U.S. Health Care Spending Still Rising Because Our System Is Broken

Americans pay a huge amount for healthcare, while getting results that are below the developed world norm. Partially this is because a mixed government-private sector system leaves no one controlling costs, so we pay more to all forms of health care providers than any other health care system on Earth. And, partially, we pay much more for administrative costs. Further, the way we finance health care leaves many people either with no access to health care, or facing bankruptcy if they get seriously hurt or sick.

The best evidence we have shows that rising health spending in the United States since 1975 can explain roughly the same share of the growth in income inequality as increased trade, outsourcing or automation. It has pushed down wages, fueled inequality and left families drowning in unaffordable medical bills. Rising health care spending is killing the American dream.

Despite devastating out-of-pocket costs, Americans are generally insulated from the true cost of health care premiums. However, the expiring subsidies on the Affordable Care Act marketplaces, where more than 20 million Americans get their insurance, show just how exorbitant premiums have become. Consider a 60-year-old couple earning $85,000 a year. Without subsidies, their health insurance premiums next year will approach $32,000 (akin to buying a new Toyota Camry).

Those of us who get health care insurance from our employers — some 160 million Americans — may be breathing a sigh of relief. But our health care premiums are also staggering (an average of $27,000 a year for a family of four), and the fact that our employers pay part of the tab isn’t much of a reprieve. That’s because decades’ worth of research shows that, even though employers pay most of workers’ premiums, those costs are passed on to workers in the form of lower wages and fewer jobs. That’s why the rise in health spending above the rate of inflation over the past decade has depressed wages by nearly 10 percent, according to my calculations. And because premiums are a bigger share of total pay for lower-income workers, the job cuts triggered by rising health care spending fall disproportionally on low- and middle-income workers and fuel income inequality.

Americans spend more on health care than other countries because we pay higher prices for identical goods and services, are quicker to adopt new and costly medical technology (whether or not it is cost effective) and have higher administrative costs in our complex, decentralized system. Health care markets have consolidated so much that in many regions, hospitals and other providers can charge near-monopoly prices. The fact that we pay providers per service delivered (rather than a fixed salary) also plays a role.

Next year insurance premiums will increase 10 percent for employer-sponsored plans and 18 percent for individual plans on the exchanges compared with 2025. In both markets, they’re going up because the price of medical care is rising (think hospital mergers, staffing shortages and tariffs that make drugs and devices more expensive) and Americans are increasingly using expensive weight loss and diabetes drugs known as GLP-1s. The exchange plans are seeing a sharper increase than employer plans because of the uncertainty lawmakers created over whether the Affordable Care Act subsidies would be extended. Insurers had to factor in the risk that healthier people would be less likely to buy insurance if the subsidies expired, which would lead to a sicker insurance risk pool and higher costs. . . .

One person’s health care spending is another person’s health care income — profits, jobs and paychecks for the tens of millions of people who work in the health care sector. And some higher spending does lead to better care. As long as they’re in competitive markets, higher-priced hospitals deliver higher quality care. 

. . . [A]s a result of Medicare payment rules created in the 1980s, the government program pays more (sometimes double) for care delivered in a hospital or hospital-owned doctor’s practice versus in an independent doctor-owned practice, even if the care is identical. That makes it more profitable for doctors to merge their practice with hospitals than remain independent. These mergers give doctors and hospitals bargaining power and drive up prices and insurance premiums.

From the New York Times (Opinion).

The loss of ACA subsidies will more than double premiums for people who get their health insurance on the health insurance marketplace, which is mostly made up of self-employed people and early retirees. That's an important reason that I moved back to being a W-2 employee this year after twenty years of being self-employed.

The change disproportionately hurts small businesses, including farms, and because of this, together with massive cuts to Medicaid and immigration changes that make it much harder for hospitals to hire foreign doctors (who disproportionately serve rural areas where U.S. doctors prefer not to work), rural healthcare in the U.S. is on the brink of collapse, with many rural hospitals expected to close and fewer doctors serving rural areas. Red states that banned abortion are also seeing a huge exodus of obstetrics and gynecology doctors, with new graduates also reluctant to take positions in these states.

Indeed, the MAGA base will be hit harder by GOP healthcare changes, and other Trump 2.0 policies from tariffs to reduced access to government benefits than Democrats in blue states, who tend to live in more resilient cities which are buffered by more caring state and local governments, while many of the Trump 2.0 tax cuts will help more upper middle class Democrats than working class Republicans.