The Quiet Pay Cut: Rising Health Insurance Costs Are Eroding Worker Compensation

The average annual family premium for employer-sponsored health insurance reached $26,993 in 2025, according to KFF's (Kaiser Family Foundation) annual benchmark survey of employers. Workers contribute $6,850 of that cost out of their paychecks. Family premiums rose 6% this year, continuing a pattern of 6 to 7% annual increases over the past three years, outpacing both general inflation (2.7%) and wage growth (4%). Costs are expected to accelerate: Aon estimates that employer coverage will surge approximately 9.5% in 2026, the largest single-year increase in at least 15 years. About 154 million Americans under 65 depend on employer-sponsored coverage, making this a compensation crisis hiding in plain sight.

The Hidden Pay Cut

Every dollar an employer spends on health insurance premiums is a dollar unavailable for wages. This is well-established economics, and the scale of it is staggering. A January 2024 study published in JAMA Network Openfound that from 1988 to 2019, the mean cumulative lost earnings associated with growth in health insurance premiums was $125,340 per family, nearly 5% of total earnings over that 32-year period. If employer-sponsored insurance costs had remained at the same proportion of the 1988 compensation package, the median family with employer coverage could have earned $8,774 more in annual wages by 2019.

This cost falls hardest on the people who can least afford it. The same JAMA Network Open study found that by 2019, health care premiums consumed 19.8% of compensation for Hispanic families and 19.2% for non-Hispanic Black families with employer-sponsored insurance, compared to 13.8% for non-Hispanic White families. At the 20th percentile of earnings, premiums consumed 28.5% of compensation, compared to just 3.9% at the 95th percentile. Because most employers do not adjust premium contributions by income, rising health insurance costs function as a regressive tax on lower-wage workers, widening racial and economic inequality through a mechanism that rarely gets the attention it deserves.

Fresh data from the Federal Reserve Bank of New York confirms this dynamic is accelerating. In February 2026 regional business surveys, firms reported health insurance cost increases averaging more than 13%. Those same firms reported that absent the cost increases, they would have raised wages by roughly an additional percentage point, representing a 20% drag on wage growth. To put the numbers in perspective: the average annual premium for employer-sponsored family coverage is now roughly equivalent to the full-time annual wage of a worker earning $15 per hour.

When Workers Bear the Burden

As premiums climb, employers pass costs along through higher deductibles and out-of-pocket expenses. The average single-coverage deductible in 2025 stands at $1,886, up 17% over five years, according to the KFF 2025 Employer Health Benefits Survey. Workers at small firms face average deductibles of $2,631, and more than half of covered workers at those firms now face deductibles of at least $2,000. Nearly three-quarters (72%) of covered workers face out-of-pocket maximums above $3,000, with one in five facing maximums above $6,000.

The consequences are measurable and immediate. A March 2026 Employee Benefit Research Institute (EBRI) survey found that four in ten privately insured adults reported higher healthcare costs in the past year. Among those, roughly a third had trouble covering their bills, and a quarter reduced retirement contributions. People are delaying and avoiding care because of cost. As EBRI director Paul Fronstin noted, affordability now shapes both access to care and longer-term financial security.

For people living with HIV and other chronic conditions, delayed care carries compounding risks. Interrupted treatment, missed appointments, and medication non-adherence can undermine viral suppression and lead to worse health outcomes, higher long-term costs, and greater strain on the healthcare system.

What's Driving the Increase

Employers point to multiple converging cost drivers. Among large firms in the KFF survey, 36% say prescription drug prices contributed "a great deal" to higher premiums in recent years, followed by the prevalence of chronic disease (30%), higher utilization of services (26%), and hospital prices (22%). GLP-1 medications for weight loss have become a particular flashpoint: among the biggest employers covering these drugs, 59% say utilization exceeded expectations and two-thirds report a significant impact on prescription drug spending.

The problem for employers is that their usual playbook is running out of room. Strategies like changing plan designs and managing vendors more tightly are likely to shave only two or three percentage points from the average increase, according to Aon. When costs are rising 9.5%, that arithmetic does not work, and 64% of CFOs and CEOs say an 8 to 10% cost increase is the threshold for making significant changes to their coverage offerings. Those changes typically mean workers pay more.

