If it feels like your health insurance premiums go up every single year, it's not your imagination. For a lot of families and business owners, health insurance has turned into one of their fastest-growing bills and honestly, the coverage doesn’t seem to get any better.

Let’s talk about why these premiums are so high. There are three big reasons that keep driving prices up, and all of them trace back to how the Affordable Care Act (ACA) changed the way insurance works.

Here’s the quick version: The ACA tried to make sure more people had coverage, but in the process, it set up a system that:

•     Eliminated true competition between insurance products and providers
•     "Guaranteed" insurance companies a certain profit margin
•     Used government subsidies to help buyers purchase coverage, but pushed up prices in the process

Here’s what’s really going on.

1. The ACA Took Away Real Choice

When buyers have choices, the competition lowers prices. One of the main reasons premiums keep climbing is because the law made almost every insurance plan cover the same long list of benefits—no matter who you are or what you actually need. So every plan now includes things like doctor visits, ER trips, hospital stays, maternity care, mental health services, prescriptions, lab work, preventive care, and even pediatric dental and vision.

It doesn’t matter if you never plan to have kids, don’t need certain prescriptions, or would rather have a cheaper plan that skips some of those things. You have to pay for it all.

Imagine you walk onto a car lot. There used to be all kinds of options—cheap sedans, family SUVs, luxury sports cars. Then the government shows up and says, “You can only sell the fanciest luxury car, and everyone has to buy it.” That’s basically what happened to health insurance. When every plan is loaded with the most expensive features, there’s no real price competition left. You lose choices, and the price goes up.

2. Insurance Companies Have Built-In Profits

The ACA set up what pundits call “profit caps”—but in reality, they’re more like guaranteed profits. Insurance companies have to spend 80% of premiums on medical care for individuals and small groups, and 85% for big employer plans. Whatever’s left—15 to 20%—is theirs to cover admin costs and make a profit.

But here’s the catch: There’s no rule saying how much they can spend on medical care. So if the cost of care goes up, insurance companies just raise premiums, and their gross profit (which is a fixed percentage) goes up in dollars too. Their admin costs barely budge, so higher prices simply mean more and more profit for them.

For example, let’s say you pay $1,000 a year in premiums. The company spends $850 on your care and keeps $150 (15%). But, if the insurer has control over it's overhead, their profit may increase by more than 10% —even though nothing else really changed.

3. Government Subsidies Make Things Worse

The third big reason? Subsidies. Tons of people get tax credits to help pay for insurance, but the money doesn’t really help them—it goes straight to insurance companies.

Here’s the problem: When the government hands out money to buy something, but doesn’t increase how much of it is available, prices naturally rise. It happens with college tuition, daycare, housing, even farm products. If sellers know buyers have government help, they just raise their prices. This is not just smart business, if you're hired by investors, it's part of your job!

Picture this: A Snickers bar costs $1.75, and the government gives everyone $1,000 to buy Snickers. That candy bar isn’t going to stay at $1.75 for long. Sellers know there’s extra money on the table, so the price climbs. How, high?  At least to $1,000 per Snickers bar. Health insurance works the same way.

So, Why Do Premiums Keep Rising?

Put it all together, and here’s what you get:

•     You’re forced to buy expensive, all-inclusive plans—no matter what you actually need
•     Insurance companies have every reason to let medical costs rise
•     Subsidies, in the form of tax credits, throw fuel on inflation-fire caused by the factors above - driving up demand for medical services but not the number providers who offer them.

All these things feed off each other, making premiums go up year after year.

Bottom Line

Knowing why health insurance is so expensive doesn’t make the bill any easier to swallow. But at least now you can see why costs keep climbing, even when your coverage doesn’t seem to improve.

If you run a business, work for yourself, or have a higher income, it’s crucial to understand how these incentives work when you’re planning your taxes, benefits, and long-term finances.

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