American healthcare is expensive because of prices, not because Americans use more care. The United States sees the doctor less than most rich countries and spends less time in the hospital. It simply pays more for each unit of care, and then pays a second time for the administration of the paying. That answer has been stable in the data for more than twenty years, which suggests the system is not failing to solve the problem. It is succeeding at something else.

It's the prices. It was always the prices.

In 2003, Gerard Anderson, Uwe Reinhardt, and colleagues compared the United States to the rest of the OECD and titled their finding plainly: "It's the Prices, Stupid." Americans used hospitals and physicians less than the median rich country and paid far more per unit anyway.[1] The 2019 follow-up found nothing had changed except the magnitude: the US fields fewer physicians per capita than almost every comparable country, 2.7 per thousand against an OECD average of 3.9, and fewer hospital beds, while private insurers pay roughly 50 percent more than Medicare for the same services, a gap that was about 10 percent in 2000.[2][3] Utilization is not the story. The meter charges more per mile here, and the gap is widening.

The second bill: administration

The United States also maintains the most expensive billing apparatus on earth. The canonical comparison found administration consuming 31 percent of US health spending against 16.7 percent in Canada.[4] American hospitals spend 25.3 percent of their budgets on administration; England's spend 15.5 percent.[5] Administration at Canadian levels would have saved an estimated 158 billion dollars in a single year, and the number has only grown since it was calculated.[5] None of this administration treats anyone. It exists to move margin between institutions, and it is very good at its job.

Where the money settles

National health spending passed 5.3 trillion dollars in 2024, 18 percent of GDP and headed for 20 within the decade.[6] Follow any dollar of it and you pass through layers, each holding a toll: hospital systems pricing at what payers will bear, pharmacy benefit managers pricing in both directions, and insurers whose margins run highest precisely where federal subsidy is deepest. Medicare Advantage gross margins ran 1,655 dollars per enrollee in 2024, roughly double the group market.[7] The polite word for this arrangement is intermediation. The accurate word is collection.

What actually moves the number

One intervention has moved prices at scale: the purchaser setting them. The Congressional Budget Office scored Medicare drug negotiation at 98.5 billion dollars in federal savings over a decade. The first negotiated round produced net savings of 22 percent on the selected drugs; the second round, 44 percent.[8] Negotiation is price-setting with better manners, and it works.

The Institute draws the conclusion the literature keeps declining to draw. The margin in American healthcare is the largest pool of collectible revenue in the domestic economy. It will be collected by someone: hospital systems, intermediaries, or the state. The Institute's Health System Revenue program states our preference plainly, and if consolidating that collection is hard on the private insurance industry, we have priced that as a transition cost.

Sources

  1. Anderson, G., Reinhardt, U., Hussey, P., Petrosyan, V., "It's The Prices, Stupid," Health Affairs 22(3), 2003. https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.22.3.89
  2. Anderson, G., Hussey, P., Petrosyan, V., "It's Still The Prices, Stupid," Health Affairs 38(1), 2019. https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.05144
  3. Peterson-KFF Health System Tracker, "How do U.S. healthcare resources compare to other countries?", 2024. https://www.healthsystemtracker.org/chart-collection/u-s-health-care-resources-compare-countries/
  4. Woolhandler, S., Campbell, T., Himmelstein, D., "Costs of Health Care Administration in the United States and Canada," NEJM 349, 2003. https://pubmed.ncbi.nlm.nih.gov/12930930/
  5. Himmelstein, D. et al., "A Comparison of Hospital Administrative Costs in Eight Nations," Health Affairs 33(9), 2014. https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2013.1327
  6. CMS Office of the Actuary, National Health Expenditure data, 2024 (reported). https://www.paubox.com/blog/cms-estimates-us-health-spending-grew-8.2-in-2024
  7. KFF, "Health Insurer Financial Performance in 2024," 2025. https://www.kff.org/medicare/health-insurer-financial-performance/
  8. KFF, "Key Facts About Medicare Drug Price Negotiation," 2025. https://www.kff.org/medicare/key-facts-about-medicare-drug-price-negotiation/