American companies eager to bring manufacturing jobs back from overseas are hitting an unexpected roadblock that’s forcing them to abandon reshoring plans despite strong political support and supply chain concerns. Health care premiums have become such a massive expense that they’re undermining the economic case for domestic manufacturing, making it cheaper to keep production overseas even when other factors favor American operations.
According to a new analysis published in STAT News, rising insurance costs are systematically derailing reshoring efforts that had gained significant momentum during the pandemic and early supply chain disruptions. While factors like labor costs, automation, and tariffs typically drive outsourcing decisions, the analysis reveals that employer-sponsored health coverage has become a quiet but decisive factor in keeping manufacturing jobs abroad.
The numbers are staggering enough to make patriotic manufacturing executives reconsider their commitment to American production, creating a policy challenge that neither political party has adequately addressed.
The premium shock that’s changing business calculations
The average annual premium for employer-sponsored family coverage in the United States now exceeds $24,000 per employee, with employers covering approximately 70% of that cost. This creates an immediate labor cost disadvantage that can single-handedly tip manufacturing decisions toward overseas operations.
In comparison, countries like Germany, Mexico, and Vietnam offer public or heavily subsidized health systems that slash employer costs by more than half, giving foreign manufacturing operations a structural cost advantage that’s difficult to overcome through productivity gains or other efficiencies.
For labor-intensive sectors like textiles, automotive parts, and electronics, U.S. companies report that health care has become a larger expense than utilities or materials in many cases, fundamentally altering the economics of domestic production.
The expansion plans that health care costs killed
Several firms interviewed in the report noted that health care costs had become the decisive factor in decisions not to open new U.S.-based plants or to downscale existing operations. One mid-sized electronics company halted a Tennessee factory expansion after insurance quotes added nearly $4 million to projected annual payroll costs.
“Bringing jobs back home is patriotic – but it has to be practical,” said one executive anonymously. “We can’t compete globally if covering our workers’ health eats 15% of our margins.” This sentiment reflects a broader frustration among manufacturers who want to support American jobs but can’t justify the financial impact of U.S. health care costs.
The timing is particularly problematic because supply chain disruptions and geopolitical tensions with China have created the strongest reshoring incentives in decades, but health care costs are preventing companies from capitalizing on these favorable conditions.
The global competitive disadvantage that’s getting worse
Countries like South Korea and the Netherlands maintain competitive manufacturing bases partly due to lower and more predictable health expenditures that don’t burden private employers. Even developing countries with public health care systems often relieve private employers of the direct cost burden that American manufacturers face.
This health care cost differential gives overseas operations a structural edge in industries with thin profit margins and high headcount, making the United States less attractive despite advantages like skilled labor pools, advanced infrastructure, and logistical benefits.
The gap is widening as U.S. health care costs continue rising faster than inflation while other countries maintain more stable employer health care expenses through public systems or regulated private markets.
The policy disconnect that’s undermining economic goals
The issue has caught the attention of economists and policy makers, especially as both Democrats and Republicans tout reshoring as a key strategy to reduce reliance on China and boost American jobs. However, the disconnect between manufacturing policy goals and health care policy realities is creating unintended consequences.
Some business coalitions are pushing for public-private hybrid systems, employer tax credits for domestic operations, or federal subsidies tied to reshoring commitments, but these proposals face significant political obstacles.
The worker impact that compounds the problem
While employers shoulder the largest portion of health care premium costs, employees increasingly pay the difference through reduced wage growth, higher deductibles, and job instability. This creates a double burden where American workers face both fewer manufacturing job opportunities and higher health care costs when jobs are available.
The cycle becomes self-reinforcing as companies that do maintain domestic operations often compensate for high health care costs by offering lower wages or fewer benefits in other areas, making American manufacturing jobs less attractive to workers.
Experts warn that reshoring won’t be sustainable unless the U.S. health care model becomes more employer-friendly or transitions to a universal system that removes health care costs from employment decisions.
The solutions that could change everything
Various proposals are emerging to address the health care barrier to reshoring, including manufacturing-specific health care subsidies, expanded public health care options, or regional health care cooperatives that could reduce costs for smaller manufacturers.
Some economists suggest that successful reshoring efforts will require treating health care costs as a national competitiveness issue rather than just a social policy concern, potentially leading to more dramatic health care system reforms.
The urgency is increasing as other countries accelerate their own manufacturing incentives while maintaining health care systems that don’t penalize employers for hiring domestic workers.
The timeline that’s running out
The window for effective reshoring may be narrowing as companies make long-term production decisions based on current cost structures. Without addressing health care costs, the United States risks missing the opportunity to rebuild its manufacturing base despite favorable geopolitical and supply chain conditions.
The challenge requires coordination between industrial policy and health care reform that has proven difficult to achieve in the current political environment, leaving manufacturers to make decisions based on existing cost realities rather than potential future reforms.
