Paying More, Getting Less: The Cost of U.S. Health Care

Why are U.S. health care costs so high?

Research from the GAO, KFF, Harvard, AJMC, and others points to several overlapping factors.^{[9][10][12][13]} One is price: the United States frequently pays more for hospital services, prescription drugs, and other health care than comparable countries. KFF reports U.S. health care spending of $13,432 per person compared with $7,393 among peer countries, even though utilization of many health care services in the United States is generally lower. Higher prices are an important part of the difference.^[10]

Market structure may also affect prices. Consolidation can improve coordination, expand capabilities, and create efficiencies, but it can also increase the bargaining leverage of large health systems and other owners when they negotiate with insurers and purchasers. Private-equity acquisition of physician practices warrants particular attention as another form of consolidation: research reviewed by GAO has found higher commercial prices following some private-equity acquisitions, with increased market concentration and bargaining leverage identified as possible contributing factors.^[25] Research reviewed by GAO has also found higher commercial prices following some hospital-physician consolidation, while Harvard researchers have identified consolidation and vertical integration more broadly as important considerations in the health care affordability debate.^[12][25] Where consolidation increases bargaining leverage and raises commercial prices, claimed efficiencies should not be presumed to offset those higher costs; they should be demonstrated through measurable improvements in quality, access, or outcomes.

Prices and market power are only part of the affordability problem; the way health care is financed and administered in the United States also adds substantial cost. Care is administered and paid for through a dense mix of public programs, fully funded insurance products, self-insured employer plans, stop-loss coverage, third-party administrators, pharmacy benefit arrangements, provider networks, multiple benefit structures, prior authorization requirements, different payment systems, and overlapping regulatory requirements. Some administrative functions are necessary, but administrative bloat has become a significant source of cost in the U.S. health care system, consuming resources without corresponding improvements in care or outcomes. When organizations repeatedly exchange the same information, reconcile incompatible systems, or devote substantial resources to processes that add limited value, those expenses become part of the cost of health care.^[13] Reducing unnecessary administrative burden is one part of controlling health care costs.

Payment incentives are another. Under traditional fee-for-service reimbursement, providers are generally paid for each service delivered, so more services often generate more revenue. This does not necessarily mean that clinicians provide unnecessary care. But no one should be surprised when service volume increases in a system that rewards volume. Prescription drug costs add another source of pressure, particularly as specialty pharmaceuticals and other high-cost therapies become more prevalent, while the GAO also identifies a high-functioning primary care system as an opportunity to improve outcomes and value.^[9] Better coordination may help manage chronic conditions, reduce unnecessary services, and avoid some more expensive settings of care. Improving health and reducing spending are related objectives, but they are not always the same objective; as long as utilization increases under a fee-for-service model, the cost per service continues to rise, and administrative bloat persists, there will continue to be upward pressure on health care costs.

What can be done?

Researchers have proposed several options. Reinsurance can help moderate premium increases and improve market stability while longer-term efforts address underlying health care costs. Minnesota's Premium Security Plan, established through the state's Section 1332 waiver, reimburses insurers for a portion of high-cost individual-market claims, and the Minnesota Department of Commerce reports that premiums for Minnesotans purchasing individual coverage are about 20% lower on average than they otherwise would have been without reinsurance. The current waiver authorizes the program through plan year 2027.^[14] Reinsurance does not reduce the underlying price of medical care; instead, it helps prevent unusually high claims from being concentrated within a relatively small insurance pool, allowing premium stabilization and underlying cost-control efforts to serve different but complementary purposes.

Primary care and workforce capacity are additional areas where changes could improve outcomes and value.^[9] Potential approaches include better support for care coordination, expanded training opportunities, and consideration of whether qualified health professionals are permitted to provide a broader range of services consistent with their training, credentials, and licensure. Workforce reforms must preserve quality and patient-safety protections, but persistent shortages can increase costs, constrain access, and undermine the health care system’s ability to deliver timely care.^[9]

Several policy approaches seek to address high provider prices and differences in what similar services cost depending on where they are delivered. These include site-neutral payment, stronger purchaser negotiations, reference pricing, and greater price transparency. Large price differences deserve examination when they cannot be explained by meaningful differences in the services provided or the complexity of the patients served.^[9][17] More direct approaches would cap commercial provider prices or their rate of growth, potentially by benchmarking them to Medicare or another external standard. CBO estimates that comprehensive price-cap policies could reduce commercial provider prices by more than 3%, with some designs producing reductions greater than 5% once fully implemented.^[17] Lower prices could reduce premiums, but they could also reduce provider revenue and affect access or quality.^[17] Transparency can strengthen purchasing decisions, but CBO estimates that the transparency policies it analyzed would reduce commercial provider prices by approximately 0.1% to 1% after full implementation.^[17] The evidence suggests that more direct price policies could have greater effects than transparency alone, but they may also present more significant tradeoffs.^[17]

