{"id":458003,"date":"2026-02-09T09:58:07","date_gmt":"2026-02-09T09:58:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/us\/458003\/"},"modified":"2026-02-09T09:58:07","modified_gmt":"2026-02-09T09:58:07","slug":"why-is-health-care-getting-more-costly","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us\/458003\/","title":{"rendered":"Why Is Health Care Getting More Costly?"},"content":{"rendered":"

Americans have long lamented the high cost of health insurance, and the situation will soon get worse. Premiums for employer-sponsored insurance will go up by another 9 percent<\/a> in 2026. Public spending on Medicare, Medicaid, and Obamacare is also surging.<\/p>\n

This is not due to surging profits among insurers or hospitals. Insurance and entitlement programs are largely passing along the rising cost of care, even as average prices paid to hospitals, physicians, and drugmakers decline in real terms. The true driver is higher utilization of medical services\u2014especially newly developed drugs and newly available outpatient procedures.<\/p>\n

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Technological progress could slash costs by improving diagnosis and treatment or by replacing more expensive methods of delivering care. But that won\u2019t happen without reforming payment policy to reward cost-saving innovations. If insurers and entitlement programs keep paying premiums for products that offer little additional clinical value, these shiny new services will do little more than push costs even higher.<\/p>\n

Insurers have borne much blame for climbing health-care costs in recent years. In the grimmest example, UnitedHealthcare CEO Brian Thompson was murdered outside a December 2024 meeting for investors in New York City. Police believe that the suspect, Luigi Mangione, was motivated by animus toward health insurers. Thompson\u2019s death was greeted with horror and sympathy for the victim\u2019s family but also with disturbingly widespread support for the assassin\u2014fueled by outrage at insurers, whom many fault for blocking medical care.<\/p>\n

Insurers are indeed responsible for assessing the validity of medical claims and paying for them. This makes them unpopular when they don\u2019t pay profusely for health-care services but also gets them blamed for swelling costs if they do. From 2014 to 2024, average premiums for employer-sponsored insurance climbed from $6,025 to $8,951<\/a>\u2014a 12 percent increase above general inflation. Over that period, health insurers\u2019 revenues grew by $657 billion<\/a>. But most of that owed to a $589 billion increase in hospital and medical expenses, while insurers\u2019 administrative costs (claims processing, regulatory compliance, marketing expenses, and taxes) rose by $59 billion. Insurers\u2019 profits amounted to $9 billion<\/a>\u2014only 0.2 percent of national health-care expenditure<\/a>. The growth of publicly funded expenditures has been even more significant: from 2014 to 2023, government spending on health care soared from $1.36 trillion to $2.33 trillion<\/a>.<\/p>\n

The hospital industry is often blamed for driving up health-care costs, too, but that story leaves out important facts. Hospital procedures accounted for $1.52 trillion<\/a> of U.S. health-care spending in 2023. But 80 percent of<\/a> U.S. hospitals are publicly owned or nonprofits. The most expensive<\/a> are often small facilities in rural areas<\/a> facing declining revenues and the threat of closure. Across all payers, average prices for hospital care fell 2 percent<\/a> in real terms from 2010 to 2024.<\/p>\n

Nor do rising physician fees explain the swelling expenses. Physician services accounted for $978 billion<\/a> in health-care spending in 2023. Payments for treating Medicare patients are often fixed by law, and they\u2019ve gone up only 5 percent<\/a> since 2001. After accounting for inflation, physician fees across all payers have fallen 18 percent<\/a> since 2010.<\/p>\n

Price increases for prescription drugs are not the reason for rising health-care costs, either. Prescription drugs made up $450 billion<\/a> of U.S. health-care spending in 2023. But from 2009 to 2018, the average real price of prescriptions<\/a> for enrollees of Medicare drug plans declined by 13 percent because the use of generic drugs grew by 130 percent, while that of branded drugs fell by 34 percent.<\/p>\n

