What’s Driving Rising Health Premiums?
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Costly health insurance premiums are straining employers and consumers alike. But, it’s underlying health care spending, especially for hospital care, that’s driving costs.
KFF’s Larry Levitt looks at how hospital consolidation and employer demands for broad networks affect insurers’ ability, and willingness, to control prices.
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Video Transcript
Narrated by Larry Levitt, KFF Executive Vice President for Health Policy
Are insurers at the root of our health system’s problems? The answer is complicated. And the politics are contentious with leaders from both parties pointing fingers at health insurance companies.
President Trump has claimed that the Patient Protection and Affordable Care Act “enabled large insurance companies to get rich” and that he wants, to quote, “stop all payments to big insurance companies and instead give that money directly to the people, so they can buy their own health care.”
Meanwhile, prominent Senate Democrats released their goals for changes to the health care system, pledging, to quote, “develop policies that lower costs,” “make it simpler to get and use insurance,” and “rein in shameless profiteering by corporate insurance companies.”
So, how much blame do insurers deserve for high health care costs and patient frustrations?
Prior authorization, claim denials, and narrow provider networks are ways insurers keep costs down, but they also impact patient care. Insurers add administrative overhead to premiums as well.
But, the fact of the matter is, it’s high underlying health care costs – for hospital care, physician and clinical services, retail prescription drugs, and other health expenditures – that are the biggest driver of increasing insurance premiums.
Insurers pass those costs along or risk declining profits and ultimately insolvency.
U.S. health spending has risen sharply over the years, reaching $5.3 trillion in 2024.
Hospitals account for the largest share of national health spending, and they’ve driven 40 percent of the growth in recent years. Costs for physician services and retail prescription drugs are also growing, though they represent a smaller share.
Insurers point to hospital consolidation as driving up prices. And they have a point. In 2024, just one or two health systems controlled all of inpatient hospital care in nearly half of U.S. metro areas.
To be fair, it is not insurers alone that have failed to push back against hospital prices. Employers want broad networks of hospitals and physicians and that blunts the main leverage insurers have to limit prices.
It’s a dynamic that leaves costs high and accountability diffuse.
But, if insurers are largely passing on health care costs to employers and consumers, it raises the question of what value are they really providing?
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