The Health Care Price Crisis Needs Policy Solutions

Am J Manag Care. 2024;30(12):In Press

Takeaway Points

• Employer-sponsored health insurance premiums for families increased from $8500 in 2002 to $25,000 in 2024, placing a growing financial burden on employers and individuals.
• Hospital mergers result in increased service prices, often reducing wages and employment outside the health sector. Enforcement of antitrust actions against these mergers has been limited.
• Small and midsize businesses face significant challenges in providing health insurance due to high costs. Only 47% of small businesses with fewer than 50 employees offer health benefits, as costs have risen faster for smaller firms compared with larger corporations.
• State and federal policy interventions are needed to rebalance the market to enhance competition and provide value in health care.

Health care costs continue to rise at an alarming rate, driven primarily by increasing prices. Health care spending was an estimated 18.3% of the US gross domestic product (GDP) in 2021 and is projected to grow to 19.6% of the GDP by 2031.1 The average employer-sponsored health insurance premium for a family rose from $8500 in 2002 to $25,000 in 2024.2 Between 2000 and 2020, employee wages grew by only 1% per year, adjusted for inflation. In that same time, health insurance premiums increased by more than 2.5% per year.3 Employers and individuals bear the greatest burden of increased health care prices. Until recently, market-based solutions have been regarded as the preferred method to correct potential or actual market failures. The thinking was: “If only employers could be smarter and more innovative, they could find a good deal on health care and stem the tide of rising prices.” But increased consolidation of health systems and health plans4,5 means that market-based solutions are arrayed against the employers and individuals that buy health care services. Even the most innovative health care purchasers are often stymied6 by anticompetitive behavior or other market limitations. Market dynamics have shifted too far in favor of the supply side—health systems and health plans—and it isn’t a fair fight. We need public-policy intervention to create a level playing field.

Everyone Feels the Burden of Health Care Costs

No matter the size of the employer, all businesses feel the crunch of ever-rising health care prices, affecting their bottom lines and their competitiveness. In 2024, only half of small businesses with 50 or fewer employees offered health benefits, even though two-thirds viewed providing health insurance as highly important to attract and retain qualified candidates.7 Among small employers who do not offer health insurance, 65% cited high costs as the primary reason for not offering it, with an overwhelming majority of businesses with 30 or fewer employees citing this reason.7 The burden extends to fully insured midsize businesses (those with 50-499 employees), which experienced a 7.8% increase in premiums in 2023 compared with a 4.6% increase for larger firms (≥ 500 employees).8 As provider markets consolidate and concentrate, even large employers and the health plan administrators negotiating for them struggle to get fair prices from health systems in many areas. Rising health care prices—not increased utilization—drove two-thirds of per-person hospital spending growth from 2015 to 2019, and commercial insurers pay, on average, 224% of Medicare rates for hospital services, contributing to rising premiums and deductibles across employer-sponsored insurance.9

American workers also suffer from rising health care costs. According to research from the National Bureau of Economic Research, a 10% increase in health insurance premiums reduces a worker’s chance of being employed by 1.6%. Additionally, it causes a 1% decrease in hours worked, as employers respond to rising health care expenses by shifting full-time positions to part-time roles, many of which do not offer health benefits.10,11 Over the past 5 years, health insurance premiums for families grew by 22%,12 with an expected 7% increase in 2025 alone.13

There is evidence that increases in health care prices and premiums and decreasing worker wages are all directly tied to market consolidation. When a hospital merger occurs, prices for hospital services increase by an average of $521.14 This translates to a $638 decrease in worker wages at firms outside the health sector. This same research estimates that mergers that increased prices by 5% or more can lead to approximately 203 job losses, $32 million in lost wages, and a $6.8 million decrease in federal income tax revenue.14 In 2023, the average hospital merger raised prices by 5.2%.15 Although the Federal Trade Commission (FTC) and Department of Justice have jurisdiction over these kinds of mergers, enforcement has been slim. Between 2000 and 2020, more than 1000 hospital mergers took place, but the FTC initiated enforcement actions against only 13 of them.14

Hospitals Are Unpopular but Hold Significant Political Power

Public sentiment increasingly perceives hospitals as exploiting the complexity of the health care system to charge excessive prices and resist cost-reducing reforms.16 Record numbers of mergers, increased lobbying efforts, and aggressive tactics toward purchasers and patients17 shine a negative spotlight on health systems and put them on the defensive. However, despite their increasing unpopularity with various stakeholders, they continue to hold considerable market and political power.

