Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating the Cost of Health Insurance
Transcript
- Lucas: If you've looked at your pay stub lately and felt like the health insurance deduction is eating a smaller slice of your paycheck, you're not imagining it. Luna: That would be a first in, what, like a decade? Lucas: Pretty much. For years, health insurance premiums have been growing faster than wages—often two to three times faster. But the latest CPI data for May 2026 shows health insurance costs up just 2.1 percent year-over-year. Meanwhile, average hourly earnings for private workers hit $37.50 in May, up 3.2 percent from a year ago. Luna: So the gap is finally closing. But is that because premiums are actually slowing, or because wages just got a boost? Lucas: It's both, honestly. Wage growth has been sticky around 3 to 4 percent for the last year or so, thanks to a tight labor market—unemployment below 4 percent, quits still elevated. But the premium side is where the interesting story is. Health insurance premiums have been decelerating sharply, and there are a few structural reasons why. Luna: Let's hear them. Lucas: First, the big one: employer plans are getting redesigned. We've seen a massive shift toward high-deductible health plans paired with health savings accounts. About 30 percent of covered workers are now in a high-deductible plan, up from maybe 20 percent five years ago. And those plans tend to have lower premiums—the trade-off is you pay more out of pocket before insurance kicks in. Luna: So the premium number looks better, but the actual risk for families might be higher. Lucas: Exactly. The premium slowdown is partly real—insurance companies have been more disciplined with rate increases, and medical cost trend has been moderate—but it's also partly a mix shift. If you're comparing the average premium across all plans, you're blending in more of those lower-premium HDHPs. Luna: Got it. And what about the Inflation Reduction Act? Did that play a role? Lucas: Yes, indirectly. The drug pricing provisions—Medicare negotiation, inflation rebates—have started to slow prescription drug spending, which is a big driver of premium increases. We're not talking a huge effect yet, maybe a few basis points, but it's in the mix. Luna: So for someone earning the median weekly wage—about $1,204 as of early 2025—this means health insurance is taking up a slightly smaller share of their paycheck? Lucas: Correct. The Kaiser Family Foundation's latest employer survey showed that the average annual premium for single coverage was about $7,900 last year. That's about 12.6 percent of median earnings. A few years earlier it was closer to 13.5 percent. So we're seeing a real, if modest, improvement. Luna: But what about out-of-pocket costs? Deductibles, copays—those are still rising, right? Lucas: They are. Deductibles have been growing faster than premiums for years. The average single deductible is now over $1,700 for employer plans. So while your premium bite might shrink a little, you could be on the hook for more before your coverage starts. Luna: So the headline is 'wages are finally beating health insurance costs,' but the fine print says 'only if you don't get sick.' Lucas: That's a fair way to put it. But I'd argue the headline is still meaningful. For the typical worker, the total cost of health insurance—premium plus out-of-pocket—has been rising faster than wages for so long that even a stabilization is worth noting. And if wage growth stays above 3 percent while premium growth stays around 2 percent, the purchasing power of the average paycheck will keep improving. Luna: Let's look at the broader inflation picture. Core CPI hit 3.4 percent in May, the Fed's preferred gauge. That's still above the 2 percent target. So even though health insurance is behaving, other categories are still hot. Lucas: Right. Services inflation—rent, insurance, medical care—has been stubborn. But health insurance is one of the few service categories where we're seeing a clear deceleration. That's a positive in an otherwise mixed inflation report. Luna: And it's not just employer plans. What about the individual market? People buying on the exchanges? Lucas: The individual market is a different beast. Premiums there have actually been flat to slightly down in many states, thanks to enhanced subsidies from the Inflation Reduction Act and more competition. But those subsidies are set to expire after 2025 if not extended. That's a big risk for 2027. Luna: So the improvement we're seeing right now might be temporary on the individual side. Lucas: Potentially. But on the employer side, the structural shift toward high-deductible plans is permanent. Employers like them because they cap their cost exposure. So the lower premium trend is likely here to stay, even if the out-of-pocket burden continues to rise. Luna: Let me ask a big-picture question: Is the wage growth we're seeing actually sustainable? If the labor market cools, those 3.2 percent increases could vanish. Lucas: It's a real concern. The latest Job Openings and Labor Turnover Survey, or JOLTS, shows openings are still high but trending down. If unemployment ticks up, wage bargaining power weakens. That means the window where wages beat health insurance costs could be narrow—maybe a year or two. Luna: So what should listeners do with this information? If they're getting a raise, should they think about their health insurance choices differently? Lucas: Absolutely. If your employer offers a high-deductible plan with an HSA, and you're relatively healthy, that's probably the best financial move. You get the lower premium, the tax advantages of the HSA, and you can invest the savings. But if you have chronic conditions or expect high medical expenses, a traditional plan might still be better despite the higher premium. Luna: And check if your employer contributes to your HSA. Many do, and that's free money. Lucas: Good point. Some employers put in $500 to $1,000 a year. That's essentially a raise that doesn't show up on your W-2. Luna: You know, we spend all this time talking about how your raise is beating various costs, and it's really about making sure that money works for you. Speaking of which—we keep these episodes free of ads, no sponsors, no interruptions. That's a choice we make so the information is as direct as possible. Lucas: Yep, we don't run ads on these shows. If that approach resonates with you, and you want to help keep it going, you can support us at buy me a coffee dot com slash fexingo. No pressure, just an option. Luna: Exactly. And it's listeners like you who make that possible. Alright, back to the numbers. Lucas: So where do we go from here? The key thing to watch is the July CPI report, which comes out in August. If health insurance costs stay below 2.5 percent year-over-year, and wage growth holds above 3 percent, we can say this trend is real. Luna: And if the Fed cuts rates later this year, that could give the economy a boost and keep the labor market tight. Lucas: Exactly. The Fed's been on hold, but the market is pricing in a cut by September. Lower rates could stimulate hiring and keep wage growth going. But it could also reignite inflation. So there's a delicate balance. Luna: Feels like the next few months will tell us whether this is a genuine shift or just a blip. Lucas: I think it's more than a blip. The structural changes in health insurance—the HDHP shift, the drug pricing reforms—are long-term. But wage growth is cyclical. So the real test is whether wages can stay ahead of premiums even when the labor market cools. My guess is we'll get a year or two of relief before the next squeeze. Luna: That's a sobering thought, but it's honest. For now, though, it's good news for workers. Lucas: It is. And it's worth celebrating—even if we keep one eye on the fine print.