Soaring health insurance costs are quietly preventing wages from rising higher, while workers also shoulder a larger share of premiums, economist says

As the health care open enrollment period approaches, many Americans may be dismayed by the anticipated surge in premium costs. However, a recent analysis suggests that the rising expense of insurance is contributing to a slowdown in wage growth, preventing workers from receiving the raises they would otherwise earn. Health insurance costs have become a significant concern ahead of the midterm elections, alongside growing concerns over inflationary pressures like rising gas prices and utility bills.

Despite steady wage increases and a labor market at full capacity, consumer confidence has plummeted due to deteriorating affordability. Recent economic indicators reveal that workers' optimism about higher pay remains tepid. In the third quarter, wages grew by 3.1% compared to the previous year, according to the employment cost index released by the Bureau of Labor Statistics.

However, employer health insurance contributions surged by 6.4%, marking the quickest rate of increase in two decades. Economist Guy Berger, a senior fellow at the Burning Glass Institute, estimated that if employer contributions had grown at a more moderate pace of 3%, wage growth would have been approximately 0.2-0.3 percentage points higher today.

While this increase may seem minor, it still holds significance. Berger noted that the data may underrepresent the strain workers are experiencing, as employer contributions may not align with the escalating costs of health insurance. Moreover, ACA plans are also witnessing a significant price increase, with premiums set to rise by 13% in 2027, according to the KFF nonprofit.

This represents the second-largest jump since 2018, following a 26% surge in 2026. The latest hike translates to an average monthly premium of $704 for a 40-year-old purchasing a mid-tier Obamacare plan, up from $624 in 2026 and $497 in 2025. Although drug and hospital costs are rising, the ACA market has faced particular challenges since 2025, as Congress failed to renew the pandemic-era enhanced subsidies.

Consequently, enrollment in ACA plans has plummeted by 12% from a year ago, or around 19.2 million people, shifting the remaining enrollees toward being sicker, which drives up premiums. ACA enrollment stood at 19.2 million as of February, and more have unsubscribed since then. Simultaneously, insurers are opting not to participate in the ACA marketplace, reducing consumer choices.

As of late October, 31 insurers had departed state-level markets, compared to only eight new entrants. KFF predicts that several insurers anticipate the market deterioration to persist in 2027 due to the discontinuation of enhanced premium tax credits. "Some enrollees who were able to retain coverage in 2026 may find it increasingly challenging to make ends meet" as the situation unfolds.