Health Care Affordability
Key Points
The costs we pay for health care – out of our own pockets and through government programs – are already too high and growing fast.
Health insurance premiums for 2026 are up across all types of plans, driven by an increased cost per service (hospital, physician, and drugs) multiplied by increased use of services per person.
The Centers for Medicare & Medicaid Services (CMS) projects that the share of gross domestic product (GDP) going to health care will increase by more than 15 percent between 2023 and 2033.
There are powerful influences behind these increases, and taming them requires determined, focused, and long term Congressional action.
Here’s where we start:
Restore competition in hospital and physician services through establishing site neutral payments, strengthening and enforcing anti-trust and anti-monopoly measures to oppose and reverse vertical integration, banning anti-competitive contracting clauses between hospitals and insurers, and expanding statutory authority over physician payment rates based on objective measures.
Support transparency initiatives, including comparative effectiveness research, highlighting low-value physician services, and hospital, insurer and pharmacy benefit manager pricing and cost transparency.
Reduce costs for prescription drugs by funding basic research, reforming patent protection laws that block generics from the market, expanding the list of drugs for price negotiations, finding ways to spread cost for new brand name drugs across a much broader population base, and establishing a surtax on excess pharmaceutical profits.
Use the pharmaceutical surtax to restore as much of the expiring subsidies as possible and to reduce or eliminate the subsidy cliff in the healthcare marketplace.
Details
Why are health insurance premiums going up?
Idahoans got a rude surprise when health insurance costs for 2026 were revealed. Across the U.S., the cost of employer-sponsored group insurance plans are increasing from about $17,500 to $18,500 per employee. For individuals and companies with fewer than 50 employees, premium prices are increasing about 10% and 11% respectively. That is more moderate than in many parts of the country due to Idaho’s reinsurance program – evidence that government action does impact affordability. And because some of the government programs that pay a portion of the costs are expiring at the end of 2025, Idahoans see health care costs getting even more expensive and hitting them harder than before.
Health insurers report the reasons behind their premium increases to the Idaho Department of Insurance, and we can group those reasons into a couple of buckets:
The costs of providing medical care – hospital costs, physician costs, and drug costs – are going up.
The people getting insurance now are more likely than in the past to have chronic illnesses and to need more care.
Put another way, the cost per service is increasing and the number of services people use are increasing. The CMS reports that across government and individuals, U.S. health expenditures were almost $5 trillion in 2023, 17.6 percent of GDP. This was very standard — except for two years of COVID response, the percent of U.S. GDP going to health care had been between 16.9 and 17.6 percent for the last 15 years. Without reform, CMS projects that the share of health care expenditures will grow to 20.3 percent of GDP by 2033. We can all expect to pay more, and because wages have historically grown more slowly than the economy as a whole, we can expect it to hit us even harder. And, major government programs – Medicare and Medicaid – will see their costs grow also.
We need to bend that cost curve back down.
Health care poses a particular challenge.
Unlike nearly all other high-income countries, the U.S. has a market-based health care system. By “market-based,” I mean that in the U.S., private insurance and private providers play the dominant role, with prices influenced by market forces rather than government-set budgets.
But health care doesn’t behave like a market.
In a traditional market, supply eventually meets demand and prices stabilize at that level. In health care, as the supply increases, so does demand. Take, for example, the new weight loss drugs like Ozempic. A few years ago it didn’t even exist. Now that it does, we need more and more.
Hospital services drive a big portion of health care costs, but we can’t just stir up competition among them to control prices. Just to open its doors, a hospital has to have a 24/7 emergency department, ICUs, operating rooms, inpatient beds, minimum staffing in every clinical department, specialized equipment (MRI, CT, robotics, catheter labs), large administrative, compliance, and IT infrastructure, and an expansive physical plant. These drive large fixed costs. If you plop another hospital down nearby to compete with it, both will be underutilized and the average cost per patient or per service will go up, not down. Think of a hospital as being like an airport.
A lot of hospitals (including Kootenai Health, St. Luke’s, and St. Alphonsus in our area) and many insurers (including 6 of 8 organizations providing individual insurance in Idaho) are non-profit or not-for-profit organizations. They charge for services but they don’t have the same market incentive structure that a for-profit company does.
Physician availability and compensation are largely determined by organizations and regulatory processes far removed from local care settings.
In rural areas, there is often no competition. We feel lucky to have a single provider of any service.
With treatments and drugs, the patient – the consumer – rarely gets to make the tradeoffs among options. Someone else weighs cost and value.
Other high-income countries, including all of Europe, don’t have a market-based system. Instead, they have either nationalized health care (the government runs all the hospitals and employs the providers) or tightly-regulated systems with government-set prices. The U.S. spends much more per person – about 2 and a half times as much as the Organisation for Economic Co-operation and Development (OECD) average, according to that organization – and has lower life expectancy and higher preventable mortality than the average as well. So it is not surprising that many people press to go to a European-style health care management system.
But there are reasons why we got here: the U.S. public tends to distrust government; there are powerful influence groups involved; we grew an employer-based system that is hard to replace; we look to the market for more innovation than the government can produce; and with a population of 330 million people, there is a lot of concern about the price tag of nationalizing health care or health insurance. At a minimum, it would be hugely disruptive and the rewards are debated. We need to fix this system or change it, and there are strong voices on both sides.
What we can do about it.
