Rising health care costs are straining Texas businesses as the Legislature seeks solutions

The expenses to operate three restaurants in Waco are rising across the board, but there's one growing cost in particular that feels nearly impossible to manage — providing employee health insurance, co-owner Kyle Citrano said.

"Every year, it can change on you in a heartbeat," said Citrano, whose family runs George's, George's #2 and Jorge's Cantina. "You could have your rates jump because your participation is down, someone on your staff could get hurt. You never know."

The health insurance costs to Citrano's business have risen about 5% since reopening from COVID-19 shutdowns, but that is because he has been forced to share that burden with his employees by passing on higher premiums and deductibles.

Citrano, like business owners across the state, is grappling with rising health insurance costs at a time when operating expenses are rising in a host of other categories. The challenges are particularly acute in the restaurant industry, where extra charges by insurers for low employee participation is common while inflation and rising credit card fees are causing a further strain on business.

Health insurance costs on businesses have gotten so high that leadership in both chambers of the state Legislature have charged lawmakers with offering solutions ahead of the legislative session beginning in January. And there's bipartisan support to drop costs.

Under federal law, employers with more than 50 employees must provide health insurance and about half of Texans are covered by an employer-sponsored plan. A report by the Business Group on Health found health costs for businesses were projected to rise 9% in 2026 nationally. This comes after polling firm KFF found annual premiums for employer-sponsored family health coverage rose 6% from 2024 to 2025. The average premiums for employer-sponsored health insurance for a family of four is just under $27,000 annually, according to KFF.

Excluding the pandemic years, the Texas state government, a major employer, has seen year-over-year increases in health costs between 3% and 9.8% since 2014, according to the Employee Retirement System of Texas which provides benefits to current and retired state employees.

Experts and employers who spoke with The Texas Tribune said these rising costs for employers shrink the pool of money available for labor, causing employees to miss out on raises and making it harder to hire new employees. Rising insurance costs that get passed on to employees can price some of the lowest-paid employees out of health insurance plans altogether, affecting their access to preventative health and risking their work productivity.

Those experts say consolidation in the health care industry, such as among hospitals as well as companies acting as middlemen between providers and employers, and not just insurers, are driving up insurance premiums and the cost of health services. A lack of transparency around how providers, insurance companies and other industry players set prices for medical care and prescriptions makes it harder for patients and employers to negotiate the best price, further raising costs. Legislators appear poised to take aim at both issues.

The Texas Hospital Association said industry consolidation actually helps keep hospitals open in areas where they are struggling financially by allowing hospitals to pool resources. Hospitals, meanwhile, face their own rising costs in the form of insufficient reimbursement from health insurance and steep administrative burdens, the association said.

Health care costs are the top issue for Texas voters as well, with 89% of respondents to a January Texas Politics Project poll saying they were either "very concerned" or "somewhat concerned" about the cost of health care.

"When it boils down, this is about affordability," said state Rep. James Frank, R-Wichita Falls, chair of the House Select Committee on Affordable Healthcare. "This is about health care and actually being able to afford care. It has become much more expensive, and not just more expensive, more expensive than it should be."

Health care prices in the U.S. and Texas are rising faster than workers' wages, overall inflation and the rest of the developed world, Frank added.

"When I look at what the state needs to do, it is to help foster a healthier healthcare market, an actually functioning healthcare market," Frank said. "I think most of the things we need to do have general agreement across party lines."

Consolidation and transparency issues

Amy Hartman is the senior manager of Human Investments for Texas-based credit union Credit Human and said health care costs are rising faster than any other expense at the company, including wages. This is harming both the business and employees' bottom line, Hartman said, noting that the company gave raises but higher health insurance premiums ate up the extra pay employees received.

Those premium increases are not only costing the business, they are starting to price out the company's lowest-paid employees, Hartman said. The premium has gone up at a double-digit rate in recent years for both the employer and employee and rose 15% this year for employees, Hartman said. If employees don't have coverage, they are less likely to seek out health care, and they become sicker and miss work, she added.

"In this last plan year, we had a pretty steep increase, and we did see about double the number of people decline to take the plan and tell us they have no other coverage," Hartman said, although about 80% of employees do use the plan.

Citrano suffers from low employee participation, which is less cost effective for the employer and can result in a tax penalty by the federal government.

Citrano employs roughly 425 people across his three locations and about half of them work the minimum hours and have the employment tenure to be eligible for the employee health care plan. But, because many don't believe health insurance is worth the rising costs, only 19 employees have opted in to the health insurance policy, which he says offers good coverage for his overall younger employee pool.

"When your participation is low, your rates are higher. So what we pay for insurance … it's a lot," Citrano said.

As a financial institution, Hartman's company values using data to make smart financial decisions but has been frustrated by the lack of transparency around costs from their claims administrator and pharmacy benefit manager. It took two years of requests for those providers to agree to give Hartman access to that data.

Without information on the exact cost of a knee surgery at a specific hospital or prescription drugs from a specific pharmacy, Hartman said she is unable to find the best deal that meets the unique treatment and financial needs of her employees and makes business sense for her company.

