The US Health Spending Problem Is Still About Prices, Health Affairs Forefront, Feb. 18, 2026, by Irene Papanicolas, Jonathan Cylus, and Luca Lorenzoni
For more than two decades, debates about why US health care spending is so high have been shaped by the insight articulated by Gerard Anderson, Uwe Reinhardt and Peter Hussey: that the United States does not use more health care than other high-income countries but pays much higher prices for it. The original “It’s the Prices, Stupid” argument was fundamentally about price levels, not price growth. That central insight remains as true today as when it was first articulated: across services, drugs, and inputs, the United States consistently pays substantially higher prices than its peers for comparable services, drugs, and inputs.
Recent estimates of US national health expenditures, produced by the national health expenditures (NHE) team at the Centers for Medicare and Medicaid Services, have reignited debate about what is driving spending growth, which is a related but distinct question. In his recent Health Affairs Forefront piece, “It’s Not the Prices, Stupid,” Michael Chernew argues that utilization and intensity, rather than prices, are the primary explanation for recent expenditure growth.
While we agree that understanding what drives expenditure growth is essential for sound policy, we worry that this framing risks conflating growth dynamics with the underlying reason the United States spends so much on health care in the first place: price levels that are far higher than those paid in other high-income countries.
Health care spending reflects the interaction of prices and volume. In practice, when researchers decompose spending growth, volume typically encompasses both the use and the intensity of care delivered, with intensity referring to changes in the mix or complexity of services per episode.
Although it is lumped together with use, changes attributed to intensity may reflect shifts in service mix, coding practices, payment design, or the adoption of new technologies—many of which operate through higher prices per episode rather than greater quantities of care.
While the NHE estimates do account separately for the administrative spending incurred by payers and insurance, they are not able to do the same for provider-facing administrative costs, such as billing, coding, and prior authorization compliance; instead, these administrative costs are embedded in estimates of provider spending.
There are real consequences of erroneously focusing policy attention on the use and intensity of care as the driver of exorbitant expenditure growth. By suggesting the use and intensity of care as the culprit, decisionmakers may perceive coverage reductions and higher co-payments as the solution to reduce demand. This will result in less access to care and worsen health outcomes, when the real cause of high spending growth is that the prices paid for care exceed the value they provide.
Health Affairs Online Comment:
By Don McCanne, M.D.
Of course, prices, utilization and intensity all play some role in the cost of health care. But limiting attention to such factors, as we now do to some extent, has resulted in the most expensive health care system in the world with performance of the system ranking near the bottom of industrialized nations. What we really need is structural reform. A single payer financing system can control costs while maintaining high performance through much lower administrative costs, stronger negotiating power, limiting profit from basic coverage while covering costs, universal risk pooling, and emphasis on primary and preventive care. It’s astonishing that we are not supporting reform that would work well for everyone and instead we support reform that enables enrichment of superfluous passive investors and private equity through diversion of our health care dollars. Isn’t it time for Health Affairs to expand its coverage to such patient-friendly models that would greatly improve efficiency and value for our health care spending?
Comment:
By Don McCanne, M.D. and Jim Kahn, M.D., M.P.H.
The renewed emphasis on prices in medical care brings back thoughts of free markets in health care as preached by Milton Friedman. But in a previous HJM post we highlighted that a universal, publicly financed and publicly administered program, as advocated by Kenneth Arrow, will bring us universal coverage, low administrative waste, removal of excess profits, and protected health care access as a social good – features not found in a free-market based system.
The Arrow model relieves us of the need to be concerned about prices because the legitimate costs are already built into the health care delivery system. Thus price shopping is an unnecessary feature that can be omitted from consideration when accessing health care. Rather than being concerned about prices in the marketplace, the patient’s concern is only about access since the payment has already been made through progressive taxes based on the ability to pay. Thus health care is always readily available to everyone without having to face the potential hardship of market prices since they will have been addressed by our public negotiators, as the growth in utilization and intensity will have been similarly addressed on our behalf. After all, negotiators representing all of us should certainly have a greater impact than any of us negotiating on our own. And for those worried about government negotiated expenses, remember that the savings come from reducing waste that is currently going to the investors, private equity and superfluous administration.
P.S. from Jim: The article states “NHE estimates … are not able to [quantify] provider-facing administrative costs, such as billing, coding, and prior authorization compliance …”. Hence costs attributable to administrative bloat imposed by complicated insurance are not highlighted. However, provider billing and insurance-related (BIR) administrative costs have been quantified. I’ve done much of that work with colleagues. The excess (and hence avoidable) provider BIR burden is ~10% of all spending. E.g., see a 2014 review here. It seems to me that if we need to discuss prices (and we do), we must highlight the wasteful BIR portion, which of course disappears with single payer.
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