Healthcare Insurance Costs
Healthcare Insurance for a company is Overhead cost. Overhead costs are expenses supporting a business. They are not directly associated with labor input, to a product, or to a service you sell. I would not blame Labor for the rising role of healthcare costs in Overhead. This is beyond the cost of Labor input. It is problematic for companies. The US healthcare system relies on a heavily subsidized and lightly regulated private sector for healthcare. They charge well beyond what the market will bear. Despite living in the world’s wealthiest country, millions of Americans remain uninsured, underinsured, or unsure of their coverage.
And American politicians hold the citizens captive by either rejecting healthcare for all citizens or allowing it to be outrageously expensive.
Are Rising Employee Health Insurance Costs Dampening Wage Growth? – Liberty Street Economics
– Health insurance cost represents a substantial component of total compensation paid by firms to Labor.
– Such costs have climbed to ~20 percent of compensation over the past five years.
– Average annual premium for employer-sponsored family health insurance coverage: ~ $27,000 in 2025.
Speaking in an approximate or rough estimation? Average annual premium for company family health insurance coverage? ~$27,000 in 2025 or roughly equivalent to the wage for a full-time worker paid $15 per hour.
In another and companion post, respondents reported an average increase in such costs of more than 13 percent this year (2026?). Absent healthcare cost increases, companies said they would have raised wages by an additional and ~percentage point suggesting rising health insurance costs resulted in a drag on wage growth for workers.
Regional business surveys in the New York-Northern New Jersey region, asked firms about past and expected changes in their wages. Questions asked in prior years. As shown in the chart below, wage growth has slowed every year since 2022. This is likely reflecting the effects from lower inflation pressures and a cooling of the labor market over the last few years.
Rising Employee Health Insurance Costs Dampening Wage Growth
Wage growth has slowed in recent years and wages are only one part of total labor costs. About three-quarters of service firms in our surveys and 90 percent of manufacturers provide health insurance to their workers. While wage growth has been slowing since 2022, health insurance costs have been rising. According to the Kaiser Family Foundation, health insurance costs increased by about 6% in 2025. Costs were projected to rise by 11% in 2026, similar to the more than 13% increase businesses in our surveys reported as their policies renewed. Based on information provided by insurers, these higher insurance costs have been driven in large part by the increased cost of hospitalization and physician care, as well as the high cost of providing GLP-1 and other prescription drugs.
How have firms managed these substantial cost increases? Some firms reported they passed a portion of the cost increases on to their customers by raising prices. Others absorbed them through reduced profit margins. A number of firms reported they had offset at least some of the increased costs by reducing health insurance coverage to workers or by increasing employee contributions. However, many firms responded to these higher costs by reducing the wage increases they gave to their workers.
In order to better understand the relationship between rising health insurance costs and wages, we asked businesses who saw health insurance cost increases what wage growth would have been in a world where (hypothetically) such costs had not gone up. Though this hypothetical likely does not represent a realistic counterfactual given existing healthcare cost trend, it helps illuminate the extent to which some firms are managing cost pressures by modifying wages in response to higher health insurance costs.
Results of this counterfactual are shown in the chart below.
Among those businesses experiencing an increase in employee health insurance costs, the average wage increase over the past year was 3.8 percent for both service firms and manufacturers. This is slightly higher than the 3.4 percent reported among all firms in the surveys. However, these firms reported the average wage increase they would have given to their workers if health insurance costs had not gone up was about 4.7 percent.
Thus, wage growth for workers at these service and manufacturing firms would have been about one percentage point higher, on average, if health insurance costs had held steady or the equivalent of a 20 percent drag on wage growth. As such, there does appear to be a connection between rising health insurance costs and wage growth among many firms.
Labor Costs Are Rising Faster Than Wage Increases Suggest
Health insurance expenditures represent a significant portion of total labor compensation for many firms. The true cost of employing workers at these firms has been climbing faster than wage increases alone suggest, potentially squeezing profit margins and making labor more expensive than it appears from the wage bill alone. While not every firm provides health insurance to its workers, it appears rising employee health insurance costs are increasing cost pressures for some businesses, limiting wage growth for many workers.
Jaison R. Abel, Richard Deitz, and Nick Montalbano, “Are Rising Employee Health Insurance Costs Dampening Wage Growth?,” Federal Reserve Bank of New York Liberty Street Economics, March 4, 2026
How Much Do Hospitals Spend on Medical Supplies? (2025 Report) – XS Supply
This is awfully close to the argument usually made against Social Security payments. Social Security is depriving workers of that workers would get paid the extra 6.2% that would otherwise go to the government. As far as I am concerned that argument is laughable. Obviously, employers would have a moral obligation to use that 6.2% to benefit the shareholders and upper management. Workers wouldn’t see a dime. I would expect the same if employers were no longer paying for health care. It has been a long time since wages have risen with increased profits.