Insurance Rates Are Going Up Due to High Drug Costs & Hospital Consolidation

ACA insurance premiums are going up in 2025 by a median of 7 percent according to a recent national marketplace analysis.

Insurance premiums are a direct reflection of what insurers pay for healthcare and prescription drugs. Under federal law, these plans must spend at least 80 percent of premiums on health expenses. The remaining 20 percent goes to pay taxes, workforce, business, and other administrative expenses.

For example, if your premium is $1,000 then your health insurer must use at least $800 of it to pay for healthcare. If they don’t use the $800 on healthcare expenses, then you get a rebate, and your premiums should go down. Conversely, if healthcare costs are higher, then premiums must go up to cover them.

And this year, healthcare costs were higher, so premiums are going up.

There were two main causes of higher cost. More expensive prescription drugs and hospital consolidation.

According to the analysis, increased demand for GLP-1 diabetes and weight loss drugs drove cost upwards. As did new high-cost specialty drugs and gene therapies.

“Rising drug prices are having a significant impact on overall medical spending trends,” said one health insurer on why premiums are increasing.

Another plan cited “rapidly rising prescription drug costs, which are being driven by increased demand for weight loss medications and the emergence of cell and gene therapies.”

Insurers also cited hospital consolidations as a cause behind higher rates.

A hospital that controls more of a market can demand higher reimbursement rates from businesses and insurers because they are the only option for care and insurers have to include them in their networks.

“Many of these systems are asking for large increases for services,” and, as one payer continued, “because of the limited competition and regional monopolies some health care providers have achieved, there is reduced market pressure for these systems to innovate new, more efficient practices.”

Hospitals have consolidated at rapid rates across the country, and now we are seeing those higher rates being passed on to workers and their families in the form of higher health insurance premiums.

Consumers are often frustrated at their insurer when premiums go up. But premiums only go up when the cost of healthcare goes up.

And in 2025 they are going up for two main reasons: high cost from Big Pharma and hospital consolidation.