Health care costs are still going up, and the reasons are complicated

The fact that health care is more expensive in the U.S. than anywhere else is not up for debate — we spend about twice as much as other similarly developed nations, on average. To make matters more frustrating, it’s difficult to get clarity for why costs are so high.

Policymakers, insurance carriers, providers, and patients all point to different things that influence what we spend on health care. And because there's not one simple answer, no single policy change or law will reverse the trend of rising costs.

Comparing U.S. health outcomes to peer nations

When we compare U.S. health outcomes to peer nations, the U.S. often ranks last. In the 2021 Commonwealth Fund report, the U.S. sits at the bottom on four out of five quality and patient outcome metrics, including:

  • Access to care, which accounts for affordability and timeliness.
  • Administrative efficiency, which measures time spent dealing with paperwork and administrative issues, such as disputes related to documentation requirements.
  • Equity, which compares the health outcomes of high- and low-income patients within each country.
  • Health care outcomes in the areas of chronic disease and mortality, preventable deaths, and condition-specific health outcomes (maternal mortality, for example

Costs go up, but quality does not

In 1960, U.S. health care spending accounted for 5% of gross domestic product, with per capita spending at $145 per year. When adjusted for inflation, this figure would be about $985 today. The current average per-person annual health care costs in the U.S. are over $12,500 — about 13 times higher. The Centers for Medicare and Medicaid Services (CMS) projects that health care spending will be close to 20% of GDP by 2027, up from 17.9% in 2017. 

For employers and Americans covered by private insurance, the result is higher health insurance premiums every year. Since 2000, employer premium costs have increased by about 200%, while individuals are paying 272% more for single coverage. Costs for family coverage have similarly risen — 238% higher for employers and 243% more for employees.

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For Americans without insurance coverage, the rising cost of health care can be even more damaging. Patients who can’t afford to pay out of pocket often skip important preventive care, such as annual checkups, cancer screenings, and chronic disease management. When they finally get care, it’s usually for an emergency that results in hospital admission or an expensive emergency department visit.

But paying more for care has not dramatically improved our health. Whereas total U.S. life expectancy had historically been only a few months less than comparable countries, the gap is now several years. We also have the highest disease burden (a calculation of years of life lost to premature death as a result of poor health) when compared with other developed nations.

Multiple factors contribute to high care costs

There isn’t a simple answer or a single change that can immediately reverse the trend of rising costs. Some of the most significant cost drivers include:

Higher utilization

Utilization — the volume of health care services used on both an individual level and a population level — is a significant factor in costs. Sometimes higher utilization is necessary, such as when we get older and require more health care. Each day, about 10,000 baby boomers turn 65. By 2030, that entire generation will be 65 or older, with the increased health care needs that accompany older age.

In other situations, more care is not necessary. For example, if a doctor can diagnose a patient with X-ray imaging, there is no need to order a more expensive MRI. Some patients mistakenly believe that more care — or more expensive care — means better care. They insist on the expensive imaging test, brand-name medication, or unnecessary procedure. These behaviors from both patients and providers contribute to wasteful spending.

Drug prices

Drug manufacturers are continually developing new and innovative medications, especially for more complex health conditions. But pharmaceutical research, development, marketing, and production costs are high. Providers and insurance carriers have to balance the cost of new, expensive medications with how much benefit they can actually provide to patients.

Fraud, waste, and abuse

By some estimates, as much as a third of all health care in the U.S. is unnecessary. Such care can take many forms, such as duplicate tests or procedures that do not improve outcomes. Health care fraud is also an issue that requires significant resources from payers to investigate and prosecute.

Chronic disease management

More than 60% of Americans have at least one chronic health condition, with 40% managing two or more. These conditions are often expensive to treat, requiring ongoing management to avoid emergency room visits and hospital admissions. Older populations are more likely to have chronic conditions, so our aging population increasingly needs long-term care in assisted living or skilled nursing facilities.

Market forces and economics

One area of health care costs that gets less attention is the impact of market forces. High operating costs are forcing more facilities to close in rural areas and driving consolidation. This leaves patients with fewer choices of where to go for care. Opaque pricing and confusing cost structures also make it hard for consumers to choose the best quality care at the lowest price.

Taking a deeper dive into what’s driving health care costs

Despite these challenges, there are many promising advances and innovations that can help lower costs over time. It won’t happen overnight, but policymakers, insurance payers, providers, and health care organizations are all working toward this goal. In this series, we’ll explore five important aspects of care, how they affect the total cost of care in the U.S., and what steps we can take together to tackle the problem.

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