Rising health care costs are doing more than making doctor visits and prescription drugs expensive. They are also driving up the price of private health insurance, according to a new study by Yale economists Zach Cooper and Stuart Craig.
Their research found that growth in health care spending accounted for 91% of the increase in private insurance premiums between 2011 and 2024. Cooper says that means efforts to make insurance more affordable must address the underlying cost of medical care, too.
“We want to fix insurance markets,” Cooper said. “But we’ve also got to figure out how to address the cost of care.”
Cooper's Healthcare Affordability Lab has launched the 1% Steps project, which identifies 23 policy changes that researchers estimate could collectively save about $450 billion annually. The proposals aim to reduce spending without requiring a wholesale restructuring of the nation's health care system.
Hospital consolidation and drug prices
Cooper said hospital prices have increased faster than prices in any other sector of the economy over roughly the past 25 years. He pointed to consolidation in the hospital industry as one factor, including the growth of large health systems in Connecticut.
“We see it here in Connecticut, where Yale New Haven Hospital and Hartford Healthcare? have basically gobbled up all their competitors,” Cooper said.
He also cited arrangements known as “pay for delay,” in which brand-name drugmakers pay generic manufacturers to postpone bringing less expensive versions of medications to market.
Cooper said generic drugs can become 70% to 80% cheaper within a year of entering the market. Delaying that competition, he argued, benefits drug companies at the expense of patients and the broader health care system.
Small changes, potentially big savings
The 1% Steps project focuses on changes that might individually have a modest effect on spending, but could add up across a health care system that costs roughly $5 trillion annually.
One example Cooper offered is encouraging more children to get flu vaccinations at pharmacies and doctors' offices. Preventing illness, he said, can make patients healthier while reducing the need for more expensive medical care.
“We have 22 other proposals like that,” Cooper said. “Collectively they add up in a $5 trillion healthcare system. One percent change, a whole lot of money.”
Another proposal would change how Medicare pays for physician services. Cooper said Medicare pays a physician practice twice as much for certain services when the practice is owned by a hospital than when it operates independently.
He argued that eliminating that payment difference could reduce federal spending while also lowering costs for people with private insurance, because private insurers often follow Medicare's payment practices.
Cooper said the current arrangement increases spending without a clear justification and reflects the influence of lobbying by powerful health care interests.
He added that he has had productive conversations with lawmakers about the proposals, though he acknowledged that efforts to reduce spending face opposition from industry groups.
The debate over trade-offs
Cooper said the project emphasizes changes researchers believe could lower costs without reducing the quality of care. But he acknowledged that hospitals and pharmaceutical companies are likely to argue that spending cuts could threaten quality and innovation.
“I don't think there's great evidence of that,” Cooper said. “But I think we just we're going to have to accept that those arguments are going to be made if we talk about reducing spending.”
Cooper said lowering health care spending would mean less money flowing to some companies and providers. He believes that is a reasonable trade-off when the savings can be achieved without compromising patient care.
The project's broader argument is that the country does not necessarily need to overhaul its entire health care system to make it more affordable. Instead, Cooper said, policymakers could pursue a series of targeted changes that, taken together, produce substantial savings.
