Why Are Health Insurance Costs Rising?
In simple terms, health insurance premiums rise because healthcare costs keep rising. Hospitals, physicians, medication, and medical technology have all become more expensive, contributing to the overall rise in healthcare spending. Expensive new drugs and treatments such as GLP-1 drugs for diabetes and weight loss are driving significant spending increases. These drugs can cost as much as $1,000 per month, and insurers spread these costs across the user pool, hence increasing premiums for everyone.
At the same time, healthcare utilization has increased as Americans seek more outpatient services, specialty care, and treatments that may have been delayed during the pandemic. An aging population and increasing rates of chronic conditions are also increasing overall healthcare costs. While federal Affordable Care Act subsidies helped reduce costs for some consumers, they did not address the underlying drivers of healthcare inflation.
Higher prices, coupled with higher utilization, increase healthcare costs, which insurers then pass on to Americans through higher premiums. Between 2022 and 2023, U.S. healthcare spending grew about 7.5%, driven by higher prices and utilization. Between 2023 and 2024, spending rose another 7.2%, reaching over $15,000 per person, according to the Centers for Medicare & Medicaid Services.
While these drivers originate in the broader healthcare system, their financial consequences are increasingly felt in local school district budgets.
Every additional dollar spent on benefits is a dollar unavailable for classroom instruction, student support services, tech/facility investments, or other district-level programs.
The Budget Impact on School Districts
The impact of rising health insurance costs is particularly significant in K–12 education, as personnel costs typically account for 75%–85% of most budgets, and employee health benefits for many districts are governed by collective bargaining agreements and contractual obligations, leaving very little flexibility to deal with rapidly rising insurance costs.
Consequently, increases in health insurance costs can quickly consume any additional revenue from local contributions, state aid, and other funding sources. Every additional dollar spent on benefits is a dollar unavailable for classroom instruction, student support services, tech/facility investments, or other district-level programs.
For many district leaders facing rising health insurance costs, tough trade-offs have led to hiring freezes, delayed hiring, staffing reductions, programmatic changes, and even deferred capital investments.
Massachusetts school districts provide a clear example of this challenge. In Newton Public Schools, health insurance costs increased nearly 9% in the FY27 budget to $46.9 million. Salary and benefits make up 87% of the district’s operating budget, meaning benefit increases have an immediate impact on instruction spending at a time when the district’s budget only went up 5.75%. The district ultimately made central office staffing reductions to balance its budget.
However, Newton isn’t the only one experiencing this. The challenge is even more pronounced in smaller districts in the state. Pioneer Valley Regional District reported health insurance increases approaching 40%, also forcing the district to eliminate positions and reduce staffing levels to balance its budget. Across Massachusetts, school leaders have reported annual increases in health insurance ranging from 10% to 20%, creating significant pressure on already-constrained local budgets.
For Massachusetts districts in particular, these pressures are occurring within the constraints of Proposition 2½, which limits annual growth in local property tax revenue. As health insurance and other mandatory costs continue to outpace district revenue, many communities are turning to override votes to maintain level service delivery for students and staff.
But override campaigns have become more difficult as communities continue to face their own affordability challenges in the current economic state. When overrides fail, district leaders are left with few options beyond reducing expenditure. What this means is that while the primary driver of health premium growth is rising healthcare costs, increased healthcare utilization and the high cost of new drugs, all of which are outside any district’s control, the impact is felt directly in the classrooms, by the students and the staff who suffer from limited/reduced services that the district is then able to offer.
How Districts Are Responding
Beyond the immediate budget impacts discussed above, escalating premiums continue to create challenges in collective bargaining talks, long-term financial planning, and even community engagement. District leaders must maintain competitive employee benefits while also preserving resources for classrooms and student services.
To manage long-term costs, districts are starting to review health plan redesigns, expand tiered network options, and implement strategies to control pharmacy spending, particularly for high-cost specialty medications such as GLP-1 drugs. Other districts are exploring regional insurance collaboratives or municipal health trusts to gain purchasing power and spread risk across a larger pool of employees.
More importantly, many SBOs are strengthening their long-term financial planning by engaging in multi-year forecasting, scenario modeling, and reserve strategies to better anticipate future benefit cost increases and avoid sudden budgetary disruptions. While there is no single solution to eliminate this, proactive planning can help districts better manage its impact.
Looking Ahead
In the current climate, SBOs expect healthcare costs to continue to increase moderately in the future, given the trend toward high healthcare utilization, expensive specialty medications, and an aging workforce, all of which will continue to put more pressure on premiums.
For SBOs, the challenge is no longer just managing employee benefits but ensuring that escalating healthcare costs do not undermine a district’s ability to deliver premium education services to its community. As healthcare services consumers take an ever-larger share of school budgets, effective benefits management will remain a critical component of strategic financial leadership.