Rising health insurance costs dampen wage growth and strain affordability

Beyond the immediate financial burden, the escalating cost of health insurance is subtly hindering wage growth, preventing workers from receiving larger pay increases than they otherwise might. This issue has become a prominent concern in the upcoming midterm elections, adding to voter anxieties about the overall cost of living alongside rising gas and utility prices.

Despite consistent wage gains and a robust labor market, consumer confidence has been declining due to concerns about affordability. Recent economic data reveals a key reason why workers aren’t experiencing the anticipated boost in earnings.

According to data released Friday by the Bureau of Labor Statistics, wages and salaries increased 3.1% in the third quarter compared to a year ago. Simultaneously, employer contributions to health insurance rose by 6.4%, the fastest pace in two decades. Economist Guy Berger, a senior fellow at the Burning Glass Institute, calculated that wage growth could be 0.2 to 0.3 percentage points higher if employer contributions had remained at a previous rate of 3%.

“That’s not a lot, but not nothing either,” Berger wrote in a Substack post.

Berger also noted that the available data may underestimate the financial pressure on workers, as employers may not be fully absorbing the rising costs of health insurance, resulting in employees shouldering a larger portion of premiums. Furthermore, insurance plans are increasingly covering less, forcing individuals to pay more out-of-pocket expenses.

Individuals obtaining coverage through the Affordable Care Act (ACA) are also facing higher costs. KFF, a health-research nonprofit, reported that premiums will increase by 13% in 2027, marking the second-largest jump since 2018, following a 26% increase in 2026. This translates to an average monthly premium of $704 for a 40-year-old purchasing a mid-tier ACA plan, up from $624 in 2026 and $497 in 2025.

The ACA market has been particularly affected since 2025 due to the expiration of enhanced subsidies enacted during the pandemic. Consequently, ACA enrollment has decreased by millions as individuals have been deterred by higher premium expenses. The remaining enrollees tend to be sicker, further driving up premiums.

As of February, ACA enrollment had fallen by 12% from the previous year, representing approximately 19.2 million people. Insurers are also withdrawing from the ACA marketplace, limiting consumer choices; 31 insurers have departed at the state level compared to eight additions as of late October. KFF anticipates continued market deterioration in 2027 due to the end of premium tax credits, potentially making coverage unaffordable for some.