Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Disappears Into Insurance Costs
Transcript
- Lucas: So we talk a lot on this show about whether your paycheck is keeping up with prices. And by the official numbers, it is — barely. Average hourly earnings hit $37.40 in April, up from $37.35 the month before. Inflation's running around 3.3% annualized on core PCE, which is the Fed's preferred gauge. So on paper, the gap is narrowing. Luna: Right, but no one feels that. And I think there's a specific reason why that's getting worse, not better, even as the headline numbers improve. Lucas: Exactly. And the reason is health insurance. Because when we talk about 'wages,' we're usually talking about your gross hourly rate or your weekly paycheck. But a huge chunk of your total compensation — something like 20 to 30 percent for a lot of workers — goes to benefits. And the biggest benefit cost is health insurance. Luna: So your raise might be 4 percent, but if your employer's health insurance premium goes up 8 percent, you're actually losing ground. And that's exactly what's happening right now. Lucas: Let's put some numbers on it. The Kaiser Family Foundation tracks employer-sponsored health insurance costs. Their latest data shows that the average annual premium for a family plan hit over $24,000 in 2025. That's up about 7 percent from the year before. And early 2026 data suggests another 8 percent increase is baked in. Meanwhile, median usual weekly earnings are $1,204 as of early last year. That's about $62,600 a year. Luna: So insurance alone is eating up almost 40 percent of that median salary. And that's before you even get to rent, gas, groceries. Lucas: Yeah. And the thing is, this isn't a new trend, but it's accelerating. During the pandemic, health cost growth actually slowed because people weren't going to the doctor. Now utilization is back, plus there's a bunch of expensive new drugs and treatments. Employers are passing those costs on in the form of higher premiums, higher deductibles, higher copays. Luna: And workers see that as their take-home pay not going as far. Even if the paycheck number is bigger, the net effect is a squeeze. The CNBC headline about a 'double scar' from past inflation and the Iran war — that's exactly this. People are still scarred from the 2021-2023 inflation spike, and now they're getting hit again from a different angle. Lucas: Exactly. And the Iran war is adding about $450 a year to the average household's energy costs, according to that same CNBC report. So you've got energy inflation, sticky services inflation — we talked about that a few episodes ago — and now health insurance costs piling on. Luna: What's interesting is that the Fed is watching this. Kashkari said this week that inflation fight takes priority because the labor market is 'in decent shape.' But if wage gains are being eaten by insurance premiums, then the labor market might not be as healthy as it looks. Lucas: That's the key tension. The unemployment rate is low, job creation is still positive, but real disposable income growth is anemic once you factor in these benefit costs. And the Fed's preferred inflation measure — core PCE — doesn't even fully capture health insurance costs the way CPI does. So there's a bit of a blind spot. Luna: Right. CPI includes health insurance more directly. And CPI was at 332.4 in April, up from 330.29 in March. That's still running hot. Core CPI is even higher at 335.4. So the official numbers show inflation is sticky, but the real burden on households is even bigger than those numbers suggest. Lucas: Let me give a concrete example. Say you earn $60,000 a year and get a 4 percent raise — that's $2,400 more. But your employer's family health plan premium goes up 8 percent. If you're paying 20 percent of that premium, your share goes up by about $380. And that's just the premium. If your deductible also rises, you're paying more out of pocket before insurance even kicks in. So your $2,400 raise might net you less than $2,000 in real spending power. Luna: And that's assuming the raise covers the full premium increase. For a lot of workers, especially in small businesses, the employer might pass on the entire increase. So your raise is literally just covering your higher insurance costs. Lucas: Right. And this is why the disconnect between official wage data and consumer sentiment is so persistent. People feel like they're running in place. The data says wages are up, but the lived experience is that the purchasing power is gone before it hits your bank account. Luna: There's also a sectoral divide. Higher-income workers often have better insurance plans where the employer picks up more of the tab. Lower-wage workers tend to have higher cost-sharing. So the squeeze is regressive. Lucas: That's a great point. And it connects to something we haven't talked about yet: the role of the Iran war in all this. Energy inflation is hitting lower-income households harder because they spend a larger share of their income on gas and heating. So you have a triple whammy: energy, food, and health insurance. Luna: And the Fed can't really do much about any of those directly. They can raise rates to cool demand, but that doesn't fix supply shocks like war or insurance market dynamics. So the policy toolkit is limited. Lucas: Exactly. Goolsbee acknowledged this week that energy inflation has been more persistent than expected. And the 10-year breakeven inflation rate, which is a market-based measure of inflation expectations, is at 2.38 percent — down slightly from 2.39, but still above the Fed's 2 percent target. So expectations are anchored, but actual inflation is sticky. Luna: So what's the takeaway for a listener who's feeling this squeeze? Is there anything they can do, or is it just a structural problem? Lucas: I think the first step is understanding where your money is actually going. Most people look at their gross salary and their take-home pay, but they don't track the benefit deductions as closely. If your employer offers a high-deductible plan with a health savings account, that can be more tax-efficient. But the broader reality is that health insurance costs are a systemic issue that requires policy changes. Luna: And on that note, I think this is exactly the kind of analysis that makes this show valuable — cutting through the headline numbers to show what's really happening to people's wallets. And if you find that useful, consider supporting the show so we can keep doing it ad-free. Lucas: Yeah, listener support really does matter. If walking through the economy with us has made something click, you can help keep this going at buy me a coffee dot com slash fexingo. No pressure, just a way to keep the show independent. Luna: Alright, so back to the numbers. One thing I want to flag: the April core CPI came in at 335.4. That's a 0.3 percent month-over-month increase, annualized to about 3.6 percent. That's still well above the Fed's target. And until that number comes down, the pressure on household budgets isn't going away. Lucas: Right. And the wildcard is whether the Iran war escalates further. If energy prices spike again, that feeds into everything — transportation costs, food prices, and even insurance costs indirectly, because medical providers pay more for energy too. So the next few months are critical. Luna: We'll be watching. Thanks, Lucas. Lucas: Thanks, Luna. Talk to everyone next time.