Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Health Insurance Premiums
Transcript
- Lucas: So here's something that caught my eye in this morning's data: average hourly earnings for private workers hit $37.50 in May. Luna: That's up from $37.41 in April — not a huge jump, but consistent. Lucas: Right. And meanwhile, the CPI — headline inflation — sits at 334, up from 332.4 in April. So wages are still outpacing inflation, which we've talked about. But there's a specific cost category that's been eating raises for years, and it might finally be losing its bite: health insurance premiums. Luna: Health insurance — the classic 'you got a 3% raise, but your premium went up 6%, so you actually lost ground.' Lucas: Exactly. For years, that was the story. But if you look at the latest data from the Kaiser Family Foundation and the Bureau of Labor Statistics, something's shifted. Premiums for employer-sponsored plans are still rising, but the pace has slowed. We're talking annual increases around 3 percent for single coverage, maybe 4 percent for family plans. That's roughly in line with wage growth now. Luna: Which is a big deal. Historically, health costs grew at two to three times the rate of wages. Lucas: And that meant your raise was essentially getting redirected to your insurer. But now? If your wages are up 3.5 percent and your premium is up 3 percent, you actually come out ahead. Not by much, but ahead. Luna: And if today's conversation helped that make a little more sense, honestly, if it was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Lucas: Yeah, we keep the show ad-free, and listener support is what makes that possible. No pressure, but it does help. Luna: So back to those premiums — what's actually driving the slowdown? Lucas: A few things. One is that overall medical cost inflation has moderated. The core PCE price index, which the Fed watches closely, was at 129.6 in April, up from 129.3 — so services inflation, including health care services, has been relatively tame. Another factor is that employers are shifting more costs to workers through high-deductible plans, which keeps premium growth lower but increases out-of-pocket exposure. Luna: So the premium number looks better, but the deductible might be climbing. Lucas: Right. The average deductible for a single worker is around $1,500 now, up maybe 5 percent year over year. So the premium part of the equation is improving, but the overall cost of care — what you actually pay when you go to the doctor — that's still rising faster than wages in many cases. Luna: Let's talk about who benefits most from this premium slowdown. Is it everyone, or is it uneven? Lucas: It's uneven. If you work for a large employer — think Fortune 500 — you're more likely to have a generous plan with a slower premium increase. But if you're in retail, hospitality, or a small business, you might not have employer-sponsored insurance at all, or you're paying a much higher share of the premium. The Employment Cost Index, which tracks total compensation, shows that wages for private industry workers have risen about 3.5 percent over the past year. But benefit costs — which include health insurance — have risen only about 2.8 percent. That gap helps workers in firms that offer coverage. Luna: So the average worker with insurance is seeing a real benefit. But the uninsured or underinsured? Not so much. Lucas: Exactly. And that's the nuance. The headline 'wages beat premiums' is true for a big slice of the workforce, but it's not universal. And remember, even if your premium is flat, if your deductible is going up, your effective cost of care rises. Luna: What about the broader economic picture? The 10-year breakeven inflation rate is at 2.25 percent, down a tick. That suggests the market doesn't expect a big inflation resurgence. Does that help with health costs? Lucas: It does indirectly. Health care costs are influenced by general inflation — wages for nurses, hospital supplies, pharmaceuticals. If overall inflation stays moderate, that puts a ceiling on health cost growth. But there are structural factors too: the aging population, the prevalence of chronic disease, new expensive drugs. Those keep upward pressure on premiums regardless of the macro environment. Luna: And we're also seeing some policy changes. The Inflation Reduction Act, which passed a few years ago, included measures to cap insulin costs and allow Medicare to negotiate drug prices. Those are starting to feed through. Lucas: That's a good point. Drug price growth has slowed. And since prescription drugs are a big component of premium increases, that's helping. But it's not the whole story. Luna: So if I'm a listener who got a 4% raise this year, and my health insurance premium went up only 2%, I'm actually better off. How much better? Lucas: Let's do a quick back of the envelope. Say you earn $60,000 a year. A 4% raise gives you an extra $2,400. Your employer-sponsored family premium might be $6,000 of your total compensation — but your share might be $2,000. If that share goes up 2%, that's an extra $40. So net, after the premium increase, you keep $2,360 of your raise. That's better than the old days when the premium increase could have eaten a third or more of your raise. Luna: That's significant. But for someone earning $30,000, a 4% raise is $1,200. If their premium share goes up 2%, that's maybe $30. So they keep $1,170. Still a net gain, but smaller. Lucas: And for a lower-wage worker, health insurance might be 10% of their income versus 5% for a higher earner. So the relative burden is bigger. That's why the slowdown in premium growth helps everyone, but it helps higher-income workers more in absolute dollars. Luna: So the story is cautiously optimistic. But we're not out of the woods. Lucas: Not at all. The core CPI, which excludes food and energy, was at 336.1 in May, up from 335.4. That's a 2.2% annualized rate — right around the Fed's target. So inflation is under control. But health care has its own dynamics. If we see a wave of new high-cost drugs or a shift in how hospitals price services, premiums could accelerate again. Luna: And there's the political risk. The current administration has focused on drug pricing, but broader reforms — like a public option — remain stalled. So the market is mostly left to self-correct. Lucas: Exactly. For now, the data shows a real improvement in the wage versus premium equation. But it's fragile. If wage growth slows — say, if the economy cools — and premiums continue their moderate climb, the gap could close again. Luna: So the takeaway: check your own numbers. Your raise might actually be buying more than you think, especially if your health insurance costs are stable. But keep an eye on your deductible and out-of-pocket maximum. Lucas: And that's the kind of granular detail that makes a real difference in your household budget. We'll keep tracking this.