Why Is Health Insurance So Expensive? Why Premiums Are Rising and What You Can Do

Health insurance is becoming harder and harder for the average American to afford. Health insurance premiums are rising because the cost of medical care itself also is rising. Different stakeholders share the weight of health care costs, whether it’s the government, your employer or you – the patient. Right now, more of those increasing costs are being passed on to consumers. Ultimately these higher prices are being driven by: 

• Increased hospital billing
• Increased physician billing
• Higher prescription drug spending
• Post-pandemic increases in health care utilization  
• Administrative costs
• Changes in Affordable Care Act subsidies

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Why Is Health Insurance So Expensive?

Health insurance is expensive because the cost of health care in the U.S. is expensive. According to the Centers for Medicare and Medicaid Services, the U.S. government spent $5.3 trillion on health care in 2024 — or more than $15,474 per person. That’s in addition to what employers and everyday Americans spent out of their own pockets. 

When hospitals, physicians and drug manufacturers charge higher prices, insurers adjust premiums and cost-sharing to cover those expenses.

Why Is Health Care More Expensive in the U.S. Than Other Countries?

Healthcare costs more in the U.S. primarily because hospitals and physicians are paid higher prices than in other developed countries. It’s not because Americans use more medical services than people in other high-income nations, The Kaiser Family Foundation (KFF) reported. In fact, they use less. 

Some of the pricing increases across these two domains over the past few decades comes from a consolidation in provider networks. Since the 1990s, mergers in American hospital networks and physician networks have reduced competition across markets, which can allow prices to rise. 

Prescription drugs are also priced noticeably higher in the U.S. than in other countries. However, in recent years, they have contributed less to increases in national health spending than hospital and physician spending. The fact that America doesn’t have a ‘universal’ public health care system in the same manner as other high-income countries also contributes to the problem.

A single American patient might have insurance coverage from Medicaid, Medicare, private insurance or none of the above. This adds administrative complexity as you have to figure who pays what and which rates they will pay. This complexity of having multiple insurance plans could contribute to missed billing errors.

Why Are Health Insurance Premiums Rising Right Now?

Health insurance premiums primarily rise because of increasing costs of medical medical care, higher prescription drug spending and increased health care utilization. 

This last one may be confusing, as we said Americans don’t use health care more than other nations. One reason for an increase in health care utilization in recent years is that Americans sought care more often starting in 2022. Many people put off health care needs during the early pandemic years because of personal risk assessment or provider availability. 

Another reason for this bump may be the way we look at health care utilization. For example, when provider networks consolidate, they tend to make more money from federal government programs when procedures are performed as outpatient care in a hospital rather than in a physician’s office. This looks like more people are going to the hospital, even though they’re getting the same procedures (and higher bills.)

Insurers set premiums based on projected medical claims, and prescription drug usage can impact those projections. For example, in 2022, there was a huge spike in Medicare Part B premiums because there was a new Alzheimer drug on the market. Not as many people used it as anticipated, so the next year projections (and premiums) decreased. They went up again as new drugs came on the market. If you’re on an Affordable Care Act (ACA) plan, you may have seen your premiums go up this year. This has less to do with health care costs and more to do with the federal government allowing ACA subsidies to lapse. Essentially, the federal government used to pay a bigger portion of your ACA premiums. In 2026, you’re on the hook for

Where Does Your Health Insurance Premium Actually Go?

Most of your health insurance premium goes toward paying medical claims, and a smaller portion goes toward administrative costs and profit.

Insurance companies are subject to medical-loss ratios set by the ACA. For smaller company plans, the insurance companies are allowed to use 20% of money they get from premiums on their own overhead, marketing, administrative costs and – yes – profit. If you work for a bigger company, that changes to 15%.

The remaining 80%-85% must go toward actually paying for health care. 

That seems like a good plan. But it gets messy. Let’s say the insurance company uses $10 billion one year to pay for health care claims on small company plans. They keep an additional $2.5 billion for their own day-to-day costs and profits, as they’re permitted to do by law. 

But the next year, because of increased health care costs, they pay out $12 billion for health care claims. They could either lower their administrative costs and profits to half a billion, which would theoretically keep your premiums the same.They also could raise premiums so they still get the full 20% they’re allowed to take under law. This would increase their overhead billing from $2.5 billion to $3 billion. 

So as health care costs go up, it’s highly likely the real dollars you’re paying towards insurance companies’ overhead costs and profits are going up, too — even if the percentages are staying the same.a far greater percentage.

How Much Does Health Insurance Cost on Average?

The average cost of health insurance is widely variable depending on the type of plan you have. In 2025, KFF found that employer-sponsored health insurance left workers paying an average of $6,850 for family coverage. A silver ACA plan ran the average 40-year old $497 per month, though ACA premiums vary wildly depending on your state, age, level of coverage and whether or not you’re getting subsidies. 

Average health insurance premiums are expected to go up in 2026. But it takes some time to gather the data and do the math. Numbers for this year likely won’t be released until autumn.

Why Are Deductibles Increasing Too?

