The Federal Reserve Bank of New York estimated on Wednesday that rising employee health insurance costs, driven by increased healthcare spending due to GLP-1 obesity drugs and other factors, dragged wage growth down by as much as 20% last year.
Citing a recent survey of firms in the New York-Northern New Jersey region, the researchers led by Jaison Abel noted that had health insurance costs not risen, those businesses would have offered a roughly 4.7% average wage increase in 2025.
Compared to their average wage increase of 3.8% in 2025, “the wage growth for workers at these service and manufacturing firms would have been about one percentage point higher, on average, if health insurance costs had held steady,” the team wrote.
That was equivalent to a 20% drag on wage growth, they said, adding that “there does appear to be a connection between rising health insurance costs and wage growth among many firms.”
In October, healthcare policy organization, the Kaiser Family Foundation estimated that health insurance costs rose by about 6% in 2025 and are on track for another 11% rise this year, a finding confirmed by the Fed survey, which indicated a 13% hike.
Citing health insurers, Abel said that these coverage costs have been largely driven by soaring expenditure on hospitalization and physician care in addition to expenses on GLP-1 and other prescription drugs.
“While not every firm provides health insurance to its workers, it appears that rising employee health insurance costs are increasing cost pressures for some businesses, limiting wage growth for many workers,” the researchers concluded.
Health insurers: UnitedHealth (UNH), Humana (HUM), CVS Health (CVS), Cigna (CI), Clover Health (CLOV), Alignment Healthcare (ALHC), Centene (CNC), Molina Healthcare (MOH), and Elevance Health (ELV).