Everyone knows that sky-high healthcare costs are a problem in the U.S. According to the Peter G. Peterson Foundation, U.S. healthcare spending per capita is $14,885 as of 2024. That’s more than double the average per capita healthcare spending of just $7,371. In comparison, Canada’s per capita healthcare spending is $7,301 and Korea’s is just $4,797.
The U.S. spends a lot of healthcare. That’s not up for debate. The real question is – why? Why is U.S. healthcare spending so high, and what can be done to bring it down?
Prescriptions and Medical Services Cost More in the U.S.
The U.S. has high rates of obesity and chronic health conditions, and this can contribute to higher healthcare spending. However, this is by no means the only factor affecting high healthcare spending rates in the U.S.
This is apparent because it’s not just total healthcare spending that’s higher in the U.S. Individual prescriptions and services are also more expensive. For example, according to Vox, a CT scan that would cost $140 in Holland would cost $1,100 in the U.S. A report from RAND found that prescription drug prices are 2.78 times higher on than prices in 33 other nations on average.
With few exceptions, U.S. patients pay significantly more than patient in other countries for the same surgeries, tests and prescriptions.
Inflation Alone Can’t Explain Rising Prices
Over time, prices are expected to rise due to the impact of inflation. However, economic inflation alone cannot explain the surges that have occurred in healthcare prices.
The KFF 2025 Employer Health Benefits Survey found that the average premium for family coverage increased by 6% and the average premium for single coverage increased by 5% year over year. In comparison, inflation only increased by 2.7% during this period. Even over the last five years, which saw an unusually high inflation rate of 23.5%, family coverage premium increased at an even higher rate of 26%.
Health insurance cost increases are outpacing general inflation, indicating that something else is driving up healthcare costs.
Why Is U.S. Healthcare So Expensive?
If healthcare usage and inflation can’t explain soaring health insurance costs, what’s going on?
A major issue is that healthcare doesn’t follow the normal model of supply and demand. For most goods and services, the opposing pressures of supply and demand keep prices in check. For healthcare, other factors drive prices up artificially.
Some individuals get their health coverage through government programs like Medicare and Medicaid. The government uses a convoluted payment system that doesn’t always compensate providers adequately. According to the American Medical Association, Medicare has cut pay for physicians for five years in a row. For some providers, the low pay may not be worth the effort. The National Bureau of Economic Research says that some doctors avoid treating Medicaid patients due to administrative burdens. When doctors do accept the low pay, they’ll need to make up for it elsewhere.
Some individuals are uninsured. They are often unable to pay anything at all, but they still require care, and they may resort to using emergency rooms. According to the CDC, the rate of visits to emergency rooms among homeless individuals increased from approximately 141 visits per 100 individuals in 2010/2011 to 310 visits per 100 individuals in 2020/2021. Once again, provider need to make up for the losses elsewhere.
Other individuals are commercially insured, usually through employer-sponsored, network-based plans. Reimbursements rates often exceed costs, making up for losses elsewhere. According to ProPublica, insurers often agree to pay high prices and then pass the costs onto patients while making large profits. In one egregious example, a patient’s insurer agreed to a price of $70,000 for a partial hip replacement, more than three times the Medicare rate, leaving him with a $7,088 bill for his cost-sharing responsibility. ProPublica asserts that patients fund the healthcare industry through taxes, premiums, and cash payments – but insurance carriers are ironically called the “payers” in the system.
How Can Employers Control the Cost of Employee Benefits?
The traditional carrier model raises prices for patients and puts financial strain on both workers and their employers, but there are other models that can deliver more affordable care. Health2Business contracts directly with high-quality providers and health systems, cutting out the carriers to bring costs down.
Watch this video from Doug Hetherington to learn more.
