Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Out-of-Pocket Medical Costs
Transcript
- Lucas: So yesterday the Bureau of Economic Analysis dropped the May Personal Consumption Expenditures report, and headline Core PCE hit 3.4 percent — the highest since October 2023. That's the Fed's preferred inflation gauge. Luna: Right, and that came in a bit hotter than expected. But I think the number that matters more for most people is what's happening to their actual take-home pay after they pay for stuff like health care. Lucas: Exactly. And that's where this episode's angle comes in. We've spent a lot of past episodes showing how wages are finally beating a bunch of specific expenses — groceries, car insurance, utilities. But there is one category that has been stubbornly resistant: out-of-pocket medical costs. Luna: Deductibles, copays, coinsurance — the stuff that hits you at the point of care. Lucas: Right. And what's interesting is that overall healthcare inflation has actually moderated. The medical care services component of CPI is up about 2 percent year over year. Hospital prices are up just 1.8 percent. But the way insurance plans are structured means the patient's share has been growing a lot faster. Luna: So the headline inflation numbers look okay, but the out-of-pocket burden is a different story? Lucas: Yeah. The average deductible for single coverage in employer-sponsored insurance hit about $2,575 this year, according to the Kaiser Family Foundation. That's up 6 percent from last year. For context, average hourly earnings are up 4.1 percent over the same period. So deductibles are growing about 50 percent faster than wages. Luna: That gap is exactly the kind of thing that makes people feel like they're running in place even when they get a raise. Lucas: Exactly. And it's not just deductibles. Copays for primary care visits are up about 5 percent, and specialty copays are up even more. But there's one pocket of the system where the trend is actually reversing, and it's a really surprising one. Luna: I'm guessing you're going to say generic drugs? Lucas: Bingo. So for the last few years, generic drug prices have been falling pretty consistently. The IQVIA National Sales Perspective data shows that generic drug spending actually declined 2.3 percent in 2025, even as prescription volume increased. And that trend has accelerated in the first half of 2026. Luna: So the actual price of the drugs is dropping, but patients don't always see that at the pharmacy counter because of how insurance plans set copays. Lucas: That was the problem for a long time. But there's been a wave of state-level legislation banning so-called 'copay accumulator' programs. These are the programs where a drug manufacturer's copay assistance coupon doesn't count toward the patient's deductible or out-of-pocket maximum. Insurers love them because they shift cost back to patients. But as of June 2026, 18 states have banned them. Luna: And that actually makes a difference? I mean, 18 states is still a minority. Lucas: It makes a difference for about 40 percent of the U.S. population, because those 18 states include California, New York, Illinois, and Florida. So if you live in one of those states and you're on a branded drug that has a manufacturer copay card, that assistance now counts toward your deductible. That can save someone hundreds of dollars a year. Luna: That's real money. But I want to step back for a second — because we talk a lot on this show about the gap between official inflation statistics and lived experience. And medical out-of-pocket costs seem like the ultimate example of that. Lucas: Absolutely. And look, the fact that we can talk about this topic at all without running ads — that's a deliberate choice. We keep Wages and Prices free of commercial breaks because we think this kind of conversation shouldn't be interrupted by a mattress commercial or a meal kit pitch. If you value that independence, the simplest way to support it is to buy us a coffee, literally: buy me a coffee dot com slash fexingo. All lowercase. That kind of direct listener support is what keeps the show going without selling your attention to advertisers. Luna: It really does. And I think it also keeps the conversation honest — we're not trying to sell you anything, we're just trying to help you understand what's happening to your money. Lucas: Exactly. So back to that gap between official stats and lived experience. The overall Core PCE number of 3.4 percent — that's an average. But if you're a person with a chronic condition who's hitting their deductible every year, your personal inflation rate is much higher. The Employee Benefit Research Institute did a study showing that households with high medical out-of-pocket spending saw their total health care costs rise 8 percent last year, even though the national average was lower. Luna: So it's a distributional issue. The average masks a really wide range. Lucas: Right. And this is where wage growth matters most. If your raise is 4.1 percent but your health costs are rising 8 percent, you're losing ground. But if you're in one of those 18 states with the copay accumulator ban, and you're on a high-cost drug with a manufacturer coupon, you might actually see your out-of-pocket costs go down this year. Luna: So the headline is that on average, wages are still losing to out-of-pocket medical costs. But there are specific scenarios where the trend is finally turning. Lucas: That's the takeaway. And I think the other piece that gives some reason for optimism is the shift toward high-deductible health plans with health savings accounts. HSA contributions are tax-advantaged, and employers are increasingly contributing to them. The average employer HSA contribution is now about $1,000 for single coverage. That's real money that, if you don't spend it, rolls over year to year. Luna: So it's not just about the raise itself, but about the structure of the benefits package. Lucas: Exactly. A 4 percent raise with a $1,000 HSA contribution is effectively a bigger compensation increase than a 5 percent raise with no HSA. And that's a distinction that a lot of workers might not be paying attention to when they negotiate or evaluate job offers. Luna: So the real strategy for workers is to look at total compensation, not just the base salary number. Lucas: Right. And also to be aware of the specific plan design. Some plans have deductibles that are actually lower this year. The trend toward 'narrow network' plans has allowed some employers to offer lower deductibles in exchange for less provider choice. If you're healthy and you don't mind a narrower network, that can be a good trade. Luna: So we're seeing a bifurcation in the market: some people are getting relief through policy changes like the copay accumulator bans, others through plan design shifts, but the average still stinks. Lucas: That's a fair summary. And I think the Fed is watching this too. The Core PCE number that came out yesterday — the 3.4 percent — is partly driven by services inflation, and medical services are a big part of that. If out-of-pocket costs start to moderate, that could take some pressure off the inflation data. Luna: But the Fed also cares about wage growth, right? Because if wages are growing too fast, they worry about a wage-price spiral. Lucas: They do. And this is the tricky part. The Employment Cost Index for wages was up 4.3 percent in the first quarter. That's above the pre-pandemic trend of about 3 percent. But if you adjust for productivity gains, unit labor costs are actually growing at a more moderate pace. So the Fed is in this awkward position of wanting to cool the economy without crushing the labor market. Luna: And meanwhile, workers are caught in the middle — their raises are finally beating some things, but not others. And medical out-of-pocket is one of the last holdouts. Lucas: It is. And I think that's the key insight for this episode: the battle between wages and prices is being won in most categories, but healthcare remains the toughest front. The good news is that there are some genuine structural changes — generic drug pricing, copay accumulator bans, HSA expansion — that are starting to bend the curve. It's just happening unevenly. Luna: So for the listener who's trying to figure out if their raise is actually keeping up: look at your total compensation, check your plan design, and if you're on a high-cost drug, find out if your state has banned copay accumulators. That could be worth hundreds of dollars. Lucas: Exactly. And that's not financial advice — that's just being an informed consumer of your own benefits. Which, honestly, is a skill that a lot of us never learned. Luna: It's one of those things that should be taught in high school, but isn't. Lucas: Right. Well, maybe that's a topic for another episode. For now, I think the bottom line is: your raise is finally beating out-of-pocket medical costs in some places, for some people. If you're not one of them yet, the trend is moving in the right direction. But it's slow. Luna: Slow is better than backwards, I suppose. Lucas: It is. And that's where we'll leave it for today. Thanks for listening, everyone.