentration of power makes it harder for consumers to find affordable options, even if they shop around. In short, less competition doesn’t just affect corporate balance sheets; it directly affects household budgets. 

The rising cost of premiums isn’t inevitable. Policymakers and industry leaders have proposed a range of solutions to slow growth and improve affordability. Greater pricing transparency could empower patients and employers to make better-informed decisions. Expanding value-based care models, where providers are incentivized to focus on outcomes rather than volume, could help curb the unnecessary spending. The center for Medicare & Medicaid Services (CMS) has piloted bundled payment and Accountable Care Organization (ACO) models designed to align incentives across the healthcare system, rewarding efficiency and improved patient outcomes (5). These approaches show promise, though they require careful implementation and ongoing evaluation to ensure they reduce costs without sacrificing innovation.

Ultimately, addressing rising premiums in the U.S. will require a multifaceted approach that balances innovation with cost control and simplifies administration. By tackling these issues simultaneously, policymakers and industry leaders can work toward a healthcare system that delivers high-quality care without putting an unsustainable financial strain on families and employers. 

References

1. Kaiser Family Foundation (KFF). “2024 Employer Health Benefits Survey.” 2024, https://www.kff.org/report-section/ehbs-2024-summary-of-findings/.

2. Song, Zirui, and Sherri Rose. “Understanding Rising Health Care Costs and Premiums in the United States.” JAMA, vol. 325, no. 22, 2021, pp. 2267–2268. https://jamanetwork.com/journals/jama/article-abstract/2780490.

3. Anderson, Gerard F., and Bianca K. Frogner. “Health Spending in OECD Countries: Obtaining Value per Dollar.” Health Affairs, vol. 27, no. 6, 2008, pp. 1718–1727. https://doi.org/10.1377/hlthaff.27.6.1718.

4. Gaynor, Martin, and Robert Town. The Impact of Hospital Consolidation — Update. Robert Wood Johnson Foundation, 2012, https://www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-consolidation.html.

5. Centers for Medicare & Medicaid Services (CMS). Innovation Models. 2022, https://innovation.cms.gov/innovation-models.