In contract negotiations with health plans, hospitals leverage their market position to name their price and dictate other contract terms. For example, all-or-nothing contracting terms used by Sutter Health in the early 2000s led to sustained price increases of more than 30% compared with competitor health systems.18 (All-or-nothing contract terms require health plans to include all of a health system’s hospitals in the network even if the health plan does not need them in the network or would like to carve them out because of low quality and/or high prices.) These contracting terms are still used by other health systems today. Although Sutter has faced nonmerger antitrust litigation,19 such legal actions are rare. The FTC has authority to challenge anticompetitive mergers, but its power to address nonmerger anticompetitive practices often does not extend to nonprofit organizations.20 This leaves state attorney generals’ offices on the front line against these types of anticompetitive practices, and there are steep challenges associated with enforcement. Successful antitrust litigation against a health system for anticompetitive contracting can take years. Because of the substantial state resources required, officials often focus on the most serious violations and may be urged to settle. Settling, however, means that cases often conclude without a court ruling that could set precedent.21

Enforcement of the 2021 Hospital Price Transparency rule continues to be limited. As of 2024, only 34.5% of hospitals have met the full requirements,22 yet in 2022 and 2023, CMS levied financial penalties on only 7 providers.23 Perhaps not coincidentally, health care providers and pharmaceutical companies have ranked among the top 5 spenders on federal lobbying efforts over the past 2 decades, spending more than $700 million in 2021.24 This political investment enables the hospital industry to use its power to thwart policy efforts to limit their revenue or market behavior.6,16

The Case for State Policy Intervention

When markets fail, policy interventions should be considered. Health researchers and policy leaders have identified numerous policies that could help restore the function of health care markets, or at least impose guardrails that prevent egregious market behavior. States may have the most flexibility to enact and test these policy interventions.

After publishing a study on state-based policies to address health care prices, Catalyst for Payment Reform (CPR) explored attitudes toward policy interventions in 3 states—Florida, Michigan, and Nevada—chosen for their geographic and political diversity. Interviews with 34 stakeholders revealed concerns over escalating health care costs and a need for targeted policy solutions. Based on the interviews, CPR recommended stakeholders pursue policy solutions that mandate prior notification of mergers, ban facility fees for outpatient care, and prohibit antisteering clauses in contracts.

No single policy can entirely correct market failures in a complex health care system that makes up nearly 20% of the US GDP.1 States need to consider a range of policies that include building data infrastructure and enforcement mechanisms to ensure the policies have their intended impact.25 Such policies potentially include the adoption and use of all-payer claims databases and the creation of health policy commissions or other regulatory bodies that are empowered with appropriate oversight capabilities. Although these efforts are difficult and complex, often spanning multiple years, the work of advocating for and implementing public policy interventions is possible, as demonstrated by coalitions that have been successful and are case studies for employers and coalitions looking to use policy as a lever to correct market failures. Employer groups such as Employers’ Forum of Indiana and Texas Employersfor Affordable Health Care have successfully advocated for policy initiatives in their states.

Using policy as a tool for constraining commercial health care prices is a nascent endeavor. Researchers need to continue to study the implementation and efficacy of state policy interventions to determine whether these policies effectively curb commercial prices. Early research indicates that policy intervention is promising. For example, in 2019, Oregon’s state employee health insurance plan introduced a cap on out-of-network hospital charges, leading to a significant decrease in inpatient facility prices by the second year of implementation (−$2774.20 per admission).26 In 2016, when Montana’s state employee health plan, which is managed by the state’s Health Care and Benefits Division, adopted reference-based pricing based on Medicare rates for hospital inpatient services, it led to an estimated $47.8 million in savings across inpatient and outpatient care from fiscal years 2017 to 2019.27 Finally, since Rhode Island implemented its Affordability Standards in 2010, independent research found that quarterly fee-for-service spending between 2009 and 2019 decreased by $76 per enrollee, representing an 8.1% decline.28

Conclusions

In an era in which market initiatives alone have proven insufficient to control rising health care costs, the need for state-based policy interventions has never been clearer. To constrain commercial health care prices, it is imperative for employers of all sizes to actively participate in coalitions and advocate for reforms that rebalance market power to create a level playing field. The success of groups such as the Employers’ Forum of Indiana and Texas Employers for Affordable Health Care demonstrate that strategic, data-driven advocacy can lead to significant legislative wins, even against powerful, entrenched interests. As health care spending continues to climb, the path forward requires a collective effort from businesses, policy makers, and the public to push for transparency, accountability, and fairer pricing practices. This is not only essential for sustaining the competitiveness of American businesses but also for ensuring a more affordable health care system for all. 

Author Affiliations: Catalyst for Payment Reform (AC, TN-P).

Source of Funding: None.

Author Disclosures: Ms Caballero and Ms Nugent-Peterson are employed by Catalyst for Payment Reform, which will be seeking funding for the Price Crisis project from foundations and other donors. The research by Catalyst for Payment Reform referenced in this article was funded by Arnold Ventures.

Authorship Information: Concept and design (AC, TN-P); analysis and interpretation of data (AC, TN-P); drafting of the manuscript (AC, TN-P); critical revision of the manuscript for important intellectual content (AC, TN-P); administrative, technical, or logistic support (AC, TN-P); and supervision (AC, TN-P).

Address Correspondence to: Torie Nugent-Peterson, Catalyst for Payment Reform. Email: tnugentpeterson@catalyze.org.

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