Hospital and drug prices drive the rise in employer health premiums, STAT finds

"If you're thinking of it very simply as price times quantity equals health spending, the bigger thing we need to fix is the price component, not the quantity component," said Irene Papanicolas, a health economist at Brown University ^[7]. Both sides of the premium fight accept that identity. They disagree about which term has moved.

Industry lobbyists point to smaller price increases in recent years and to higher use of care, citing data STAT describes as incomplete ^[5]. The researchers STAT spoke to answer that even tiny increases on high prices still add to the system's cost ^[6]. Both claims can be true at once. The lobbyists are describing the change from one year to the next. The researchers are describing the starting level. A year in which visits grew faster than prices leaves the price level where it was.

That level is high. Research cited by STAT shows hospitals and drug companies billing employers and workers more than double what Medicare pays for the same services and medicines, and frequently much more ^[4]. On any service billed at more than twice the Medicare rate, more than half of the bill sits above what Medicare would pay. Paying Medicare's rate at the same volume would cut spending on that service by more than half ^[1]. That holds only if volume stays the same after prices fall.

Insurers set premiums mostly on the care their members receive ^[2]. STAT's finding is that prices charged across the industry, more than how often people go to the hospital or the doctor, are the biggest driver of what that care costs ^[1]. The article does not give a percentage split between price and use. For a decomposition, that split is the effect size. It is also descriptive: it shows where premium dollars went, and a forecast of what a price limit would save needs a separate test.

Gerard Anderson, a Johns Hopkins professor, helped design Medicare's hospital payment system in the 1980s ^[17]. He co-wrote a paper in 2003, and again in 2019, that named the culprit behind America's outlier spending: "It's the prices, stupid." ^[8] "Some things don't change," he told STAT ^[9]. He said one thing has changed. State policymakers and employers that he and others work with are signaling openness to government intervention to curb health care costs, an idea STAT calls normally anathema in the private sector ^[10]. That account is Anderson's, drawn from conversations he takes part in.

Dirk Visser, the retired founder of Allegiance Benefit Plan Management, which handles health insurance administration for employers, put the buyers' position more bluntly. "It never ceases to amaze me, and it still shocks me, the naivete that there is in the C-suites of many of the companies in America that don't get how bad they're being overcharged by some in the medical industrial complex and the payer industry," he said ^[13].