Get the facts: Why is health care so expensive in America?

Health care costs have been rising every year, and a common misconception is that it’s health insurers setting the prices for care and prescriptions. In reality, it’s health care providers – hospitals, doctors and pharmaceutical companies – that decide what to charge for the care and medications they provide. The primary reason health care is so expensive today is because providers and pharma companies have been charging higher and higher prices, a trend that’s persisted for decades.

Consider the following:¹

• According to the Centers for Medicare & Medicaid Services, the amount of money spent on health care in the United States tripled from 2000 to 2022, going from $1.4 trillion to $4.5 trillion.
• Health care represents about 17% of the U.S. economy, meaning $1 out of $5 spent in our country goes toward health care. Back in 1960, health spending represented just 5% of GDP, or $1 of every $20.
• A 2024 Kaiser Family Foundation study¹ noted that most health spending in the U.S. is on hospital and physician care, with nearly a third going to inpatient care in hospitals and nearly 20% going to physicians and clinics. The report noted that, in comparison to other large and wealthy countries, the U.S.’s higher spending on inpatient and outpatient care explains the vast majority of higher spending on health care overall.
• The KFF report’s comparisons of the U.S. to other large, wealthy countries also revealed that there’s not much evidence that people in the U.S. use more health care, and in fact, we generally have shorter average hospital stays and fewer physician visits per capita. Therefore, the authors concluded that “a large part of the difference in health spending between the U.S. and its peers can be explained by higher prices, more so than higher utilization.” ¹
• Since 2009, the average retail price of brand-name prescription drugs has more than doubled in inflation-adjusted dollars, and the average annual price of specialty drugs has tripled over the last 10 years from nearly $18,000 to more than $52,000.²

Hospitals, doctors and pharmaceutical companies provide important and life-saving care and medications, and they play a vital role in our country, but they’re also operating as businesses.

Health insurers, on the other hand, sit on the opposite side of that cost equation. Insurers are the only party in the health care ecosystem incentivized to keep the cost of care as low as possible while still maintaining high-quality health outcomes for their members and helping people avoid getting sick in the first place.

By doing so, they’re able to keep their benefit offerings stable from year to year and also charge lower premiums and out-of-pocket costs to the employer customers and members they serve. So when insurers negotiate with care providers to bring the rates they charge down, they’re working on behalf of their employer customers and members in an effort to make care more affordable and keep people healthier. In that sense, they’re acting as your advocate.

It’s because of the high rates some providers charge that health care payers – insurers, governments and employers – have to make difficult decisions not to cover every available service or drug. One of the most important factors they consider when making those decisions is how to best balance access for people with complex needs with affordability for everyone enrolled.

In other words, by covering an expensive test or treatment that only a small percentage of people need, costs in the form of monthly plan premiums, copays and coinsurance will increase for every person enrolled in the plan. And studies show that if people perceive health care to be too expensive, they’ll often choose to forego it altogether, potentially putting themselves at risk of developing more serious health problems down the line.³

Managing that balance of access for some vs. affordability for all is one of the main reasons GLP-1s for weight loss are not covered by most people’s health plans. The exorbitant prices pharma companies charge for the drugs in the U.S. – sometimes 10 times higher than what they charge in other developed countries – have prompted most health care payers not to cover these drugs for weight loss because doing so would significantly increase premiums and out-of-pocket costs for all plan members.

Striking that balance between access and affordability is not easy, which is why it’s so important that health plan sponsors actively manage ever-rising health care costs in order to keep their plans available and affordable for as many people as possible.

And that is no small feat in our current system, which is rife with factors that drive up the cost of care. Here’s just a sampling:

• Hospital consolidation, which nearly always leads to higher prices at the acquired hospital
• Hospitals acquiring provider groups and then requiring doctors who work for those groups to refer patients only to their hospital for the care they need⁴
• Hospitals charging higher rates for care at the outpatient facilities they own, meaning patients pay more money for the exact same care they could have received at an independent doctor’s office⁵
• Pharmaceutical companies setting exorbitantly high prices for their drugs and increasing the price for hundreds of drugs every single year, just because they can

Each one of those drivers of higher health care costs is complex in its own right, but the outcome for consumers is the same – spending more and more money on the health care they and their families need.