Why Healthcare Costs Are So High and Going Up: Hint It's Not Obamacare
Have you seen the assertions that the ACA is the cause of rising healthcare costs? Let's get real - U.S. healthcare costs have consistently grown faster than inflation and have been rising for decades, long before the ACA was implemented in 2010. Do not believe the rhetoric that the Affordable Care Act is the cause of escalating healthcare costs. As with most issues that don't fit well with political rhetoric, it's complex.
The biggest drivers of healthcare costs include:
Prices of services and drugs: Americans pay more for hospital stays, physician services, and prescription drugs than patients in other countries.
Administrative costs: The U.S. system is complex and fragmented, with billing, insurance, and overhead contributing heavily to costs.
Technology and innovation: New treatments, imaging, biologics, and surgical techniques improve care but drive up spending.
Chronic disease burden: High rates of obesity, diabetes, heart disease, and other chronic conditions require ongoing, expensive care.
Impacts of the Affordable Care Act
The ACA expanded access to coverage by subsidizing premiums and creating standardized plans. Moreover, the law added consumer protections (e.g., banning denial for preexisting conditions, removing lifetime caps).
Premiums in the state and federal ACA marketplaces did rise significantly in the first few years after rollout (especially 2017–2019), but this was largely due to insurers initially underpricing, then adjusting to sicker-than-expected enrollees and political/legislative uncertainty.
Consider too that marketplace plans account for a relatively small share of total U.S. healthcare spending (covering about 16 million people, compared to ~160 million in employer-based insurance).
National healthcare spending has continued to rise mainly because of the broader structural drivers, not because of the ACA itself. In fact, research suggests the ACA helped slow the growth of Medicare spending and reduced uncompensated care costs for hospitals.
The Biggest Driver of Healthcare Costs: Prices of Services and Products
Hospital care accounts for ~30% of national healthcare spending. U.S. hospitals charge more for the same procedures compared to other countries (e.g., hip replacements, C-sections). Moreover, there is geographic and site variation in pricing within the US and lack of price transparency that creates confusion and a race to increase prices to increase revenue.
Physician services are generally higher than in other countries especially for specialties such as orthopedics, radiology, and cardiology. There is movement to reduce compensation from federal payers (e.g., Medicare) and private insurers (e.g., down coding of services), but these moves will not make much of a dent in our healthcare expenditures. In fact, many physicians are leaving practices that accept insurance and creating concierge or direct care practices. Costs for patients to access care at concierge practices are higher than at more traditional practices.
U.S. patients pay the highest drug prices in the world. Unlike many countries, the government does not negotiate most drug prices (except limited new Medicare authority under the Inflation Reduction Act). Here pharmacy benefit managers (PBMs) or the middlemen between you and your insurance company dictate prices and access to drugs. This is an additional cost other countries don't have.
The U.S. is blessed with lots of healthcare innovation - medical devices, technology, and AI such as MRI, CT scans, robotic surgeries, and new biologic treatments are widely used and often billed at high rates. Our costs are higher because we have access to these innovations.
Administrative Complexity
Insurance fragmentation has created enormous complexity. The U.S. has thousands of payers (private insurers, Medicare, Medicaid, employer-based plans), each with unique rules. Additionally, you may have insurance through a company that has many different offerings that adds to the complexity.
This payer complexity leads to providers spending heavily on staff and systems to navigate claims, prior authorizations, and compliance. Administrative costs consume about 8–10% of U.S. healthcare spending, compared to 2–3% in single-payer systems.
Chronic Disease Burden
The U.S. has a high prevalence of conditions such as diabetes, hypertension, heart disease, COPD, and obesity that drive long-term spending. Moreover, lifestyle factors such as obesity rates are higher in the U.S. than in peer nations, contributing to more complications and expensive treatments. The advent of GLP medications that could alleviate obesity are very expensive which is why insurers limit coverage or don't cover at all.
Another driver of healthcare costs is care fragmentation. Many patients with multiple chronic conditions see multiple providers, increasing duplication of services and costs.
Another factor is our aging population. Most of the Baby Boomer generation, the largest, is already at Medicare age and gen X is beginning to enter Medicare age. Older adults consume significantly more healthcare services (hospitalizations, surgeries, medications). While aging is a factor, it explains only a portion of the spending growth — prices and utilization patterns are stronger drivers.
Prevention is crucial but controversial. Should insurance pay for prevention? How do we as a society get serious about improving our food ecosystem and other drivers of chronic diseases. More research to provide evidence is needed in this area.
Market Power and Consolidation
Over the last several years, there has been significant hospital and health system consolidation. Also, health systems have purchased independent practices and private equity has entered the mix. Hospital and health system consolidation leads to less competition, allowing dominant health systems to negotiate higher prices with insurers. Private equity seeks return on their investments which also leads to increased prices and costs.
Insurers buying physician practices and pharmacies (e.g., UnitedHealth and CVS/Aetna) can increase efficiency but also concentrate market power. This too leads to increased costs. Also, geographic monopolies drive up costs. In many regions, one or two hospital systems dominate, leaving patients and insurers with few alternatives.
Fee for Service Model Still Dominates
Traditional U.S. payment rewards more tests, procedures, and visits, not necessarily better outcomes. I don't believe physicians consciously add more tests or visits to increase their revenue. Rather, our fragmented system promotes this type of behavior. Value based payment schemes incentivizes better coordination to reduce this type of waste.
Fear of malpractice suits may lead some providers to order unnecessary tests. I've seen this in the ER. Excessive testing is done because the physician doesn't know the patient and patient presentations in the ER are high risk so more testing is done vs what might be done in a primary care setting where the physician knows their patients better.
There has been a slow shift to value-based care. Programs like bundled payments and Accountable Care Organizations (ACOs) are trying to move toward outcomes-based payment, but fee-for-service still dominates.
Other Factors to Consider
The U.S. spends heavily on intensive treatments in the last months of life, even if the treatments are futile or painful. We must get better as a society in accepting advanced directives and palliative care for end of life.
Over the last several years, there has been a growing demand for behavioral health services, a demand that is not being met.
There is still a significant impact of uncompensated care. Though reduced by the ACA, hospitals still pass some costs of uninsured patients onto the system.
Bottom Line
Rising healthcare expenditures are not mainly about utilization. Americans don’t go to the doctor or hospital more often than people in other developed countries, they just pay much higher prices for each service and drug.
Also the U.S. system is structurally unique. A combination of fragmented payers, market-driven pricing, and high administrative overhead makes it more expensive than peer nations, regardless of ACA marketplace plans. The ACA was a partial solution to affording health insurance and has been successful in doing that. Our system requires bigger changes to achieve better health for our nation.
My book about how to navigate our healthcare system, "The Prepared Patient: Your Guide to Surviving the Healthcare System" is out in 2026 (Johns Hopkins University Press)