Healthcare costs are rising faster than public budgets can keep up, and public-sector employers, unions, and benefits trusts across the country are feeling the strain. Beyond just a benefits challenge, the rising cost of care has become a budgeting and workforce problem for state and local governments that forces tough choices about wages, staffing, and services — with ripple effects across the economy.
Recent reporting from STAT shows how acute the problem has become. In New Jersey, premiums for teachers and school workers are projected to jump 34% next year, while Idaho’s public school health plan currently faces a funding crisis that threatens to leave teachers’ medical claims unpaid. These are not isolated cases. Across the country, the cost of care is dramatically outpacing inflation and the public funds needed to pay for care — and every dollar spent on healthcare is a dollar that can’t go toward wages, classrooms, public safety, or infrastructure.
That pressure makes it harder to recruit and retain teachers, first responders, and other public servants. And when the benefits budget runs out, taxpayers ultimately feel the impact through higher taxes, reduced services, or both.
The culprit is price, not utilization
So, what is driving these premium increases? As one famous health economics paper puts it, “It’s the prices, stupid.”
Dauphin County, Pennsylvania, offers an example. Over two decades, the county’s healthcare spending more than doubled — even as its workforce shrank by 19%. This means that in practice, the per-employee cost tripled.
Recent reports from New York City provide more direct evidence. The city’s Office of Healthcare Accountability recently found that spending on employee and retiree health premiums exceeded $10 billion in fiscal year 2025. The percentage of spending that went to outpatient care rose from 13% to 17% in just one year, and nearly $3 billion in hospital spending was concentrated among just five hospitals. The analysis also explicitly called out that “prices, rather than utilization,” as “the primary driver of rising healthcare spending.”
Employers are paying the bills without the receipts
Recent federal and state policies have made progress towards making these prices more visible to purchasers and workers alike. But that can only go so far; purchasers also need to see how those prices are determined, and most cannot.
Rosa Novo, Executive Benefits Director for Miami-Dade County Public Schools, oversees a health plan spending half a billion dollars a year. She has described hospital charges in her market reaching 300%, 400%, and even 500% of Medicare rates, while employers often lack the data to understand what they are paying for and why. As Novo has put it, “we’re the ones paying — and we don’t have the receipts.”
This challenge affects employers across the board. Even those with experienced benefits teams struggle to negotiate effectively — or even figure out the right questions to ask — when pricing data is incomplete, inconsistent, or inaccessible.
What hidden costs look like: the 340B example
The 340B Drug Pricing Program illustrates how hidden these costs are from purchasers, and how large they can be. Originally created to help eligible safety-net providers stretch scarce resources, the program has financial consequences that extend well beyond the hospitals and clinics that participate. The program allows participating hospitals to purchase medications at steep discounts, then charge a patient’s insurance whatever the prevailing rate is. For just self-administered drugs in state employee health plans, that translates to a 162% average markup — totaling roughly $1 billion a year in upcharges, according to an analysis by IQVIA.
While 340B is intended to support care for vulnerable populations and help defray costs for states, this flow of public dollars through employee health plans subverts that intention while driving up costs and premiums for public servants.
Public servants and their health plans deserve a break from rising hospital prices
When hospital costs strain public budgets, employee benefits, and taxpayers all at once, shifting more of the burden onto public employees and working families cannot be the answer. A better path starts with three things:
- Clear, usable pricing data, so employers can see what they are paying and why
- Competitive hospital markets that ensure purchasers have real alternatives and leverage
- Prices that reflect the service delivered, rather than who owns the facility
Public dollars require public accountability. In addition to further scrutiny of tax-exempt status and use of public subsidies, that means that hospital prices must be transparent, competitive, and fair for taxpayers and public servants alike.