Why the Cost of Medical Insurance Has Risen So High in the Last Four Years

Over the past four years, the cost of medical insurance has risen significantly due to a combination of rising healthcare service costs, increasing drug prices, the impact of the COVID-19 pandemic, and changes in insurance regulations. Recent data released by Covered California for the 2025 plan year provides valuable insights into these trends. According to the 2025 Rate Release Report, Covered California’s average premium rate will increase by 9.6%, the highest in recent years, reflecting many of the underlying issues driving national healthcare costs.

1. Rising Healthcare Service Costs

Healthcare services are becoming more expensive across the board. Hospitals, doctors, and medical facilities have seen:

• Increased operating costs: Hospitals must manage higher salaries for healthcare workers,      costs for advanced medical technologies, and rising prices for medical supplies.
• Aging population: An older population requires more frequent medical care, which places a strain on healthcare providers and contributes to rising insurance premiums.
• Investment in technology: Advancements in medical technology, while improving the quality of care, require significant financial investment. For example, the introduction of new diagnostic tools and robotic surgeries has driven up hospital costs, which are reflected in the premiums charged to patients.

2. Prescription Drug Prices

Prescription drug prices continue to be a major contributor to rising healthcare costs. Key factors include:

• Price hikes for brand-name drugs: Drug manufacturers have been steadily increasing the price of many medications, particularly brand-name drugs that lack generic competition.
• Research and development (R&D) investments: The cost to develop new drugs is substantial, particularly for innovative therapies that treat complex or rare diseases. These high R&D costs are passed on to consumers through higher drug prices and, consequently, higher insurance premiums.
• Specialty medications: A growing reliance on biologics and specialty drugs, used for chronic and severe conditions, further exacerbates rising costs.

3. Impact of the COVID-19 Pandemic

The COVID-19 pandemic continues to affect healthcare costs even after the immediate crisis has passed. Some of the ongoing impacts include:

• Long-term health complications: Many people are dealing with chronic conditions resulting from COVID-19, requiring long-term medical care, which has driven up demand for healthcare services.
• Workforce shortages: The healthcare sector is facing a significant shortage of workers,      which has forced providers to increase wages and benefits to retain and recruit staff. This, in turn, increases the cost of care.
• Healthcare system strain: The pandemic placed unprecedented stress on the healthcare system,      contributing to higher operating costs, particularly in hospitals.

4. Mandates and Regulatory Changes

The individual mandate requiring individuals to maintain health insurance, once part of the Affordable Care Act (ACA), was repealed at the federal level in 2019. However, states like California have maintained their own mandates, which have had a stabilizing effect on insurance markets. Covered California continues to use the individual mandate as a tool to maintain a balanced risk pool, which helps to keep costs lower by ensuring that healthy individuals participate in the insurance market.

• State-level mandates: California's mandate helps prevent adverse selection by encouraging healthier individuals to obtain coverage. This reduces the risk of having only sicker individuals in the insurance pool, which can cause premiums to rise. The 2025 Covered California Rate Release Report highlights that while the state mandate has helped to manage costs,      premiums are still increasing due to external factors like inflation and healthcare utilization.

5. Inflation and Post-Pandemic Healthcare Utilization

Inflation has been a significant factor in the cost increases for healthcare in recent years. According to the Covered California 2025 Rate Release Report, inflationary pressures on medical services, particularly for hospital services, are a primary reason for the 9.6% premium increase. The report also notes that increased utilization of healthcare services, including routine and elective care that was deferred during the pandemic, has further driven up costs.

Many people postponed non-urgent medical treatments during the pandemic, leading to a surge in demand for these services in subsequent years. This "pent-up demand" has caused insurance companies to anticipate higher healthcare usage, leading to increased premiums for the upcoming year.

6. The Role of Insurance Plan Structures

The type of health insurance plan you choose also plays a role in the cost increases. Plans with lower deductibles and out-of-pocket maximums tend to have higher premiums. For example, for a family of three, age 45, 43, and 10 a Silver 70 HMO plan with a $5,400 deductible and a $9,100 out-of-pocket maximum has a premium of $1,043.45 per month. In contrast, a Platinum 90 HMO plan with no deductible and a $4,500 out-of-pocket maximum has a significantly higher premium of $1,918.51 per month. These higher premiums reflect the greater financial protection offered by such plans, particularly for those who expect to need frequent medical care.

Conclusion

The cost of medical insurance has risen dramatically in the past four years due to a combination of rising healthcare service costs, prescription drug prices, the ongoing impact of the COVID-19 pandemic, inflation, and changes in healthcare mandates. The 2025 premium increase in California, as highlighted in the Covered California 2025 Rate Release Report, illustrates these trends, with a 9.6% average premium rise driven by factors such as inflation, increased healthcare utilization, and regulatory changes.

Understanding these underlying drivers is essential for making informed decisions about healthcare reform and exploring ways to control costs while ensuring access to quality care for all.