Employer-sponsored medical insurance represents a considerable element of complete compensation paid by companies to many employees in the USA. Such prices have climbed by shut to twenty % over the previous 5 years. Certainly, the common annual premium for employer-sponsored household medical insurance protection was about $27,000 in 2025—roughly equal to the wage of a full-time employee paid $15 per hour. Our February regional enterprise surveys requested companies whether or not their wage setting choices have been influenced by the rising price of worker medical insurance. As we confirmed in our companion publish, respondents reported a mean improve in such prices of greater than 13 % this 12 months. Companies offering insurance coverage to their employees indicated that absent these price will increase, they might have raised wages by roughly a further share level, on common, suggesting that rising medical insurance prices resulted in a drag on wage progress for employees at these companies.
Wage Progress Continues to Sluggish
Our February regional enterprise surveys requested companies within the New York-Northern New Jersey area about previous and anticipated adjustments of their wages, questions which we requested in prior years. As proven within the chart under, wage progress has slowed yearly since 2022, doubtless reflecting the consequences from decrease inflation pressures and a cooling of the labor market over the previous couple of years. Amongst service companies, the common wage improve slowed from 5.6 % in 2022 to three.4 % in 2025, and amongst producers, from 6.3 % in 2022 to three.4 % in 2025. Wage progress is predicted to gradual additional to 2.9 % amongst service companies and to three.2 % amongst producers within the 12 months forward.
Wage Progress Has Slowed, And Is Anticipated to Sluggish Additional
Observe: These averages characterize a trimmed imply; the very best 5 % and the bottom 5 % of responses are excluded.
Rising Worker Well being Insurance coverage Prices Dampening Wage Progress
Although wage progress has slowed in recent times, wages are just one a part of complete labor prices. About three-quarters of service companies in our surveys and 90 % of producers present medical insurance to their employees. And whereas wage progress has been slowing since 2022, medical insurance prices have been rising sharply. In accordance with the Kaiser Household Basis, medical insurance prices elevated by about 6 % in 2025, and have been projected to rise by 11 % in 2026, just like the greater than 13 % improve companies in our surveys reported as their insurance policies renewed. Based mostly on info supplied by insurers, these greater insurance coverage prices have been pushed largely by the elevated price of hospitalization and doctor care, in addition to the excessive price of offering GLP-1 and different prescribed drugs.
How have companies managed these substantial price will increase? Some companies reported that they handed a portion of the price will increase on to their prospects by elevating costs, whereas others absorbed them via lowered revenue margins. Plenty of companies reported that that they had offset a minimum of a few of the elevated prices by lowering medical insurance protection to employees or by growing worker contributions. Nevertheless, many companies responded to those greater prices by lowering the wage will increase they gave to their employees.
To be able to higher perceive the connection between rising medical insurance prices and wages, we requested companies who noticed medical insurance price will increase what wage progress would have been in a world the place, hypothetically, such prices hadn’t gone up. Although this hypothetical doubtless doesn’t characterize a sensible counterfactual given present healthcare price tendencies, it helps illuminate the extent to which some companies are managing price pressures by modifying wages in response to greater medical insurance prices. Outcomes of this counterfactual are proven within the chart under.
Wage Will increase Would Be Increased Absent Rising Worker Well being Insurance coverage Prices
Notes: These averages characterize a trimmed imply; the very best 5 % and the bottom 5 % of responses are excluded. Figures are based mostly on companies reporting a rise in worker medical insurance prices over the previous 12 months.
Amongst these companies experiencing a rise in worker medical insurance prices, the common wage improve over the previous 12 months was 3.8 % for each service companies and producers, barely greater than the three.4 % reported amongst all companies within the surveys. Nevertheless, these companies reported that the common wage improve they might have given to their employees if medical insurance prices had not gone up was about 4.7 %. Thus, wage progress for employees at these service and manufacturing companies would have been about one share level greater, on common, if medical insurance prices had held regular—the equal of a 20 % drag on wage progress. As such, there does look like a connection between rising medical insurance prices and wage progress amongst many companies.
Labor Prices Are Rising Quicker Than Wage Will increase Recommend
Since medical insurance expenditures characterize a good portion of complete labor compensation for a lot of companies, the true price of using employees at these companies has been climbing sooner than wage will increase alone recommend, doubtlessly squeezing revenue margins and making labor costlier than it seems from the wage invoice alone. Whereas not each agency gives medical insurance to its employees, it seems that rising worker medical insurance prices are growing price pressures for some companies, limiting wage progress for a lot of employees.
Jaison R. Abel is head of Microeconomics within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Richard Deitz is an financial coverage advisor within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Nick Montalbano is a knowledge analytics specialist within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
cite this publish:
Jaison R. Abel, Richard Deitz, and Nick Montalbano, “Are Rising Worker Well being Insurance coverage Prices Dampening Wage Progress?,” Federal Reserve Financial institution of New York Liberty Road Economics, March 4, 2026, https://doi.org/10.59576/lse.20260304b
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Disclaimer
The views expressed on this publish are these of the creator(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the duty of the creator(s).
