Hospital and pharmaceutical prices are smothering America’s businesses

The piece frames rising health insurance premiums as a slow-moving crisis for the employer-based system, with high premium hikes crushing businesses and workers and more increases expected for 2027. STAT's "Out of Pocket, Out of Reach" series is examining the causes of this situation and how it threatens the viability of businesses and employees' livelihoods. Insurers do not set premiums in a vacuum — the biggest factor is the care people receive, and the biggest driver of that cost, STAT found, is not how often people visit hospitals or doctors but the out-of-control prices charged across the health care industry, which workers and businesses are often powerless to stop.

Gerard Anderson, a Johns Hopkins professor who has studied health care spending and policy for four decades and helped design Medicare's hospital payment system in the 1980s, describes America's high prices as obvious yet unnoticed, like the oxygen we breathe. He co-wrote a seminal 2003 paper — updated in 2019 — that identified the culprit behind America's outlier health spending: "It's the prices, stupid." "Some things don't change," Anderson told STAT. What is changing, he said, is that he and others are now working with state policymakers and employers who are signaling openness to government intervention to curb health care costs — an idea normally anathema in the private sector.

American hospitals, physicians, drug companies, and others charge among the highest prices in the world, a chief reason US health spending is on pace to top $6 trillion this year, or almost $16,500 per person. Hospitals and drug companies in particular hold natural and human-made monopolies, and research shows this market power lets them bill employers and workers more than double what Medicare pays — frequently much more — for the same services and medicines. Health insurers, though highly consolidated themselves, are supposed to be guardians of the health care dollar and master negotiators; instead they operate like turnstiles, knowing workers and employers ultimately pick up the tab, and are failing at their central job of making care more affordable. Agreeing to bigger hospital payments has at times been an explicit insurer strategy to protect their own market power.

Citing incomplete data, industry lobbyists point to smaller price hikes in recent years and higher use of care, but researchers say even tiny increases to already high prices still add to system costs. "If you're thinking of it very simply as price times quantity equals health spending, the bigger thing we need to fix is the price component, not the quantity component," said Irene Papanicolas, a health economist and researcher at Brown University.