Tackling High Health Care Costs

Benedic Ippolito recently testified before Congress about the importance of addressing the problem of high healthcare costs.

The high cost of health care represents a persistent challenge for consumers and governments alike. In the commercial market, the total premiums for a family plan average nearly $24,000. That number is large relative to median household income, roughly $75,000 per year, and contributes to lower wage growth and lower employment. Meanwhile, high costs in Medicare and Medicaid stress government budgets and tax bases. For example, a recent analysis shows that federal spending on Medicare, Medicaid, and ACA subsidies will exceed the entire discretionary budget in 2024—a remarkable statistic given the significant attention given to discretionary outlays.

The high costs of health care manifest in many other ways. For example, Americans hold significant levels of medical debt and report that costs are a meaningful consideration in their decisions about seeking care.

These data make it clear that there are broad benefits for lowering health costs. Every dollar saved is a dollar that can be used to raise wages, alleviate budgetary pressures, expand other non-health care programs, and much more. That does not, however, justify indiscriminate reductions to health care spending. Rather, it suggests policymakers should approach health care outlays with an appropriately critical eye and aim to identify spending that is least likely to reflect value.

The connection between health care spending and value is most tenuous when markets suffer from significant imperfections like a lack of information or choice. In such cases, there is little reason to believe resulting spending reflects the true preferences of consumers. As a result, such areas are ripe for policies that alleviate market frictions and increase cost pressures.

There are a number such areas, but I will emphasize a couple that have attracted significant, recent bipartisan interest—including in the Lower Costs, More Transparency Act which recently passed the House.