Health Insurance Costs Set to Rise Again in 2027
· audio
The Hidden Tax: How Healthcare Costs Are Creeping Up on Workers’ Paychecks
The quiet number on your pay stub just got a whole lot louder. As healthcare costs continue to rise, employers are struggling to keep up, leading to increased deductions from workers’ take-home pay. A recent survey by Mercer found that healthcare costs per employee will jump 8.2% in 2027, the steepest increase since 2003 and the fifth consecutive year of elevated costs.
This trend is not just about what employers are paying; it’s also about how those costs translate into out-of-pocket expenses for workers. According to Mercer, two-thirds of companies with 500 or more employees plan to raise premiums, meaning paycheck deductions will climb even faster than that 8.2% average. As Nick Stefanizzi, CEO of Northwell Direct, noted, “The reality is this does eat into money that could be invested in wages.” Health insurance makes up almost a quarter of the benefits employers pay workers per hour.
Rising healthcare costs are driven by several factors, including hospital consolidation and less government spending on healthcare. New treatments like GLP-1 weight-loss drugs and AI-enabled medical billing also contribute to increased costs. Mercer’s chief actuary Sunit Patel estimates that GLP-1 use alone accounted for one percentage point of the total increase in health cost growth for 2027.
The real challenge is not just about healthcare costs themselves, but how they’re eating into workers’ take-home pay. Employers can hike up employees’ share of premiums, raise deductibles and copays, or make changes to existing medical plans that will translate into higher costs for their employees next year. Economists have found that higher healthcare premiums can also lead to smaller wages because health insurance is part of workers’ total compensation.
This trend has been building for years, with significant implications for workers. As Navin Nagiah, CEO of healthcare technology company Daffodil Health, noted, “Employers have a certain amount they can spend on each employee, and that includes salary, healthcare, and other benefits.” If healthcare takes up a bigger piece of that pie every year, there is less money left for everything else.
The Congressional Budget Office has been tracking this trend for years. According to its reports on household income, health insurance contributions have driven salaries down from 91% of total worker compensation in 1960 to an average of 82% in the past decade. The CBO projects that the cost of health insurance will slightly outpace wages in the next 30 years.
As healthcare costs continue to rise, workers will shoulder more and more of the burden. This is not just about what’s happening today; it’s also about the long-term implications of a system where health insurance is increasingly becoming a substitute for cash wages. Employers will need to start paying closer attention to their pay stubs and asking questions about how those costs are being absorbed. Policymakers must consider addressing the root causes of these rising costs, from hospital consolidation to new treatments and technologies.
Ultimately, this trend has significant consequences for workers’ take-home pay in an era of rising expenses and stagnant wages. As Brandy Thompson, CEO of benefits technology company BenefitBay, noted, “They’re going to absorb some portion of it at the employer level, and then they’re going to push the rest to the employee.” It’s a trend that’s only going to continue unless something changes – and fast.
Reader Views
- CBCam B. · audio engineer
What's getting lost in this narrative is that these cost hikes aren't just about healthcare itself, but also about employer-brokered deals with insurance providers. Employers are essentially pass-through entities, marking up costs to pad profits rather than directly absorbing the expenses. To mitigate these increases, employees and employers should consider direct-to-employee plans or self-insurance options – a more equitable approach that cuts out middlemen and puts healthcare dollars back where they belong: in workers' pockets.
- RSRiya S. · podcast host
What's striking is how this uptick in healthcare costs isn't just about corporate wallet pain – it's also a gut-check for the sustainability of our employer-based health insurance system. With nearly a quarter of workers' compensation now going towards benefits that are supposed to be employer-sponsored, we're essentially transferring more and more of the cost burden onto employees. But as wages stagnate and healthcare costs soar, when do we start talking about fundamentally rethinking this model?
- TSThe Studio Desk · editorial
While the Mercer survey highlights the steep increase in healthcare costs for 2027, the real concern lies in the ripple effect on workers' take-home pay. As employers scramble to absorb these rising expenses, many will inevitably turn to cost-cutting measures that disproportionately affect employees. However, a more comprehensive solution would be to address the systemic factors driving up healthcare costs, such as over-reliance on expensive treatments and hospital consolidation. Without tackling these underlying issues, workers may find themselves caught in a perpetual cycle of increased premiums and shrinking wages.