Enact reforms that take the costs we pay for health care down several notches, and then constrain health care cost growth – for the government as well as for our households – under normal inflation. This will be a long term, evolving effort, and it starts with:
Slow the growth of health care costs by restoring competition within medical services (hospitals and physician services):
Establish site neutral payments for government programs (Medicare and Tricare) and insurers. This initiative makes sure that they pay the same amount for a medical service regardless of where it is delivered (e.g., in a hospital outpatient department, a physician’s office, or an ambulatory service center). Along with this, limit hospital facility fees charged for services that do not require hospital-level services.
Strengthen and enforce anti-trust and anti-monopoly measures to oppose and reverse the trend toward vertical integration (hospitals buying up physician practices so they can eliminate competition and charge higher fees).
Ban anti-competitive contracting clauses between hospitals and insurers.
Expand the CMS statutory authority to establish and update physician service payment rates using transparent, data-driven methods. Increase their authority to adjust relative value units and conversion factors based on clinical complexity, resource use, and access needs across localities and specialties.
Phase in these reforms, protecting rural and other underserved communities. Look at providing targeted subsidies where the higher costs are really needed to support access to health care. As part of that effort, reform the 340B drug pricing program.
Support transparency initiatives:
Support comparative effectiveness research (CER). CER is the systematic, evidence-based comparison of different medical treatments, drugs, tests, or care strategies to determine which options work best for which patients and under what circumstances. It evaluates real-world outcomes (including effectiveness, benefits, harms, and sometimes costs) to help patients, clinicians, and policymakers make informed decisions about the most effective care. As an example, consider antidepressants. In even one class of antidepressant – selective serotonin reuptake inhibitors (SSRIs) – there are multiple brands and formulations available on the market. Which type(s) of SSRI work best for patients with different characteristics? How does the effectiveness of various antidepressant drugs compare with that of other modes of treatment, like psychotherapy, light therapy, or transcranial magnetic stimulation (TMS)?
Along the same lines, support clinical appropriateness reporting and Choosing Wisely initiatives to highlight low-value physician services.
Hospital pricing transparency. Require hospitals to publicly disclose the real, negotiated prices they pay for drugs and the prices they bill to insurers and patients, so consumers and payers can see and compare actual drug costs rather than hidden, inflated charges. Beyond drugs, require hospitals and insurers to disclose actual negotiated rates and allowed amounts for every payer for services.
Reduce costs for prescription drugs:
Fund basic research for methods and technologies that lower the costs of discovering, developing, testing, and mass-producing drugs and medical devices.
Reform patent protection laws to enable earlier entry of generics and biosimilars into the market. Crack down on patent thickets, ever-greening, and misuse of the FDA’s Risk Evaluation and Mitigation Strategies (REMS) program to block or delay generic competition. Buy out patents on targeted high-use, high-cost drugs. Support nonprofit or public manufacturing for critical generics (low-margin, essential drugs prone to shortages).
Increase the list of drugs for CMS price negotiations.
Reform pharmacy benefits management to require rebate pass-through, ban spread-pricing, regulate self-dealing, and increase transparency of drug costs to patients and insurers.
Explore ways to spread some costs for new pharmaceuticals across the OECD. The OECD has 38 member countries, including the U.S., and a combined population of 1.39 billion people (that’s the U.S. population plus about a billion). The U.S. pays roughly 2½ to 3 times as much on average as other OECD countries for brand name prescription drugs. A reasonable estimate is that the U.S. spends roughly $250–300 billion more each year on prescription drugs than we would if we paid average OECD prices for the same ones. This is not a recommendation to pile on to any one other country or a small subset, but to better spread the costs over a larger population.
Establish an Excess Pharmaceutical Profit Surtax (EPPS). Pharmaceutical companies put a lot of money into new (or copycat) drug development, which benefits us broadly. That said, big-name pharmaceutical firms tend to earn much higher returns than the average large company, often around double typical corporate returns. An EPPS would target only very high-margin brand name manufacturers in which the return on invested capital is double or more the standard profits. Revenue generated would be used to lower Medicaid and Affordable Care Act (ACA) costs.
Patch the insurance marketplace through surtax revenue:
The expiration of enhanced government subsidies has insurers increasing premiums to account for a less healthy pool of subscribers. The prediction is that when people have to pay 75% (in Idaho) to 114% (estimated average nationwide) more out-of-pocket for health care, many healthier people will decide not to get health insurance. That leaves the insurers with a greater proportion of higher risk people than they had before, and is expected to add to hospital costs also. (Uninsured people may wait until they are very sick then go to the emergency room. When the hospital can’t collect a fee from them, it is passed on as higher costs to those who are insured.) Bottom line, the healthy drop out and the sicker people hang in there and pay, and the cost of health insurance goes up for everyone. With the 2026 marketplaces open, we will soon see how many people and from what income levels drop their coverage. Over time, we will see if the predicted rolling effects come true: the remaining insured are less healthy, driving costs up, which means more people leave, driving costs up even further. While we attack the medical factors that keep increasing the cost of health care (hospital, physician, and drug costs), we also need to provide a subsidy bridge to keep health insurance affordable for the most people possible. I propose we use the pharmaceutical surtax described above to restore as much of the expired subsidies as we can.
What will this all add up to?
Some of the proposals above are under consideration in some form by Congress, and there are a few for which the Congressional Budget Office has scored the anticipated financial impact. In general, these reforms could slow the growth of health care costs for the government and for the people by 5-10%, so that by 2033 we would end up with national healthcare expenditures around 18-19% of GDP (up from 17.6% in 2023). Still too high, and we need to keep finding reform opportunities and to support the states as they implement reforms as well.