To be sure, stable average prices can conceal the reality that some patients face higher expenses while others see lower costs. For example, federal law requires<\/a> prescription-drug manufacturers to sell to Medicaid at lower prices than other purchasers. This rewards drugmakers for hiking prices for non-Medicaid patients, who end up paying almost three times as much<\/a> for the same products.<\/p>\n

Policymakers haven\u2019t directly encouraged similar price disparities in hospital care, yet private insurers still pay roughly two and a half times<\/a> the Medicare rate for hospital treatment. Whereas Medicare\u2019s payment rates are capped by law, private insurers negotiate theirs directly with hospitals. In 2022, the average price of an inpatient admission covered by private insurance\u2014$28,038<\/a>\u2014far exceeded the average out-of-pocket maximum of $4,355<\/a>, leaving patients with little incentive to shop based on price. Instead, price-insensitive patients gravitate toward facilities with the most prestigious reputations, cutting-edge equipment, and lavish amenities<\/a>.<\/p>\n

The resulting competition to upgrade facilities has sent hospital fees spiraling upward. A Harvard University study found<\/a> that, from 2010 to 2019, \u201chospitals investing more in capital gained market share and raised prices, whereas hospitals investing relatively less in capital lost market share and increased prices less.\u201d These facility improvements benefit all patients, but the added costs fall primarily on those with private insurance.<\/p>\n

Yet even if private payers have absorbed price increases for certain services, the overall escalation in health-insurance costs has a simpler explanation: Americans are consuming more medical care.<\/p>\n

America\u2019s consumption of most goods and services exceeds that<\/a> of other countries, and health care is no exception<\/a>. A 2020 study by the Organisation of Economic Co-operation and Development found that<\/a>, while the U.S. spends three times as much as the average developed nation on health care, that excess reflects higher utilization\u2014220 percent of the average\u2014more than it reflects higher prices, which were 126 percent of the average.<\/p>\n

A recent study<\/a> published by the Journal of the American Medical Association found a similar pattern. County-level variation in health-care spending was explained 65 percent by service utilization, 24 percent by price differences, 7 percent by disease prevalence, and just 4 percent by age. Higher utilization correlated with broader insurance coverage, higher household incomes, and lower enrollment of Medicare beneficiaries in managed care.<\/p>\n

From 2014 to 2023, prices for medical services rose by less than the overall rate of inflation. Increased enrollment has driven up Medicare costs (as baby boomers retire) and Medicaid costs (as eligibility expands). But the main factor behind higher insurance expenses has been greater utilization per enrollee, which has grown by roughly 20 percent across both public entitlements and private insurance.<\/p>\n

Greater usage of medical services is reflected in the expanded overall number of medical practitioners<\/a>: from 6.5 million in 2014 to 9.6 million in 2023. The erosion of physician fees by inflation has also been offset by an increase in volume. Average wages in health care<\/a> from 2010 to 2024 went up 7 percent after inflation, with surgeons seeing a 14 percent increase.<\/p>\n

But this trend reflects more than just more frequent contact with the health-care system. From 2000 to 2019, hospital outpatient visits<\/a> shot up from 2.10 to 2.74 per capita, while inpatient stays<\/a> declined slightly, from 0.12 to 0.11. The age-adjusted share of the population taking three or more<\/a> medications rose only modestly, from 20 percent to 21 percent, over the same period. When patients do seek care, they are increasingly receiving more intensive and technologically advanced treatments.<\/p>\n

The fundamental driver of rising health-care costs, then, is the expansion of medical capabilities. Demand for medical care is far less easily satisfied than demand for most other basic goods. A nation will consume only so much extra food as incomes rise, but the willingness to spend more to alleviate illness and infirmity has no real limit. From 1900 to 2023, as agriculture\u2019s share of GDP fell from 15 percent<\/a> to less than 1 percent<\/a>, health care\u2019s share went from 3 percent<\/a> to 18 percent<\/a>.<\/p>\n

