Are Rising Employee Health Insurance Costs Dampening Wage Growth?

Abel, Jaison R.; Deitz, Richard; Montalbano, Nick

doi:10.59576/lse.20260304b

Discussion Paper

Are Rising Employee Health Insurance Costs Dampening Wage Growth?

Abstract: Employer-sponsored health insurance represents a substantial component of total compensation paid by firms to many workers in the United States. Such costs have climbed by close to 20 percent over the past five years. Indeed, the average annual premium for employer-sponsored family health insurance coverage was about $27,000 in 2025—roughly equivalent to the wage of a full-time worker paid $15 per hour. Our February regional business surveys asked firms whether their wage setting decisions were influenced by the rising cost of employee health insurance. As we showed in our companion post, respondents reported an average increase in such costs of more than 13 percent this year. Businesses providing insurance to their workers indicated that absent these cost increases, they would have raised wages by roughly an additional percentage point, on average, suggesting that rising health insurance costs resulted in a drag on wage growth for workers at these firms.

JEL Classification: J30; R11;

https://doi.org/10.59576/lse.20260304b