There is much talk about an “affordability crisis” in America. A reasonable case can be made that the rising cost of health insurance for workers is a problem. According to the Kaiser Family Foundation’s annual survey of private sector and nonfederal government employer-provided health insurance costs and benefits, the total premium for family coverage increased over the last twenty years from $11,535 in 2006 to $26,993 in 2025, while the employee share increased from $2,971 to $6,850. That represents little change in the share of the cost paid by employees at around 26 percent, yet health insurance costs are becoming a larger burden for workers relative to their average annual earnings. The burden ratio rose from 8.2 percent of average annual earnings of $36,469 in 2006 to 10.5 percent of $65,436 in 2025, based on Bureau of Labor Statistics data. Even including the value of health benefits as measured by the total premium in the denominator, the employee burden for health insurance still increased from 6.2 percent to 7.4 percent over the period. By some indicia, the comprehensiveness of that coverage declined: whereas only 6 percent of employers offered high-deductible plans in 2006, 36 percent did in 2025, according to Kaiser.
By contrast, the senior population covered by Medicare has been shielded from these rising health care costs and their benefits have been improved. In 2006, the first year of Part D (drug) coverage, the ratio of the monthly standard or base Medicare premiums, $88.50 for Part B (physician, emergency and home health care) and $32.20 for Part D, to total average resources provided by the federal government to a retired senior, including Social Security, $1,044.40, Medicare Part A (hospital and short-stay skilled nursing care), financed by payroll taxes but valued at the premium rate of $393 charged to those without 10 years of payroll tax participation, and the average benefits of Parts B and D of $464.65, yields a health insurance burden ratio for the average retired senior of 6.3 percent. In 2025, that burden ratio was 6.2 percent, namely $221.75 ($185 for Part B and $36.79 for Part D) divided by $3,569.33. As shown in Figure 1, there has been some volatility in this ratio over time, partly owing to small policy changes, but at least in the last ten years, it has declined, unlike for the working population. It is notable how stable base Part D premiums have been over time in nominal terms, and low-income seniors have their Medicare premiums and cost-sharing subsidized by the government.
Moreover, unlike worker coverage, which arguably has worsened over time, the comprehensiveness of Part B coverage has been stable over the last twenty years, and the extent of Part D coverage has substantially improved. Coverage gaps were gradually closed in Part D and recently out-of-pocket costs were reduced as the initial benefit limit was removed and the catastrophic threshold significantly lowered.
The ratio of total premiums paid by seniors for Medicare benefits to the total expenditures by Medicare on health care has increased somewhat, from 11.5 percent in 2006 to 14.1 percent in 2025. As shown in Figure 2, a significant portion of that increase comes from the introduction and gradual expansion of income-related premiums, where single seniors with incomes of at least $106,000 and married couples with incomes of at least $212,000 in 2025 pay a premium surcharge starting at $74 for Part B and $13.70 for Part D in 2025 which rises with income.
How is it that the working population is increasingly burdened by health insurance premiums and poorer coverage, with a stable employee share, while the senior population is shielded and even has Medicare coverage improved, although the beneficiary share has increased somewhat? The answer lies in the substantial restrictions by law and policy of Medicare payments to physicians for their services and, especially, to manufacturers for drugs, that is, price controls. Many, including the Medicare Trustees themselves, have cast doubt on the sustainability of these interventions, on the long-term availability of services to Medicare beneficiaries, and on negative effects on the development of new drugs and indeed; from time to time, we have seen legislative backsliding with increases allowed and rent-seeking behaviors rewarded. There is also the possibility that some of the constraints arising in the senior sector are being paid for by the working population, that is, an implicit tax, as providers and manufacturers seek to make up for lost revenues.
A better approach, for both workers and retirees, would be encouraging improved productivity in the health care sector to lower overall costs through more competition, price sensitivity, and enhanced use of artificial intelligence in diagnosis and treatment.
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