# Why is health insurance so expensive? Everyone in the chain earns more when you pay more.

Source: https://ethosbenefits.com/insights/why-is-health-insurance-so-expensive
Type: Insight
Topic: Benefits strategy and administration
Author: Donovan Ryckis, Founder and CEO
Reviewed by: Patrick Ansara, Partner and Director of Client Operations
Publisher: Ethos Benefits
Published: 2026-11-12
Last updated: 2026-11-12
Cite as: "Why is health insurance so expensive?," Ethos Benefits, https://ethosbenefits.com/insights/why-is-health-insurance-so-expensive, updated 2026-11-12.

**Summary:** Why employer health insurance costs so much, from hidden prices and commissions to closed plans with no data, and what an employer can change this year.

## Key takeaways

- The average employer family premium reached $26,993 in 2025, up 6% in a year, according to the KFF Employer Health Benefits Survey.
- Donovan Ryckis's short answer is that almost everyone paid from a health plan earns more when the plan spends more, including a broker paid a percentage of premium.
- The same service can carry very different prices depending on who pays, and most employers never see the claims data that would show it.
- Raising deductibles moves cost to employees without fixing what drives it. Plans get cheaper when they first work better for employees.

Employers ask why health insurance is so expensive every renewal season, and the honest answer has less to do with sick employees than with how the plan is built. Donovan Ryckis, CEO of Ethos Benefits, walked through it on [The Liquid Lunch Project](https://theliquidlunchproject.com/post/donovan-ryckis) with hosts Matthew Armand and Luigi Rosabianca, both business owners who run a small business lender. This article covers his main points.

Health coverage is usually a company's second or third largest expense, and it rises every year. The KFF 2025 Employer Health Benefits Survey puts the average family premium at $26,993, up 6% from 2024, with workers paying $6,850 of it. Most employers are told there is nothing to be done except raise deductibles.

## Why is health insurance so expensive for employers?

Health insurance is expensive for employers because the people paid from the plan earn more when it spends more. Donovan's version: "everybody downstream in the chain makes more money when the employer pays more money." He lists the chain in order: the broker, the hospital, the doctors, the pharmacy benefit manager, the pharmacies and the drug manufacturers.

The employer sits at the end of that chain with the least information. It doesn't know the benchmark price for a drug or a procedure, so it can't tell what it is overpaying for.

## Why do prices vary so much?

Prices vary because each payer negotiates its own. "The price is variable by the insurance, by the payer," Donovan said. The same MRI or the same prescription can carry very different prices depending on the carrier, the network contract and the setting where the care happens. His shorthand for the setting: "the bigger the building, the bigger the bill."

Federal [Transparency in Coverage rules](https://ethosbenefits.com/insights/transparency-in-coverage-final-rule) require insurers and self-funded plans to post their negotiated rates in machine-readable files, but most employers never look at what their own plan pays. For where each premium dollar goes, see [what happens behind the scenes with your health insurance](https://ethosbenefits.com/insights/what-happens-behind-the-scenes-with-your-health-insurance).

## Does your broker earn more when premiums rise?

Often, yes. Many brokers are paid a commission that is a percentage of premium, so when the premium goes up 10%, their pay can go up 10% too. Donovan's advice is to make compensation one of the first conversations: ask how the broker is paid, by whom, for which lines, and what bonuses they can earn from each carrier.

The common answer, he said, is "you're not paying me, the insurance company is." That pay is built into the premium the employer funds. Since December 2021, ERISA has required brokers and consultants who expect $1,000 or more from a group health plan to disclose their direct and indirect compensation in writing, before the contract is signed or renewed. See [broker compensation disclosure](https://ethosbenefits.com/benefits-101/broker-compensation-disclosure) for what that disclosure must include.

Donovan came to benefits from securities, where a fiduciary standard for advisors is common. In insurance, he pointed out, the license is a producer license, and a fiduciary standard of care is something the employer has to ask for.

## What are the four parts of a health plan?

Most employers think of their plan as one product from one of a few big carriers. Donovan breaks every plan into four parts, whether or not anyone mentions them:

| Part | What it does | Where cost hides |
|---|---|---|
| **Administrator (TPA)** | Answers employee calls, pays providers, issues ID cards | Fees, and whether the plan gets its own claims data |
| **Network** | Sets which providers employees can see, and the prices the plan pays them | Pre-agreed reimbursement rates the employer rarely sees |
| **Pharmacy benefit manager** | Sets drug prices and pays pharmacies | [Spread pricing](https://ethosbenefits.com/benefits-101/pbm-spread-pricing) and retained rebates the employer never sees |
| **Risk** | The insurer, or stop-loss coverage for a self-funded plan | Pricing set without competition when only a few carriers are asked |

When a carrier sells all four as a bundle, Donovan said, "they basically sell you a closed box." The employer can't see the claims or change the parts, so every renewal becomes a choice between a few closed boxes. The FTC's 2024 interim staff report on pharmacy benefit managers describes how the largest PBMs are owned by the same companies as large insurers, which is part of why the pharmacy contract rarely comes up at renewal.

