Health insurance premiums are rising—here’s why
Monthly health insurance bills are rising for many Americans, with those on Affordable Care Act (ACA) plans seeing particularly high increases due to the expiration of enhanced ACA premium tax credits at the end of 2025. Also known as enhanced subsidies, these credits were passed by Congress in 2021 to temporarily expand eligibility for lower health insurance premiums. Health policy expert Meredith Rosenthal, C. Boyden Gray Professor of Health Economics and Policy and chair of the Department of Health Policy and Management at Harvard T.H. Chan School of Public Health, discusses the impact of higher premiums and explains why health care costs keep rising.
Q: How big a deal is it that ACA enhanced subsidies have expired?
A: Unfortunately, the expiration of the ACA enhanced subsidies is a very significant blow to insurance coverage and affordability. Estimates from Kaiser Family Foundation suggest that on average, premiums on the ACA marketplace would nearly double compared to 2025.
The biggest dollar increases in premiums are for the populations with incomes that are above 400% of the federal poverty level (about $60,000). These are the people who have lost their subsidy altogether. Moreover, older people in that group who pay the highest premiums will be the most impacted in dollar terms. It is worth noting that lower-income groups may be losing a smaller dollar subsidy, but those households may be less able to absorb any amount of increased cost.
The government reports that about 1.5 million fewer people have signed up for health insurance through the ACA marketplaces this year. That is not the whole story however because more people will likely drop their coverage in the coming months because the premium payments are unaffordable.
Q: If a significant number of younger, healthier people drop their ACA plans, what is the potential impact on the program and the broader U.S. health care system?
A: The likelihood that younger, healthier people will disproportionately choose not to purchase health insurance when it becomes more expensive is a perennial concern in a system where coverage is voluntary. If these individuals, whose health care costs are lower on average, exit the risk pool, the average cost of care will increase and thereby cause premiums to increase further. The worry is that this process can spiral (known as a “death spiral”) and lead to further disenrollment and even higher premiums.
Q: In addition to people on ACA plans, premiums for people on employer-sponsored plans and Medicare are also going up. What in your view are the most important drivers of premium growth?
A: During the last several years, the pace of health care spending growth in the U.S. has picked up, and this leads to higher premiums for everyone.
Recent research has shown that prescription drugs, physician services, and hospital care (in that order), are the most important drivers of cost increases for health care services. Moreover, increased utilization of some high-cost diagnostics and therapies like “skin substitutes” used in wound care—as opposed to price inflation—seems to be the most important factor in the last few years.
While insurance pricing behavior affects premiums as well, the data I have seen suggest that increases in insurer profits don’t seem to be driving the high levels of premium growth we are seeing.
Q: What policy options could help stabilize or reduce premiums without reducing access to care?
A: Policy options to stabilize or reduce premiums while preserving as much health care access as possible will need to be multi-pronged—there is no one solution. As some members of Congress have suggested, a way forward could be to restore subsidies for some period while developing a package of policies to address the underlying drivers of health spending. These policies could include efforts to increase provider competition, value-based provider payment arrangements, or putting limits on health care services or prescription drug prices.
Another policy proposal has been to offer people vouchers of a few thousand dollars that could be used to help them buy coverage. While this idea would help some people afford coverage, as proposed by the administration it would not help most people as much as the previous subsidies, and appears to be a one-time payment.
