In recent discussions about the precarious state of employer-sponsored health insurance in the United States, it has become increasingly clear that this system is facing unprecedented challenges. Despite its crucial role in providing coverage for over 165 million Americans, rising costs are pushing both employers and employees to their limits. This article explores the current situation and its implications for workers and businesses alike.
Yves here. While the tone of this piece may feel conversational, as it’s derived from a podcast, it highlights important points that deserve attention. The most alarming statistic discussed is that the cost of employer-sponsored insurance has soared four times faster than the general inflation rate for the past 40 years. This trend is unsustainable and signals an inevitable breakdown of the system.
We have cautioned that the U.S. is beginning to follow a troubling path reminiscent of Russia in the 1990s, and this is one of the ways in which that trajectory is manifesting.
By Dan Weissmann, host and producer of “An Arm and a Leg.” Previously, Dan was a staff reporter for Marketplace and Chicago’s WBEZ. His work also appears on “All Things Considered,” Marketplace, the BBC, “99% Invisible,” and “Reveal,” from the Center for Investigative Reporting. Originally published at KFF Health News
Employer-sponsored health insurance has long been a key factor in employment—luring talent to companies and sometimes serving as “golden handcuffs” that trap employees in jobs they might prefer to leave. However, the escalating costs are straining this vital system more than ever. As insurance premiums rise, employers are increasingly passing costs onto their employees, leading to a noticeable decline in the number of small businesses providing health insurance.
Bob Herman, a reporter for Stat, has been documenting this trend in his series “Out of Pocket, Out of Reach.” Dan Weissmann, the host of An Arm and a Leg, joins Bob to examine how various businesses cope with the surging insurance costs and what this means for their employees.
Note: “An Arm and a Leg” employs speech recognition software to create transcripts, which may not always be accurate. Please reference the audio for accurate quoting.
Dan: Hey there! Rachel Bernier-Green manages Thrive-O Financial Advisory on Chicago’s South Side. Describing herself as a fractional CFO for small businesses, she offers strategic financial insight along with accounting services. Health insurance has been a part of her business model from the outset.
Before hiring any staff, Rachel factored additional funds into her pricing to create a reserved rainy day fund. But by late 2024, she felt the need to establish health insurance for her team.
Rachel Bernier-Green: I had been in business for some time, had a few team members, and things were progressing well.
Dan: She understood the importance of health insurance for retaining her team.
Rachel Bernier-Green: That’s when I began to think, “How do we implement this?”
Dan: She acted swiftly—by January 2025, her six-person team had health insurance. Then, things took a turn.
In early 2025, a significant client dropped out, affecting her income. By spring, Rachel faced a dire situation; the costs for the upcoming year’s insurance were projected to skyrocket. Some of her clients had already received steep rate hikes.
Rachel Bernier-Green: It was like standing on the tracks, watching doom approach, knowing I would face the same situation soon.
Dan: Rachel promptly informed her team about the financial developments. She practices open book accounting, sharing complete financial details with her colleagues.
Rachel Bernier-Green: We hold regular meetings where we discuss numbers transparently. So when we reached a decision point regarding the health insurance, it wasn’t a surprise. Everyone was aware of the situation.
Dan: They reached this decision in a team meeting, which was anything but ordinary.
Rachel Bernier-Green: My heart sank because I knew what we needed to do but dreaded implementing it.
Dan: They received their renewal notice for 2026, revealing an over 10% increase in health insurance costs. The entire team agreed the business couldn’t absorb that expense.
Rachel Bernier-Green: The numbers were undeniable. Everyone understood that the priority was to ensure the business’s survival, allowing us to reinstate those benefits in the future.
What’s most striking is that a team member reliant on the insurance reassured her that the decision was correct.
Dan: Even with this consensus, Rachel described the experience as devastating. She switched to her husband’s employer’s plan, one colleague left the firm, and two are now uninsured. Rachel and her colleagues are just one example among many.
They recently gained prominence in a Stat article titled: “America’s Small Businesses are Giving Up on Health Insurance,” which highlights a crisis that extends beyond small employers. This article launches the eight-part series “Out of Pocket, Out of Reach,” exploring how America’s employer-based healthcare system is deteriorating.
Bob Herman, uniquely qualified to dissect this issue as the Business of Healthcare Reporter at Stat, has spent years investigating healthcare corporate giants like UnitedHealth Group and compiling the list of the highest-paid CEOs in healthcare—some earning hundreds of millions annually. Bob knows how to make large problems relatable. He’s coming up next on An Arm and a Leg, a show dedicated to understanding the exorbitant costs of healthcare and potential solutions.
I’m Dan Weissmann, your reporter. We’ve taken on the challenge of revealing one of the most frustrating aspects of American life while also bringing you insightful and engaging content. Bob Herman joined me, recording from a closet to escape noise from his kids.
During our conversation, I asked, “How did you reach the conclusion that employer health insurance is not only problematic but actively deteriorating?”
Bob Herman: It all started after returning from parental leave. My wife and I had to decide on our health insurance plans—an unpleasant task. Despite covering healthcare issues, it remains tedious and high-stakes. As headlines showed double-digit increases in employer-sponsored health insurance, I recognized it was a crucial topic for an in-depth investigation.
Dan: Your findings revealed a significant structural problem, particularly the accelerating costs of employer-sponsored insurance.
Bob: Absolutely. Over the past several decades, costs have increased almost 1,000%, far surpassing wage growth during the same period.
Dan: This huge jump effectively serves as a hidden pay cut for many workers.
Bob Herman: That’s precisely the aim of this series—to help workers understand how their employer’s healthcare spending directly impacts their earnings, ultimately raising costs for everyday expenses like groceries and rent.
