A new Rice University study examines how the cost of employer-provided health insurance and the consumer price index have changed over the past 25 years to help explain why insurance premiums continue to rise and are becoming increasingly difficult for families to afford.
Published in JAMA Network Open, the study found that the cost of health insurance has grown three times faster than workers’ earnings since 1999. A major factor driving this increase is the steady rise in hospital prices, according to the study. This time period includes the COVID-19 pandemic when health insurance prices climbed almost as quickly as hospital costs, though they have since stabilized.
The authors found that between 1999 and 2024, workers’ contributions to family health insurance premiums increased by 308%, while total premiums rose 342%. Over the same period, workers’ wages increased by only 119%, and overall inflation grew by 64%.
The study breaks down price increases in the health care sector. By 2024, the cumulative price index for hospital services reached a value of 194 relative to 2006, while the price indices for insurance premiums, professional services and prescription drugs reached lower values ranging from 138 to 145. Vivian Ho, the James A. Baker III Chair in Health Economics at Rice’s Baker Institute for Public Policy, said the calculations illustrate the central role that the underlying costs of medical services play in explaining the rising cost of health insurance.
“When consumers see escalating health insurance premiums, they immediately assume that insurers are to blame,” Ho said. “However, premiums must cover the underlying cost of health care services, and hospitals are raising their rates faster than any other provider.”
First author and Rice doctoral candidate Salpy Kanimian said: “Health economists have published several studies in the past few years demonstrating that health system consolidation fueled by mergers and acquisitions of hospitals is driving the rapid escalation in hospital prices. Larger health systems have stronger bargaining power, so they can demand higher prices from insurers and patients, who have fewer alternative providers to seek care from.”
Read the full report here and learn more about the Baker Institute’s Center for Health Policy here.
Written by Avery Ruxer Franklin for Rice News.
