Smaller raise? Higher health insurance costs may be to blame

(NewsNation) — Rising health insurance costs could be the reason your raise was smaller.

Recent surveys by the Federal Reserve Bank of New York suggest employers are responding to higher insurance costs by scaling back pay increases.

The surveys of businesses in the New York-Northern New Jersey region found that employee health insurance costs rose faster than other business expenses over the past year, with respondents reporting an average increase of more than 13 percent.

“Businesses providing insurance to their workers indicated that absent these cost increases, they would have raised wages by roughly an additional percentage point, on average,” NY Fed researchers wrote in a blog post.

A single percentage point may not sound like much, but it amounts to a roughly 20 percent drag on wage growth.

Among businesses that saw employee health insurance costs rise, the average wage increase over the past year was 3.8 percent for both service firms and manufacturers. But if health insurance costs had held steady, those firms said increases would have averaged about 4.7 percent.

“There does appear to be a connection between rising health insurance costs and wage growth among many firms,” the report noted.

The average annual premium for employer-sponsored family health insurance coverage was nearly $27,000 in 2025 — up 26 percent from 2020, according to the Kaiser Family Foundation. Employers covered about 75 percent of the premium, while workers contributed around 25 percent.

Scaling back pay increases isn’t the only way companies are dealing with rising insurance costs. Some respondents said they passed part of the increase on to customers through higher prices, while others absorbed it through reduced profit margins.

“A number of firms reported that they had offset at least some of the increased costs by reducing health insurance coverage to workers or by increasing employee contributions,” the researchers wrote.

Copyright 2026 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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