Get the facts: Why do my premiums and out-of-pocket costs keep going up?

It seems like everything is more expensive these days, and that includes our health care coverage. Whether you get your insurance through Medicare, your employer or an individual plan, there’s a good chance your monthly premium, deductible or co-pays increased this year.

With the cost of living already so high, these increased health care costs might feel especially burdensome. And you might be tempted to blame your health insurance company. After all, many people assume their costs are going up because their insurance company is just out to make a bigger profit.

But as it turns out, the facts don’t support that conclusion.

Health plan premiums and out-of-pocket costs directly correlate with the cost of health care services. If the cost of going to the doctor, having surgery at a local hospital, or picking up a prescription at a pharmacy increases, the cost of your health plan will increase as well.

That’s because your monthly premium payments, when combined with the payments of everyone else enrolled in your plan, are what’s used to cover the cost of your care. So if the care itself becomes more expensive, the premiums will need to be higher to cover those costs.

And that leads to the primary reason your health plan premium keeps going up: Health care costs have been rising every year because health care providers – hospitals, doctors and pharmaceutical companies – have been charging higher and higher prices.

Consider the following:

• According to the Centers for Medicare & Medicaid Services, the amount of money spent on health care in the United States tripled from 2000 to 2024, going from $1.4 trillion to $5.3 trillion.¹
• Since 2000, hospital prices have increased by more than 250%, which is twice the overall rate for medical care and triple the rate of inflation.²
• A 2025 Kaiser Family Foundation report noted that the prices commercial health plans paid for hospital care increased substantially from June 2014 to December 2024, going up by 50% for inpatient hospital care and by 42% for outpatient hospital care.³
• According to a research letter published in JAMA Network Open, total U.S. spending on GLP-1 drugs in 2023 reached $71.7 billion, which is a 500% increase in spending on these drugs compared to five years earlier.⁴

As overall health care costs have gone up, the amount of money American families spend on health care has gone up as well.

• Health care spending consumed 8.2% of the average household budget in 2019, up from 5.4% in 2000, according to the Peterson-KFF Health System Tracker.⁵
• From 2018 to 2022, per-person spending on prescription drugs rose from $1,155 to $1,563, according to the Health Care Cost Institute. Spending on outpatient services rose from $1,596 to $1,889 in that same time period.⁶

No. While it’s true that health insurers make a profit, they’re the only entity in the health care system whose profits are capped, as mandated by the Affordable Care Act. As a result, their profit margin is much smaller than that of large for-profit hospital systems and pharmaceutical companies.

The Affordable Care Act requires insurers to spend 80% to 85% of the premiums they collect directly on patient care in the form of paid claims and initiatives that improve the quality of care. If they don’t meet that requirement, they have to issue rebates to their employer customers and members. Those rebates are essentially payments that reimburse employers and members for the premiums they paid.

• After spending the required percentage of the premiums we collect – 80% for our individual and small group plans and 85% for our large group plans – on claims payments and quality initiatives, UnitedHealthcare typically spends about 10% on administrative costs for things like managing the claims payment process and providing customer service to members and providers.
• With more than 51 million members and 1.7 million providers in our network, our administrative functions are robust.
• An average day for us includes 1.1 million interactions with our members online or through our app, 320,000 phone calls with our members, 24 million digital transactions and 100,000 phone calls with providers.

After paying our members’ claims and covering our administrative costs, our profits are around 5%. Compare that to the average profit margin of for-profit hospital systems of 14%.¹ And the real money is with medical device companies, which have a 22% average profit margin⁷ and big pharma, where the average profit margin is 23%.⁸ What that tells you is that if your sole objective was to get into the health care industry to make money, you probably wouldn’t want to be a health insurer.

Depending on what type of health plan you’re enrolled in, your employer – not your health insurance company – might determine what your premium and out-of-pocket costs will be.

The majority of Americans – about 165 million people – get their health coverage through work, and 67% of them are enrolled in what’s called a self-insured plan.⁹ With these plans, it’s actually the employer’s funds – not the health insurer’s – that cover the costs when employees access health care services.

In exchange for accepting the risk of paying their employees’ health care claims, self-insured employers get to design their health plans, including what will and won’t be covered and how much their employees will pay in the form of a monthly premium and out-of-pocket costs. So if you’re enrolled in a self-insured employer plan and something isn’t covered, your health plan will often encourage you to reach out to your employer to determine what your options are. 

For the other 33% of people enrolled in employer-sponsored plans, their employers don’t have as much flexibility to design their plans, but even so, they typically get to pick from a set of options from the health insurer they selected. For example, they might get to choose between a plan with a higher premium that includes comprehensive benefits and a plan with a lower premium and slightly less robust benefits. The employer then chooses the plan they feel best meets their employees’ needs.

Even though self-insured employers can decide how much their employees’ monthly premiums will be, those premiums still have to cover the cost of care. And employers have been confronted with the same health care cost challenges as health insurers, thanks to hospitals, doctors and pharma companies charging higher prices. As a result, many employers have shifted more of the burden of these rising costs onto their employees.

• For example, they might increase the share of the premium that the employee is expected to pay. Or if they want to maintain stability in monthly premiums, sometimes employers will increase the employee’s out-of-pocket costs through a higher deductible and co-pays.
• Consider that the average American spent $1,425 out of pocket on health care in 2022, according to the Peterson-KFF Health System Tracker.¹⁰ Back in 2010, that figure stood at $976.

Health insurance is a heavily regulated industry, with both the federal and state governments setting rules and regulations that insurers must abide by. But those rules and regulations are designed to ensure that health insurers are stable and able to pay claims.

When you consider the most fundamental reason someone would enroll in health insurance, it’s the peace of mind of knowing they won’t be burdened with medical debt if the worst-case scenario happens like a major accident or serious diagnosis like cancer. Health insurers have a legal obligation to protect that peace of mind for their members by ensuring they have funds available to cover the costs of the claims submitted to them, even if claims costs increase dramatically.

Forcing insurers to lower their plans’ premiums and out-of-pocket costs without addressing the fundamental cause of these higher costs (i.e. hospitals, doctors and pharma companies charging higher prices) would jeopardize the stability of the health insurance market by compromising plans’ ability to make claims payments. So the rules and regulations governing the insurance industry require insurers to approach decisions about plan premiums and out-of-pocket costs with a focus on the long-term sustainability and solvency of their plans.

That’s why it’s essential that insurers accurately forecast future health care spending and set appropriate pricing for their plans. If their forecasts are off and spending exceeds expectations, insurers sometimes close plans or exit certain markets, which leaves people with fewer options for their health care coverage. Health insurers work hard to avoid that kind of disruption by carefully designing their health plans and working to ensure the pricing for their plans is appropriate and sustainable.

Dealing with higher health care costs can be frustrating, but there are steps you can take to save money on the care you and your family need. Check out this article for more on that topic.