Rising Health Costs Threaten U.S. Wage Growth
Higher medical spending is shifting more costs to workers and squeezing compensation budgets
WASHINGTON — In 1960, direct salaries represented 91% of total worker compensation in the U.S. Over the past decade, that figure has fallen to an average of 82%, according to historical analysis by the Congressional Budget Office. The CBO treats employer health contributions as a direct substitute for cash wages in its economic calculations.
More than 165 million Americans—over half the civilian population—rely on employer-sponsored health insurance for medical coverage. U.S. workers enrolled in employer-sponsored family coverage currently pay an average of approximately $6,850 annually toward their health premiums, independent of additional out-of-pocket costs incurred at the point of care.
According to data from the U.S. Bureau of Labor Statistics, health benefits account for nearly a quarter of all non-wage compensation expenditures paid by private employers. Private businesses spend an average of $14.07 per hour on employee benefits, with health insurance alone commanding $3.48 per hour worked.
That spending is projected to accelerate. A survey of 1,800 U.S. employers conducted by benefits consulting firm Mercer indicates that healthcare costs per employee are projected to rise by 8.2% in 2027. If realized, the increase would be the steepest single-year jump in employer healthcare expenditures since 2003, when annual health cost growth reached double digits following the post-dot-com economic slowdown.
Mercer chief actuary Sunit Patel estimates that GLP-1 utilization alone accounts for one full percentage point of the projected 8.2% overall growth rate for 2027. Soaring demand for GLP-1 receptor agonist drugs, prescribed for diabetes and weight management, has emerged as a primary financial catalyst.
The projected increase would be the fifth consecutive year of elevated healthcare cost inflation for U.S. businesses. Expanding access to complex medical treatments, particularly next-generation oncology drugs and cell therapies, is also driving baseline spending higher.
Mergers among regional health systems and corporate acquisitions of physician practices have concentrated market power, enabling healthcare providers to negotiate higher reimbursement rates from commercial health plans. At the same time, reduced public sector healthcare spending, coupled with widespread implementation of artificial intelligence in hospital revenue cycle management, has streamlined clinical billing and expanded collection rates for medical providers.
To absorb the expenses, enterprise employers are adjusting the structure of their benefit offerings by shifting financial obligations directly to staff. Mercer’s data shows that two-thirds of surveyed companies with 500 or more employees plan to increase worker premium contributions for the 2027 plan year.
Nearly half of large employers reported plans to modify existing medical plans to raise cost-sharing requirements through higher annual deductibles, copayments, and coinsurance rates. “They’re going to absorb some portion of it at the employer level, and then they’re going to push the rest to the employee,” said Brandy Thompson, chief executive of benefits technology firm BenefitBay.
Thompson noted that concurrent increases in monthly premiums and out-of-pocket deductibles compound financial pressures on household budgets already affected by broader consumer inflation. Nick Stefanizzi, chief executive of Northwell Direct, which provides health benefit solutions to self-insured employers, similarly noted that rising benefit obligations erode capital that would otherwise be directed toward cash wage growth.
Corporate financial planning evaluates labor costs through total compensation packages that combine cash salaries, health benefits, retirement plans, and payroll taxes. “Employers have a certain amount they can spend on each employee, and that includes salary, healthcare, and other benefits,” said Navin Nagiah, chief executive of healthcare technology firm Daffodil Health. “If healthcare takes up a bigger piece of that pie every year, there is less money left for everything else.”
The Congressional Budget Office projects that employer healthcare expenditures will continue to outpace nominal wage growth over the next 30 years.
