Health care costs can be a daunting and confusing part of every family’s budget. In a typical health insurance plan, enrollees pay monthly premiums to maintain coverage, and employers may also contribute to these premiums. On top of these costs, health insurance plans often require patients to pay a deductible before their coverage kicks in. On top of the premiums and deductibles, insurers require patients to pay set amounts for health services they receive, called co-payments, or a percentage of the total cost of a health service, called co-insurance. As if that isn’t enough, insurance companies require patients to pay the full price for services insurers choose not to cover and for services provided by providers who are not in an insurer’s proprietary network. Insurance plans often limit the out-of-pocket (OOP) expenses a person will face. However, the maximum out-of-pocket cost is $18,400 for a family in 2025 which is more than a quarter of the median household post-tax income.
Health Care Costs Rising Rapidly
Health care costs have risen rapidly over the past few decades, typically increasing faster than inflation. From 2023 to 2024, health care expenses rose 6.7%, more than double the inflation rate for other consumer goods. Because of the structure of health insurance plans, many of these rising costs are passed on to patients in the form of out-of–pocket (OOP) costs. Simultaneously, profits of the six largest for-profit health insurance companies have more than tripled since 2010 to $70.7 billion in 2023.
Patients with insurance can pay up to $2,600 a month in OOP costs. Prenatal care, childbirth, and postpartum care can lead to more than $3,000 in OOP costs for the new parents. Insurers have also used copay accumulators to exclude patient assistance programs that help pay for drugs from a patient's deductible or OOP max.
These hefty OOP costs are the main reason why 100 million Americans now have medical debt. Previously, medical debt that a person could not pay, called “bad debt,” was overwhelmingly held by people without
health insurance. Now, 58% of all “bad debt” is held by people with health insurance who are being crushed by large OOP costs. This debt also causes financial burden for medical providers who may go uncompensated for care they provide due to high OOP costs imposed by insurers.
Health Care Costs are Driving the Cost of Living Crisis
Companies like grocery stores and gas stations are paying much higher prices for their employees’ health insurance and prescription drug coverage, leading them to increase prices and keep them high. One in five small businesses reported raising their prices due to increasing health insurance costs.
The reason many workers have not gotten a meaningful raise in years is that the money our employers could give in increased pay is going instead to insurance companies in the form of ever-increasing premiums. Employers are paying an average of $10,000 more per worker for health insurance premiums compared to 20 years ago. That is money that could have gone to increased wages. And any wage increases workers have gotten are mostly eaten up by increasing health care costs–all while the seven largest for-profit insurers made $71 billion in profits in 2023 and spent tens of billions buying back shares of their own stock.
How can we lower OOP health care costs?
Right now, patients pay three or four different times before they can get health care (premiums, deductibles, co-pays, and sometimes out-of-network bills). Instituting a low cap on OOP prescription costs and on maximum OOP spending per year will decrease the amount of money patients spend before their coverage kicks in. With proper guardrails, this would also force insurance companies to pay for the care they are contracted to cover.
Capping OOP Prescription Costs
The Inflation Reduction Act capped a patient’s spending on prescription drugs at $2,000 per year for all Medicare beneficiaries. This policy is expected to help more than 3 million seniors and people with disabilities who must take one or more medications, especially when they struggle with complex conditions. Expanding policies to cap OOP spending on prescriptions for everyone would be a straightforward way to reduce the burden of high OOP health care costs and would lower costs for more than 23 million people.
Lowering the Maximum Out-of-Pocket Limit
Lowering the maximum OOP limit to $5,000 per year would drastically lower OOP expenses for roughly 3 million people, many with complex and chronic conditions. More importantly, it would reduce the financial stress and medical debt patients often face from an unexpected illness or injury.
Policy Changes Could Increase OOPs
Multiple policy changes are in development that will raise health care costs. The enhanced premium tax credits for health plans purchased on the Affordable Care Act Marketplace will expire at the end of 2025 without further action from Congress. If these credits expire without any other policy changes, premium payments for those on ACA plans will rise an average of 93% per month. The Congressional Budget Office estimates that this will result in close to 4 million people becoming uninsured.
The Republican reconciliation bill, H.R. 1, also contains a provision requiring a co-pay of up to $35 on many medical services for people on Medicaid through expansion programs and institute work requirements for Medicaid beneficiaries.This will immediately raise OOP costs for millions of low-income Medicaid beneficiaries and reduce overall health. Taken together, these policy changes could result in nearly 11 million people losing their insurance.
Implications of Policies to Lower OOP Costs
In order for policies that lower OOP medical costs to be effective, guardrails are needed to prevent drastic increases in health insurance premiums by insurance corporations to maintain profits expected by Wall Street investors. Policies to improve health insurance by lowering the costs to patients should prohibit health insurance corporations from trying to charge their customers higher premiums for their plans. These policies should also prevent insurers from increasing their denial of claims and other tactics they may use to avoid paying for care. This can be done by strengthening the oversight of premium increases and coverage requirements included in the ACA.
Policy Proposals to Lower OOP Costs
- Expand the $2,000 annual OOP cap on prescription spending to everyone
- Lower the yearly maximum OOP limit to $5,000 per year for all insurance plans
- Ensure insurance premiums and denials are not increased when lower OOP costs are implemented