Consider, too, the role<\/a> of technological progress. In 1960, physicians could do little for a heart-attack patient beyond prescribing bed rest and painkillers; by 2019, with new surgical procedures and numerous costly drugs available, Americans were spending $265 billion<\/a> treating cardiovascular disease. New medications have transformed<\/a> HIV-AIDS from an imminent death sentence into a manageable chronic condition with a near-normal life span. From 2019 to 2023<\/a>, U.S. spending on cancer drugs rocketed from $65 billion to $99 billion, with 125 new oncology drugs launched\u2014about 40 percent focused on cancers for which no treatments had previously existed. From 2000 to 2022, age-adjusted cancer mortality dropped 29 percent<\/a>; HIV-AIDS mortality fell by 73 percent<\/a>.<\/p>\n

Effective new anti-obesity medications have recently emerged. From 2018 to 2023, spending on Glucagon-Like Peptide-1 (GLP-1) drugs leaped from $14 billion to $71 billion. As their net price averaged $8,412<\/a> in 2023 and almost half of<\/a> Americans express interest in consuming drugs to lose weight, these drugs, too, are causing<\/a> health-insurance costs to surge.<\/p>\n

Until the late nineteenth century, most invasive surgeries were often fatal. But advances in diagnostic tools, surgical techniques, and medical devices have made surgery a viable option for a wide range of conditions. As procedures have become more precise, recovery times shorter, and complications rarer, surgeons have grown more willing to operate in cases once considered too risky.<\/p>\n

Americans are seeking a greater number of procedures, and the increase is concentrated among the most expensive ones. In the first decade of the twenty-first century, the proportion of Americans living with a total knee replacement<\/a> doubled. From 2005 to 2021, the volume of physician services delivered per Medicare beneficiary increased by<\/a> 45 percent in orthopedics, 50 percent in neurosurgery, 115 percent in ophthalmology, and 130 percent in surgical oncology. The more medical science can do for the sick, the more insurance is needed to pay for it. In 2019, the average price tag for heart bypass surgery was $57,240<\/a>, while 85 percent<\/a> of cancer drugs introduced over the past five years cost more than $100,000.<\/p>\n

The growth of Medicare spending owes largely to the addition<\/a> of new services and procedures. From 1997 to 2011, 85 percent of the increase in the program\u2019s real per-capita spending came from newly created procedure codes. In 2019, spending on the ten most expensive Medicare outpatient procedures from 2009 had risen by less than the general rate of inflation, yet overall outpatient spending grew 19 percent in real terms. Medicare expenditures on physician-administered drugs blasted from $3 billion in 2000 to $17 billion in 2019\u2014$15 billion of that for drugs that hadn\u2019t existed at the century\u2019s start.<\/p>\n

Will all this technological innovation eventually bring down costs? That depends largely on policy choices.<\/p>\n

The pharmaceutical industry offers a useful example. Americans often overpay<\/a> for newly developed drugs that add little extra clinical value. Manufacturers trumpet incremental \u201cinnovations\u201d to extend patent protection and delay competition that would otherwise push prices lower. Yet when drug markets work as intended<\/a>, few industries offer better value for money<\/a>\u2014keeping patients healthy and reducing the need for expensive, labor-intensive hospital and specialty care.<\/p>\n

After the introduction of Lipitor, for instance, cholesterol drug spending surged<\/a> from $5 billion in 1995 to $35 billion in 2005. Following the expiration of the manufacturer\u2019s patent, this figure fell to $10 billion per year, with generics accounting for 90 percent of consumption. As generic heart medications have become more widely available, the number of heart surgeries has declined<\/a>, deaths from heart disease have dropped by 35 percent<\/a>, and overall real per-capita spending<\/a> on the treatment of heart disease has fallen\u2014even as America\u2019s obesity rate has continued to increase<\/a>.<\/p>\n

