3-minute read

The United States healthcare system is nothing if not complex. In many ways, it’s like a Rube Goldberg machine — comically complicated and meticulously designed to perform a seemingly straightforward task.

According to the Centers for Medicare & Medicaid Services, the U.S. spent $4.1 trillion on healthcare in 2020 — an average of $12,530 per person, compared to an average of $5,700 per person in countries of similar size and wealth.

Despite spending significantly more on healthcare than our international peers, Americans generally face worse health outcomes and far more medical debt. So if its citizens aren’t reaping the benefits, why is the U.S. spending so much on healthcare?

To better understand the intricacies of the American healthcare system, it’s essential to start with the basics. First things first: What’s a health insurance premium, and how is it calculated?

A premium is the amount of money — typically billed monthly — that it costs for insurance coverage.

The type and amount of coverage affect the premium price, but so do individual factors like the age and medical history of the policyholder. Insurance is risk-based, so the more risk a policyholder presents, the higher their premium will likely be. So if you use tobacco, for example, insurance companies can charge you up to 50% more for your premium.

Half of insured adults in the U.S. have employer-sponsored health insurance, though most companies don’t cover those premiums in full. Instead, the employer usually pays a portion of the premium and then deducts the remainder from the employees’ monthly paychecks. But not all employers provide health insurance, leaving some individuals to pay for their own personal or family medical plan.

Now that you have a better understanding of insurance premiums, let’s circle back to the rising costs of healthcare. A typical employer-sponsored health insurance benefit has an 80% paid-to-allowed ratio. In other words, the insurance company covers 80% of the cost of a member’s medical care, leaving the insured on the hook for the other 20% of the bill via deductibles, copays, and coinsurance.

But many insured Americans don’t have the funds to pay for medical bills, so — in an attempt to recoup more money from insurance companies — hospitals, clinics, and other providers increase the cost of their services. This hike kicks off a domino effect, as insurance companies increase their premiums to keep up, which ultimately impacts the end consumer.

The average cost of health insurance plans offered by employers typically goes up each year, and 2023 was no different, according to an annual KFF survey.

The average premium jumped 7% in 2023 — the largest hike since 2011. That includes employees with individual coverage and employees with a family plan.

The latest increase raises the average annual premium for individual coverage to $8,435 and family coverage to $23,968. As previously mentioned, this cost is typically shared by employer and employee, with KFF reporting that employees are responsible for 17% of the premium for individual coverage and 29% of the premium for family coverage, on average.

That means employees with individual coverage pay an average of $1,401 per year — up $75 from 2022’s premium — and employees with a family plan pay an average of $6,575 per year, an increase of $500 from the year prior.

The domino effect of rising medical expenses and insurance premiums touches every American, be it directly, or through wage or employment challenges. It’s important to understand this relationship in order to navigate your own health journey and advocate for a system that serves you more efficiently. It’s clear that achieving a balance that prioritizes quality care at affordable prices is essential for our future health.