Hospital Prices Are the Problem. Everyone Knows It. Few Will Say It.

America’s Health Insurance Plans, the “AHIP,” of all people, just published a roundup of expert opinion pointing the finger directly at hospital prices as the root cause of the healthcare affordability crisis. I’ll take the data where I can get it, even when it comes from the insurance lobby. Because the data is right, even if the pot is calling the kettle black.

Hospital spending is now the largest single component of insurance premiums, and it has surpassed $1.6 trillion nationally. That number is the product of decades of anticompetitive consolidation, wildly inconsistent rates for identical services, opaque black-box pricing, and a growing private equity presence within hospital systems.

A Families USA analysis covering pricing data across 49 states and Washington D.C. said it plainly: the more hospital chains consolidate, the higher prices Americans pay, in their premiums and their out-of-pocket costs. This is not a new finding. It adds to decades of consistent evidence.

Yale health economist Zack Cooper wrote in a New York Times op-ed that hospital prices are the leading driver of the 320% increase in insurance premiums Americans have absorbed over the past 25 years. Since 2000, hospital prices have grown faster than any other sector of the economy. Faster than housing. Faster than college tuition. Faster than almost everything people already complain about not being able to afford.

On the nonprofit angle, Scott Hodge of the Tax Foundation made a pointed case in the Washington Post that nonprofit hospitals have grown into a $1.3 trillion industry, generating nearly $45 billion in tax-free profits. Economists found that 86% of nonprofit hospitals did not provide more charity care than the value of their tax exemption. Yep, they take our tax breaks and then charge us four to ten times their costs to provide us care. Their general and administrative wage expenses run 26% higher than comparable for-profit hospitals.

The Paragon Health Institute found that prices for hospital services increased by 281% over recent years, outstripping housing, child care, and college tuition.

None of this is a surprise to anyone who has spent time in a self-funded plan design. It is exactly what reference-based pricing addresses. The hospital charge master is a fiction, and the commercial rates negotiated off of it are a ripoff negotiated from a fiction. The only honest price signal in this market is one anchored to something real, like 125% to 150% of Medicare, and enforced by a plan willing to hold the line.

Basing hospital prices on Medicare plus a modest markup is the most reasonable, fair, and logical approach because Medicare already reflects a nationally standardized payment system built from service costs, labor inputs, and geographic adjustments rather than whatever a hospital chooses to charge. It preserves a hospital’s ability to cover real operating costs and earn a reasonable margin, while setting a clear ceiling that limits extreme price variation, reduces hidden cross-subsidies, and gives employers, patients, and insurers a transparent benchmark.

AHIP wants policymakers to crack down on anticompetitive mergers and implement site-neutral payment reforms. Those are legitimate policy goals. But employers do not have to wait for Congress. The tools exist now. Self-funded plans, reference-based pricing, direct contracting, and a broker willing to tell the truth about how the system actually works, that is the answer that is available today, regardless of what happens in Washington.