As the 2023 UNC Business of Healthcare Conference approaches, this overview provides a brief introduction to the topic, “What’s Driving Healthcare Prices?“. The conference panels will further delve into topics pertinent to healthcare pricing, including:
The Past and Present Issue: “It’s the Prices, Stupid”
In 2003, one of the most popular pieces on healthcare pricing was authored by healthcare economist Uve Reinhardt. His article, “It’s The Prices, Stupid: Why the United States is So Different From Other Countries,” argued that the predominant reason for the U.S.’s exorbitant medical costs, in comparison to other developed nations, was due to higher prices.1 Data revealed that the U.S. outspent all other OECD countries on healthcare. Yet, when gauging the utilization of health services, the U.S. ranked below the OECD median. This disparity suggested that the principal driver of the increased expenditure was the elevated prices for U.S. healthcare goods and services.
A 2019 update to the original 2003 JAMA paper, titled “It’s Still The Prices, Stupid: Why The US Spends So Much On Health Care,” reiterated the initial sentiment.2 It underscored that, despite health policy changes and system overhauls since 2003, prices continue to be the primary driver of U.S. healthcare expenditure. Interestingly, when it came to healthcare resources per capita, such as hospital beds, physicians, and nurses, the U.S. still trailed the OECD median. The recurring theme? Elevated prices remained the issue. This argument has been echoed by subsequent studies, all emphasizing that price control is likely the most effective strategy to reduce healthcare expenditures.3
Current Costs and Future Projections
In 2021, U.S. healthcare spending had soared to a staggering $4.3 trillion, amounting to an average of $12,900 per person—approximately double that of other OECD nations.4 Although the COVID-19 pandemic certainly played a role, the increase in healthcare costs has been a long-standing trend, growing from 5% of GDP in 1960 to 18% in 2021. Two primary catalysts identified for this growth are an aging demographic and escalating healthcare service prices. The percentage of the population aged 65 and over grew from 13% in 2010 to 16% in 2021, with projections indicating it might reach 20% by 2030. Typically, this age segment has higher healthcare expenditures, pushing up overall costs. With increasing reliance on Medicare, forecasts suggest that Medicare spending might double as a percentage of GDP in the coming three decades. Despite these exorbitant costs, the U.S. still does not consistently showcase better health outcomes compared to other countries.
Inflation, already impacting sectors like groceries and real estate, has begun influencing health insurance costs.5 A recent KFF survey indicates that the average family health insurance premium provided by employers surged by 7% this year to approximately $24,000, marking the most significant annual increase in a decade. This contrasts with the modest 1% rise seen the previous year. Premiums for individual insurance also climbed by 7%, averaging $8,435. Given that over 150 million Americans rely on employer-sponsored health insurance, this upward trajectory is challenging. Roughly a quarter of employers are now considering shifting some of these expenses onto their employees, which could mean larger paycheck deductions, especially as inflation outpaces wage growth. This premium adjustment mirrors the larger inflationary challenges the U.S. still finds itself grappling with.
Healthcare pricing in the U.S. is multifaceted and complicated. With the 2003 statement “it’s the prices” and reiteration 16 years later that it’s still the prices, one goal of the 2023 UNC Business of Healthcare Conference is to raise the level of awareness around the challenges of healthcare prices in the U.S. so that the same sentiments aren’t still true 16 years from now.
We hope our 2023 Business of Healthcare conference fosters meaningful dialogue and inspires attendees to re-examine the U.S. healthcare pricing and cost challenges from fresh perspectives that move us toward solutions.
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