Many in Silicon Valley argue that artificial intelligence<\/a> will similarly improve treatment outcomes while greatly reducing costs. Recent advances in language processing allow computers to digest vast and rapidly expanding bodies of medical research. Improvements in image recognition enable them to detect diagnostic signals that clinicians often overlook. Powerful processors can now integrate these data with patient-specific genetic information to identify rare diseases and reduce diagnostic errors. At the same time, progress in robotics has made surgery more precise while reducing reliance on costly skilled labor.<\/p>\n

\u201cWhen people buy their own insurance, they flock to plans that exclude the costliest hospitals\u2014reducing prices for outpatient procedures. \u201d<\/p>\n

Safety concerns will likely limit the deployment of fully autonomous health-care technology, at least for now. AI systems inherit the limitations of the data they employ, often draw false conclusions, and proceed without appropriate caution. The consequences of misdiagnosis can be catastrophic. Automated feedback loops, which function without the transparency needed for effective oversight, could amplify them. And dependence on electronic systems greatly magnifies cybersecurity and privacy risks.<\/p>\n

Even so, AI could still reduce costs. Automating routine or repetitive clinical and administrative tasks could boost physician productivity, letting doctors treat more patients per hour. Decision-support systems might expand the scope of practice for lower-cost clinicians\u2014allowing primary-care physicians to handle cases once referred to specialists\u2014and nurses to perform tasks previously reserved for doctors. Telehealth and remote surgery could even enable the offshoring of medical services.<\/p>\n

The danger, however, is that medical AI could simply layer new expenses atop existing ones instead of replacing them. Practitioners are likely to resist technologies that threaten their incomes, and the combination of restrictive licensing rules and the insurance-based financing of most care makes the health-care sector especially hard to disrupt.<\/p>\n

Tech firms would not mind such an outcome. Many have lobbied for add-on payments for the use of AI-powered medical devices in treating Medicare patients. But this approach would exacerbate some of health care\u2019s most perverse incentives\u2014with the government paying for inputs without regard to their clinical value, encouraging the creation of technologies that raise costs rather than reduce them.<\/p>\n

A better approach<\/a> would be for Medicare and Medicaid to pay indirectly for newly developed medical technologies. Federal programs should rely on insurers, hospitals, and physicians to use payments already provided to them to employ new cost-slashing treatments. Lawmakers should refuse to establish supplemental funding streams.<\/p>\n

Incentives for private insurance to control health-care costs can also be improved by switching control<\/a> over the purchase of insurance from employers to individual workers. Individuals are much more price-sensitive and willing to forgo extraneous expenses when spending their own money. (Think airline tickets.) When individuals buy their own health insurance, they flock to narrow-network<\/a> plans that exclude the costliest hospitals\u2014reducing prices for outpatient procedures by 26 percent<\/a>.<\/p>\n

Politicians would like to believe that rising health-insurance costs result from bloated hospital budgets, physician overpayments, or administrative waste\u2014problems that could be trimmed away painlessly. But the reality is that health insurance is more expensive because Americans are consuming more, and costlier, medical services, a trend far tougher to reverse. So far, under current payment systems, technological improvements<\/a> have mostly driven expenditures<\/a> higher. Smart reforms could shift innovators\u2019 focus toward reducing costs instead.<\/p>\n

This article is part of \u201cAn Affordability Agenda,\u201d a symposium that appears in\u00a0City Journal\u2019s\u00a0Winter 2026 issue<\/a>.<\/p>\n

Chris Pope<\/a> is a senior fellow at the Manhattan Institute.<\/p>\n

Photo: Patient demand is growing for innovative technologies and treatments. (Stacey Wescott\/Chicago Tribune\/Tribune News Service\/Getty Images)<\/p>\n","protected":false},"excerpt":{"rendered":"Americans have long lamented the high cost of health insurance, and the situation will soon get worse. Premiums…\n","protected":false},"author":2,"featured_media":458004,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[97,252,253],"class_list":{"0":"post-458003","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-health-care","8":"tag-health","9":"tag-health-care","10":"tag-healthcare"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/458003","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=458003"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/458003\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/458004"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=458003"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=458003"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=458003"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}