## Why doesn't the employer see the data?

Smaller fully insured plans often get no claim-level reporting at all, and many larger plans get summaries by condition. Without claims, Donovan said, a health plan "is not a data driven decision." An employer can't tell whether its problem is drug prices, hospital rates or a handful of large claims, so it can't fix any of them. [Who owns your health plan claims data](https://ethosbenefits.com/insights/health-plan-claims-data-access) explains what the law gives employers today.

## Do higher deductibles fix it?

No. Raising deductibles moves cost to employees without changing what care costs, and it often pushes people to the most expensive settings. Donovan's rule is the reverse: "the only way any health care plan is going to lower cost for the employer is if it first lowers cost and works better for the employee."

In practice that means giving employees low cost options they understand and can use right away, such as:

1. **Direct primary care,** so employees can see a doctor today or tomorrow instead of going to the emergency room.
2. **A pharmacy program with transparent pricing,** including lower cost sources for expensive drugs that the plan can make free to the employee.
3. **Direct contracts for imaging** at freestanding centers instead of hospitals.

These only work when the plan is open enough to change and the employer has the data to steer people. Kalos Services, an HVAC and trades company, cut emergency room visits by 34% with direct primary care and brought pharmacy cost per member down 70%. Read the [Kalos Services case study](https://ethosbenefits.com/results/kalos-services).

## How Ethos Benefits helps.

Ethos Benefits starts with the claims, not the carrier. We separate the four parts of the plan, put each one out to competition, and get the employer its own data, so the next renewal is a decision instead of a reaction. Our [cost containment work](https://ethosbenefits.com/services/cost-containment) is where most clients begin. To see where your own plan stands, [Request a Strategic Analysis](https://ethosbenefits.com/strategic-analysis).

## Frequently asked questions

### Why is employer health insurance so expensive?

Most of the people paid from an employer health plan, including the broker, hospitals, doctors, the pharmacy benefit manager and drug makers, earn more when the plan spends more. Prices are set by contracts the employer rarely sees, and most employers get little or no claims data, so they cannot tell which costs are out of line.

### How much does employer health insurance cost?

The KFF 2025 Employer Health Benefits Survey puts the average annual premium at $9,325 for single coverage and $26,993 for family coverage. Workers paid an average of $6,850 toward family coverage. Your own cost depends on your claims, your contracts and how the plan is built.

### Why does my health insurance go up every year?

Renewal increases follow claims and trend, but they also reflect contracts nobody revisits. If the network's hospital rates, the pharmacy contract and the advisor's pay all stay the same, a new carrier at a slightly lower rate leaves the cost drivers in place, and the next renewal rises again.

### Do higher deductibles lower health insurance costs?

They lower the premium by moving cost to employees, not by lowering what care costs. Employees who face high deductibles often delay care and then use the most expensive settings, such as the emergency room. Plans get cheaper over time when they steer employees to good, lower cost care and make it easy to use.

### How is a benefits broker paid?

Many brokers are paid a commission by the insurer, often a percentage of premium, so their pay rises when premiums rise. Federal law requires brokers and consultants who expect $1,000 or more from a group health plan to disclose their direct and indirect compensation in writing before the contract is signed or renewed.

## Sources

1. [2025 Employer Health Benefits Survey](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/), KFF
2. [29 U.S. Code § 1108, Exemptions from prohibited transactions (section 408(b)(2)(B), broker and consultant compensation disclosure)](https://www.law.cornell.edu/uscode/text/29/1108), Legal Information Institute, Cornell Law School
3. [Transparency in Coverage Final Rules (CMS-9882-F) fact sheet](https://www.cms.gov/newsroom/fact-sheets/transparency-coverage-final-rules-cms-9882-f), Centers for Medicare & Medicaid Services
4. [FTC Releases Interim Staff Report on Prescription Drug Middlemen (July 9, 2024)](https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen), Federal Trade Commission
5. [Your Health Plan Is Probably Screwing You, with Donovan Ryckis](https://theliquidlunchproject.com/post/donovan-ryckis), The Liquid Lunch Project