A new number is keeping CEOs and policymakers awake at night as the Texas economy expands: $27,000. That is the average annual cost to insure a family on an employer-sponsored health plan today.
As Texas moves toward its 2036 bicentennial, healthcare affordability has emerged as a “bottom-line issue” that outranks property taxes and gasoline prices in the minds of many voters.
In a discussion for the Future of Texas series, Avik Roy, co-founder of the Foundation for Research on Equal Opportunity, and Charles Miller, Director of Health and Economic Mobility Policy at Texas 2036, sit down to dissect why the “Texas Miracle” is being threatened by the cost of healthcare and what policymakers must do to address this issue in the long-term.
Texas prides itself on a low cost of living, yet its residents face healthcare expenditures that are above the national average. For the average Texas family, out-of-pocket exposure—including premiums, deductibles, and co-pays—reaches roughly $10,000 a year, according to research by Texas 2036. This exceeds the average household tax burden of $6,500, leading Roy to suggest that elected officials could make “much more of a difference” in Texans’ cost of living by curbing healthcare costs than by cutting property taxes.
The growth over time is staggering, says Miller: family coverage costs have surged 53% since 2016. Miller highlights what policy wonks call the “chart of the century,” which illustrates how hospital and medical services have grown as “absolute outliers” compared to inflation, wages, and even consumer electronics.
A primary driver of these costs is the lack of competition, says Miller. While many assume the U.S. has a free-market system, the reality is a “concentrated” one. Approximately 61% of Texans live in hospital markets rated as “highly concentrated,” where one or two large systems dominate entire metropolitan areas.
This consolidation, says Roy, allows systems to charge prices based on “market power, not quality of care”. In 2022, Texas employers paid hospitals 259% of what Medicare would have paid for identical services. Roy points to the anesthesia market in Austin as a micro-example: “One group of anesthesiologists controls the entire Austin market… they basically are able to charge whatever they want”.
Miller argues that a healthy healthcare market requires three critical, interlocking components to function effectively for the consumer.
First, he says, the market must consist of informed patients who are able to access and understand the price and quality of care before they make a purchase decision.
Price transparency is essential, says Miller. But it only becomes truly effective when coupled with competitive choices. Without the options of multiple providers, a patient might know “how badly you’re getting hosed” but can’t do anything about it.
Finally, Miller argues, the system requires aligned incentives to address the disconnect inherent in a third-party payer model, where the individual receiving the service is not the one directly paying for it, often leading to decisions that do not prioritize the best value for the patient.
Roy agrees and identifies this as the “original sin” of the U.S. system-the tax exclusion for employer-sponsored insurance, a World War II-era policy that incentivizes routing money through insurance rather than paying it as salary. This has created an “open bar” mentality where neither doctors nor patients are trained to care about costs.
While federal reform is often stalled, the pair says Texas has significant tools at its disposal. The state is the largest employer in Texas, directly controlling coverage for 1.1 million people through plans like TRS-ActiveCare and the Employees Retirement System (ERS).
By enacting innovative benefit designs, the state can lead the market, says Miller. He cites Montana as a success story where a single official negotiated hospital prices at 130% of Medicare rates, saving millions for taxpayers and workers. “Because the state has the scale to do this,” Miller says, “75% of the benefits accrues to the commercial market as spillover effects”.
Beyond traditional policy shifts, Roy and Miller highlight several Texas-based startups developing innovative “end arounds” to the conventional insurance model. For example, the Individual Coverage Health Reimbursement Arrangement (ICHRA) allows employers to provide workers with tax-free dollars to purchase their own insurance plans, a move that introduces genuine price competition among insurers. Companies like the Dallas-based Take Command Health are leading this transition, granting employees more sovereignty over their healthcare choices.
At the same time, Austin-based Crowd Health says it is bypassing the insurance system entirely by negotiating cash prices for a membership collective. This approach can yields significant savings, with costs often falling to “one half to one quarter” of those seen in traditional employer-based plans.
To further support these market-driven solutions, Miller says that recent Texas legislation now allows patients to apply these lower cash prices toward their insurance deductibles, though experts note that administrative “hurdles” still make the process somewhat cumbersome for average users.
What does a “win” look like in ten years? For Roy, a realistic best-case scenario is limiting healthcare cost growth to the rate of consumer inflation—roughly 2% to 3% annually—rather than the double-digit increases seen over the last decade.
“Step one. Stop the bleeding,” Miller concludes. If Texas can curb cost growth while its dynamic economy continues to drive income growth, healthcare will become more affordable on a relative basis.