The experience of the No Surprises Act also illustrates how payment rules can affect provider prices. The law protects patients from surprise bills for certain emergency services and other covered care furnished by out-of-network providers, while allowing providers and health plans that cannot agree on payment to use a federal independent dispute resolution process. The scale of that process has been far greater than anticipated: CMS reports that annual dispute volume is now more than 100 times the original projection.^[27] In the second half of 2025, providers, facilities, and providers of air ambulance services prevailed in approximately 85% of payment determinations, and the prevailing offer exceeded the qualifying payment amount—a benchmark generally based on contracted rates—in approximately 87% of cases.^[26] These results do not establish that every provider offer is excessive or that the qualifying payment amount always represents the appropriate price, but they raise important questions about whether the IDR process may be contributing to higher out-of-network payments and, ultimately, health care costs.^[26][27]

Competition policy offers another way to address prices by focusing on market power. Stronger antitrust enforcement, more effective scrutiny of provider acquisitions regardless of transaction size, restrictions on anticompetitive contract terms, and policies that reduce financial incentives for consolidation could help restrain prices. CBO estimates that adopting all of the provider-competition policies it analyzed would reduce commercial provider prices by more than 1% to 3% after full implementation, while noting substantial uncertainty around the estimates.^[17] The GAO also identifies site-neutral Medicare payment as a way to reduce one financial incentive for hospitals to acquire physician practices.^[9] The objective is to preserve the benefits of competition while limiting market structures and financial incentives that can contribute to higher prices.

Administrative complexity also contributes to health care spending. Standardized data exchange, interoperable systems, streamlined billing and eligibility processes, and better-designed prior authorization could reduce expenses without reducing clinical care.^[13] The relevant test is whether an administrative requirement produces enough value to justify its cost. Reducing unnecessary complexity would allow more health care resources to be directed toward activities that improve care rather than toward administrative processes that add limited value.

Beyond reducing administrative expense, payment reform addresses a different problem: the financial incentives created when providers are paid primarily for each service they deliver. Accountable-care arrangements, bundled payments, capitation, and hospital global budgets seek to make providers more accountable for total cost, quality, and outcomes rather than simply the volume of services provided. CMS's AHEAD Model is one example: participating hospitals can receive a prospectively determined budget while being held accountable for cost, quality, and avoidable utilization.^[18] These approaches can reduce the financial incentive to generate additional billable services, but their success depends on appropriate protections for patient access, quality, and providers that serve high-need populations.^[18]

Even if policymakers pursue reforms aimed at provider prices, payment incentives, competition, and administrative costs, those changes may take years to produce meaningful savings for consumers. Premium assistance, reinsurance, and targeted protections against excessive out-of-pocket costs can help consumers in the meantime.^[11][12] Harvard researchers distinguish between measures that improve affordability in the near term and structural reforms aimed at the forces driving costs over the longer term.^[12] The two approaches can complement one another: immediate affordability measures can provide relief while longer-term reforms address the underlying drivers of health care costs.

Broader coverage and purchasing reforms

More structural reforms would change not only how care is paid for, but who finances and purchases it. A single-payer system such as Medicare for All would consolidate health care financing under a public program, potentially reducing payer administrative expense and increasing public leverage over provider and prescription-drug prices. CBO's illustrative single-payer designs show why the result depends on design: projected national health expenditures in 2030 ranged from about $700 billion lower to $300 billion higher than under current law, with lower provider payment rates and lower administrative spending pushing costs down while greater use of health care pushed costs up.^[15] The wide range illustrates how strongly the fiscal effect of a single-payer system would depend on its underlying design.

A public option would represent a less sweeping change because a government-administered plan could compete alongside private coverage. CBO concludes that its premiums and market effects would depend substantially on provider payment rates, administrative costs, benefit design, and whether it could secure lower prescription-drug prices.^[16] A public option using administered rates tied to Medicare could therefore have a materially different cost structure from one that largely mirrors commercial payment arrangements.

Broader coverage reforms also differ substantially in how they would use public purchasing power and change the existing health care financing system. Supporters of a public option argue that it could use public purchasing leverage while preserving private-plan competition, while Medicare-for-All proposals generally seek to replace much of the existing financing structure and would require decisions about taxes, provider payment, benefits, cost sharing, and the role of private coverage.^[21][22] Neither approach can be evaluated by its label alone. The cost effect depends on the underlying payment rules, financing, benefits, utilization, and transition design.

Prescription drug policy offers another use of purchasing power to address health care costs without changing the entire coverage system. Medicare's Drug Price Negotiation Program established negotiated prices for the first 10 selected Part D drugs effective January 1, 2026, with additional drugs entering later negotiation cycles.^[19] U.S. branded drug prices remain substantially higher than prices in other wealthy countries; Brookings notes that many of those countries use international reference pricing, which uses prices paid elsewhere as a benchmark in negotiations.^[24] Other options include broader negotiation, value-based pricing, stronger competition from generics and biosimilars, specialty-drug management, and greater price and rebate transparency.^[20][23] The policy challenge is to reduce prices that are not justified by therapeutic value while preserving sufficient incentives for meaningful pharmaceutical innovation.

Seeking a better return

There is no single driver of health care costs or policy solution. The objective should be clear, however: the U.S. must slow health care cost growth while pursuing policies designed to improve value and outcomes. Paying more should translate to better results.