The Small Business and Nonprofit Squeeze

Small businesses face an even sharper version of this crisis. Half of the nation's smallest employers do not offer health insurance at all, and those that do are struggling to hold on. Rachel Bernier-Green, who started the financial consulting firm EJ Consortium in Chicago in 2023, began offering health benefits to her six workers in 2025. By the time premiums spiked, she was forced to drop coverage entirely. In the nonprofit sector, where mission-driven organizations serve communities affected by chronic conditions and health disparities, this dynamic is particularly concerning.

At the Community Access National Network (CANN), we take a different approach. "Given the work that we do, it is critical in actualizing our values — our goals for the rest of the patient community — to ensure our employees are well-covered and able to realize their full compensation value," said Darnell Lewis, CANN Board Chair. "This means providing our employees with high-quality, low deductible, low co-pay / co-insurance, and low maximum out of pocket health insurance coverage with 100% of the monthly premium assumed by CANN for all employees. We also recognize the need for ensuring our employees' families are well covered, which is why we covered 50% of dependent premiums for the same quality of coverage. We are actively modeling the best practices in compensation and coverage that we urge the rest of the non-profit sector and all businesses to adopt."

Too many nonprofits treat employee benefits as an afterthought. When an organization's mission centers on health access and health equity, the benefits it provides its own people should reflect that mission. Taking care of the people who do the work is a core organizational value, and it is a standard the sector should rise to meet.

PBM Reform: A Policy Opening

A significant share of premium growth traces back to prescription drug costs, and 2026 has brought the most meaningful federal action on pharmacy benefit manager (PBM) reform in decades. Three converging actions deserve attention. On January 29, 2026, the U.S. Department of Labor (DOL) proposed a rule requiring PBMs to disclose rebates, spread pricing, and pharmacy claw-backs to plan fiduciaries of self-insured group health plans, covering approximately 90 million Americans. Days later, the 2026 Consolidated Appropriations Act (CAA) was signed into law on February 3, requiring 100% rebate pass-through for Employee Retirement Income Security Act (ERISA) plans and delinking PBM compensation from drug prices in Medicare Part D beginning in 2028. On February 4, the Federal Trade Commission (FTC) settled with Express Scripts, requiring elimination of spread pricing and point-of-sale rebate pass-through in its standard offerings by January 2027, while litigation continues against Caremark Rx and OptumRx.

These reforms target an opaque layer of the drug supply chain that has long driven up costs for plans and the people they cover. For people living with HIV, where antiretroviral therapy is both lifesaving and lifelong, PBM practices affect formulary design, out-of-pocket costs, and pharmacy access in direct and material ways. Comments on the DOL proposed rule are due March 31, 2026, and patient advocates, employers, and labor organizations should submit them.

Where Employer and Labor Interests Align

Rising premiums represent one of the clearest points of alignment between employers and labor. Unions have historically secured better health benefits for members. Bureau of Labor Statistics data show that 96% of union workers have access to medical care benefits compared to 69% of non-union workers, with lower premium contributions and lower deductibles. Some unions have gone further, partnering with employers to address the root causes of cost growth. A Boston hotel workers' union built provider networks excluding the highest-cost hospitals and offered no-deductible plans at premiums one-tenth the national average, with emergency room use dropping significantly in the first year. In New Jersey, public-sector unions used a PBM "reverse auction" model that secured a contract 10% below projections and saved $1.5 billion over three years.

These examples demonstrate that cost containment does not have to mean cost-shifting. Unions, as both purchasers and users of health benefits, are positioned to push for reforms that target provider prices and supply-chain opacity rather than asking workers to accept higher deductibles and thinner coverage.

What We Can Do

The policy window is open. Here is where we need action:

Policymakers should strengthen PBM transparency reforms, ensure the DOL proposed rule includes robust enforcement mechanisms, and monitor implementation of the 2026 CAA provisions. State-level cost commissions and hospital price transparency initiatives deserve expanded support.

Employers should review PBM contracts now, well before the CAA requirements take effect for plan years beginning January 1, 2029. Coalition purchasing strategies and value-based plan designs that target price rather than utilization offer more sustainable paths than continuing to shift costs to workers.

Advocates and labor organizations should submit comments on the DOL proposed rule before the March 31 deadline. We should push for extending commercial drug pricing reforms and advocate for policies that address the underlying drivers of premium growth.

The math here is straightforward: rising health insurance costs reduce wages, deepen inequality, and force people to delay or forgo care. For those of us working in patient advocacy, health equity, and public health, this should be a unifying cause. We all share an interest in a system where comprehensive coverage is the standard, not the exception.