Dan: Even with employer-sponsored plans, every dollar directed to health insurance is a dollar that could be paid as wages.
Bob Herman: Exactly. Many workers perceive only a small fraction of what they actually pay for insurance. The reality is that their employers bear much of the cost, but this remains largely unseen by employees. This hidden expense contributes significantly to the financial pressure many Americans face.
Dan: The figures are staggering. An average employer-sponsored family plan costs around $27,000 annually. That’s like buying a new car every year!
Bob Herman: Yes, your employer foots the bill for most of that, which remains concealed and ultimately allows the healthcare system to operate unchallenged.
Dan: It’s worth noting that the rising premiums stem from escalating healthcare costs overall, affecting everyone and encouraging price inflation across the board.
Bob Herman: Employers pour vast resources into health insurance premiums, creating a scenario akin to a feeding frenzy. At this year’s JP Morgan conference, industry leaders openly acknowledged that commercial insurance—which most employees rely on—profoundly benefits them. They can charge whatever they like because they are aware of the substantial funding available.
Dan: This dramatic increase in health insurance costs is a direct outcome of rising healthcare expenses. Is it possible that these hidden costs enable price gouging?
Bob Herman: Absolutely. Employers invest enormous sums into insurance premiums, and hospitals, drug companies, and other providers exploit this without understanding how much workers are contributing.
Dan: Large businesses can cushion themselves against these rising costs, but small businesses, with limited reserves, face severe challenges and may struggle to offer health insurance altogether.
Bob Herman: Exactly. Small businesses operate on tight budgets, where even one major medical claim can result in staggering premium increases. I spoke to one Pennsylvania business that had to deal with a 50% rate hike due to just one claim.
Dan: What options do small businesses have when facing such drastic increases?
Bob Herman: Many small businesses want to offer health insurance but may be forced to abandon this due to financial pressures. Some provide employees with cash allowances to purchase insurance through the ACA marketplace, but that option often entails higher costs and diminished coverage.
Dan: The individual plans on the exchange tend to be inferior compared to employer-sponsored options.
Bob Herman: They indeed are, even with the protections the ACA offers against pre-existing conditions. However, high deductibles raise the question of whether they offer adequate coverage at all.
Dan: From the data, it’s clear that smaller employers are struggling, while larger employers maintain higher health plan offerings—around 97%.
Bob Herman: Correct. This disparity illustrates the economy’s divide; large companies can afford to offer health insurance, while small companies find themselves under increasing financial pressure.
Job lock is a term that captures the idea of employees staying in jobs they dislike solely for the health benefits. Studies show that around 24% of surveyed individuals would leave their jobs if not for health insurance concerns.
Bob Herman: Yes, job lock tends to disproportionately affect those with chronic health conditions, making it particularly challenging for individuals who need insurance the most.
Dan: The healthcare landscape is evolving, and even large employers are feeling the consequences of rising premiums.
Bob Herman: Absolutely. Many companies are redesigning health benefits and shifting more costs to workers, reinforcing the notion that rising costs affect the workforce at every level.
The ongoing chaos surrounding Medicare Advantage plans illustrates another critical aspect of the healthcare landscape.
Bob Herman: Indeed. Recent reports highlighted how Disney plans to drop dependent coverage if spouses have offers from their employers. This approach contradicts the very essence of family-friendly policies.
Dan: Such a shift poses questions about the entire employer-sponsored insurance system and its future.
Bob Herman: It’s a telling sign that even large employers may not prioritize health insurance in the same manner, suggesting a broader pattern of deterioration within the system.
The experts Bob consulted do not expect any immediate changes, despite widespread dissatisfaction. Analyzing who benefits from the current system reveals a complex web, including significant tax breaks that incentivize companies to maintain the status quo.
Bob Herman: The greatest tax break in the American tax code is employer-sponsored health insurance, allowing companies to bypass substantial federal taxes. Therefore, many will resist changes even if it costs them in other areas.
Dan: It’s surreal to realize just how much money flows through these systems, raising the question of how workers will cope as healthcare costs continue to climb.
Bob Herman: Workers ultimately bear the cost through either their wages or taxes. Everyone contributes; that’s the underlying reality of our healthcare system.
Dan: As parents, how do you feel about the future of healthcare for your children as they transition into the workforce?
Bob Herman: It’s concerning. I worry about their ability to find affordable insurance amid rising costs, forcing them into jobs they dislike just for coverage. The prospect of their basic living standards being compromised is daunting.
Dan: Indeed, now is the time to address these issues before they escalate further.
Rachel Bernier-Green: I am anxious about future costs, but it’s not a constant worry. I’m on track to reinstate insurance for my team in 2027, having implemented strategies that have proved beneficial for our operations.
Dan: As a business owner, I’m also preparing for challenging conversations with our insurance broker regarding potential increases.
Rachel Bernier-Green: Those hikes may seem extreme, yet organizations like mine are bracing for the reality of absorbing these costs.
Dan: How did you react to Bob’s article? Did his conclusions resonate with you?
Rachel Bernier-Green: I found myself silently cheering; his findings align closely with my own experiences. The healthcare system is indeed broken and requires a significant overhaul.
Dan: On one hand, this article underscores a multitude of issues, but on the other, it highlights shared experiences that unite us in our struggle. We’re not alone; the fabric of the system is indeed unraveling.
Join us next time on An Arm and a Leg as we dive into Medicare Advantage and explore yet another facet of the healthcare crisis.
News anchor: Many health insurance providers are discontinuing their Medicare Advantage plans.
Female voice: I heard that news—it was heartbreaking.
Female voice 2: It’s best described as total chaos.
Dan: Awareness is crucial. It’s far better to prepare than to be caught off guard.