"Transparency is a big word, but effectively having a market price for something is what we're after," Hartman said.

As costs and frustration mounted in recent years, Hartman joined the board of Texas Employers for Affordable Healthcare, a nonprofit organization with the goal of uniting Texas businesses to advocate for lower health insurance costs.

Chris Skisak, executive director of the nonprofit, said the organization formed in 2022 in hopes of better engaging businesses on the issue. Despite being the most common provider of health insurance in the country, businesses have typically stayed out of health insurance debates, something that is now changing as prices begin to impact their bottom lines.

"I think they've realized that they cannot cost-shift to the employees and ask them to pay more anymore," Skisak said. "So employers are realizing this is something that is at a higher level and this is something that needs their attention."

Skisak said complaints about price transparency are common among employers frustrated with the marketplace, both in health care services and pharmaceuticals. Consolidation, particularly among hospitals, allows for large health care providers to raise their prices as they face less competition, Skisak said.

Zack Cooper, a professor of public health and economics at Yale University, testified in April before the House select committee that there have been more than 1,300 mergers among the nation's approximately 5,000 hospitals since 2000.

Carrie Williams, chief communications officer for the Texas Hospital Association, said much of the criticism of hospital consolidation misses the difficult financial situation many hospitals, particularly rural ones, face to continue operating. Fourteen rural hospitals in Texas have closed since 2015.

"Patients recognize that if the choice is between their provider closing or maintaining an access point for health care in their community, consolidation offers a path to keeping care local," Williams said.

For hospitals, Williams added that they support cost transparency for patients and called for greater transparency among health providers of all types, rather than just hospitals and health insurance plans.

Along with a lack of understanding of overall health insurance costs, Hartman said the cost of pharmaceuticals for employees on the Credit Union plan have grown significantly in recent years, about 8% to 11% annually.

Pharmacy benefit managers (PBMs), which act as intermediaries on the drug supply chain by managing medication pricing, access and distribution, also have seen significant consolidation. This has prompted experts to question if the companies are at all lowering overall costs for prescriptions.

OptumRx, CVS Health, Express Scripts and Prime Therapeutics — the four largest PBMs — own about two-thirds of the market share.

Charles Miller, director of health and economic mobility policy for nonprofit think-tank Texas 2036, said that while health care costs and health insurance have typically been thought of as federal issues, the Legislature has the ability to increase transparency around hospital ownership and restrict mergers and anticompetitive practices in the health care market.

"How most people interact with the issue of affordability is most directly through our insurance, our insurance premium, our out-of-pocket costs," Miller said. "But that broader issue, the overall amount we spend, is less about the insurance companies and more about the prices for services."

What can the Legislature do?

Frank said that while he has not begun crafting legislation yet, he hopes to use the interim hearings to better understand and build consensus around three main areas: making sure employers and patients know the cost of a given treatment ahead of time, more competition in the health care market and greater transparency for patients that allows them to make the best choices for the health of both their body and wallet.

"At the end of the day, I'm going for transparency at the patient level," Frank said. "I want transparency, I want multiple people going for that business, and I want it to be built around the customer and the customer to have a say. There's 100 different policies that fit in there."

Frank has grappled with these same issues as the owner of Sharp Iron Group LLC and Texas Transland LLC, two Wichita Falls-based companies.

In May, Frank filed a lawsuit in the 95th District Court of Texas in Dallas County against Blue Cross Blue Shield of Texas, alleging the insurer intentionally concealed prescription drug rebates to inflate insurance costs for Texas employers. Frank is petitioning the court to certify the lawsuit as a class action.

While Frank broadly declined to comment on the ongoing litigation, the lawsuit argues much of the same concerns about health care industry consolidations highlighted during the spring legislative hearings.

The lawsuit argues Blue Cross Blue Shield was able to use its partial ownership of a pharmacy benefit manager to report inflated prescription drug costs to employer-sponsored health plans without disclosing rebates the insurance provider receives from the PBM, allowing the insurance provider to pocket that rebate money.

Blue Cross Blue Shield declined to comment, citing the pending litigation.

Frank told the Tribune he would not receive any financial benefit from the lawsuit and that it was his fiduciary responsibility as a business owner to take legal action if he suspects his employees are not getting proper benefits from their health plan.

Miller said many of these issues around consolidation and pricing transparency are so intractable because the state largely lacks data around hospital and PBM ownership and said there is much the Legislature can do to make the market healthier by simply making it more transparent.

At George's in Waco, Citrano said he is hoping for solutions quickly.

As health insurance becomes more unaffordable, larger service industry companies can lure labor from local restaurants by offering cheaper and better plans to their employees because they have the size and employment to get a better deal. With costs rising elsewhere, from credit card fees and utility bills and food, Citrano said, health care is just one more growing headache for him and other owners.

"No matter what," Citrano said, "we're paying more, and no matter what, the employee isn't getting exactly what they want."