Deductibles are increasing to offset the rising cost of care and premiums. The average deductible for an employer-sponsored plan in 2025 was $1,886 for an individual. Although paying a higher deductible can get you lower premiums, both of these costs are going up.

Deductibles are going up because the increase in costs is falling to Americans. The government is doing that by removing ACA subsidies and Medicaid cuts. Health insurers can do it by denying claims or raising deductibles.

If you’re paying more for premiums and deductibles out of your own pocket, that’s less money the government and the insurance companies have to contribute. 

If you can’t afford it, you’re not alone – though that doesn’t make the situation any easier. Medical bankruptcy is common in America, according to the National Library of Medicine. 

Some people choose something called a high deductible health plan (HDHP). With these plans, you pay a higher deductible and get the option to open a Health Savings Account (HSA). HSAs are a tax-advantaged way to pay for future health care expenses. 

HDHPs can make sense for people who have low health care needs in the here and now. However, premiums on these plans have been going up in recent years, too, which may or may not skew the benefits depending on your situation.

Compare Total Annual Cost — Not Just the Monthly Premium

You can estimate the total annual cost of your health care plan by adding together the annual premiums and the deductible. Be sure to account for any out-of-pocket maximums on your plan, too. For example, in a high-health-care-need year, a plan that only requires you to pay $10,000 out-of-pocket may end up being cheaper than a plan that requires you to pay $30,000 out-of-pocket. 

But if your needs end up being lower, the reverse could be true. You can try to estimate your expected health care costs by evaluating your plan and how much health care you’ve needed in the past. If you take a bet on a low-health-care-need year and then you get into an accident, you could end up regretting the financial decision.

Why Do Costs Vary So Much by State?

Health insurance costs vary by state because each state has different regulations for its health care marketplace, provider pricing varies and there’s different insurance competition. Depending on the amount of money available in a state, there may also be limited resources for things like Medicaid. 

Another factor is those consolidations and mergers within health care networks. In different regions of the country, various corporations and private equity firms are dominating different markets. This means that there may be more or less competition in any given area of the country. Or, you might come across a consolidation group that simply isn’t charging as much as another across state lines. 

Finally, the general health of the population in your area can affect premiums. If more people are in need of high-cost services, the insurance pool is higher risk, driving premiums up.

What Can You Do If Your Health Insurance Costs Too Much?

If you can’t afford health insurance, you may be able to lower your costs by: 

• Change jobs if another employer is offering a more affordable health insurance plan. 
• Move somewhere with more affordable health care.
• Treat ACA plans competitively during open enrollment, bearing in mind that the lowest premiums aren’t going to offer the best coverage – especially in high-health-care-need years. 
• If you live in a Medicaid expansion state, check to see if you qualify. In rare instances, you may even qualify despite the fact that your employer offers you a plan through work. 
• If you’re anticipating low health care needs, the tax advantages of an HSA with an HDHP plan may make sense if the premiums are actually lower. 

Other ways you can keep your health care costs in check include: 

• Reviewing all of your medical bills thoroughly for billing errors. 
• Negotiating health care costs upfront. This can be especially helpful if you have the ability to do so prior to a big procedure (though you won’t always have time to do so.) 

Applying for charity care when getting health care at a nonprofit hospital or within a nonprofit hospital system. You may qualify even if you think you make “too much.”

Are Insurance Companies Making Huge Profits?

Insurance companies are making large profits, to a certain extent. Their profits are limited by the medical loss ratio rule under the ACA – 80% to 85% of the premiums they bring in must go to actual health care payouts on employer-sponsored plans. But as the cost of health care goes up, so does the amount insurance companies are allowed to bring in. 

The percentages under the medical loss ratio stay the same, but the real-dollars change, which can sometimes lead to year-over-year profit increases. Other years, the year-over-year numbers might go down, but the insurance company could still log a net profit in the tens of billions. 

(These year-over-year decreases are also sometimes caused by reductions in how much the federal government pays out via Medicare and Medicaid claims rather than a reduction in profits from premiums.)

That said, the underlying driver of health insurance costs in America is the increase in the actual health care costs. If hospital care, physician care and prescription drugs weren’t getting more expensive, insurance companies wouldn’t be allowed to charge more.

FAQs About Health Insurance Costs

Final Verdict

It’s not just you – health insurance is getting progressively more expensive. Health insurance premiums are rising because the cost of seeking care in your hospital or physician’s office is also rising. Even still, health insurance can protect you from bearing the costs of those excessive bills on your own.

You can offset rising costs by shopping for the most cost-effective plan that still provides adequate coverage for your needs. When looking for a job, an affordable employer-sponsored health insurance plan should be a priority. In some instances, a slightly lower salary might end up being a smarter financial move if the insurance package is amazing. 
You can’t stop premium increases, but you can try to make them more manageable. But there are other things you can do to lower your health care costs in the meantime, like negotiating prices prior to certain procedures, applying for financial assistance programs when you receive care from nonprofit hospital systems and going through your billing statements with a fine-tooth comb to find errors.

Pittsburgh-based writer Brynne Conroy is the founder of the Femme Frugality blog and the author of “The Feminist Financial Handbook.” She is a regular contributor to The Penny Hoarder.