Improving Health Care & Health Insurance

Improving health care and improving health insurance are related goals, but they are not the same project. Health insurance determines how medical costs are pooled and who bears them, while the health care system determines what services are delivered, where they are delivered, how providers are paid and what prices are charged. Changing the insurance side can alter incentives and financial protection, but it cannot by itself fix expensive provider markets, fragmented care or poorly designed payment rules.

The distinction matters because a reform that reduces insurance spending is not automatically an efficiency gain. Spending can fall because care becomes less expensive, because low-value services are avoided, or because patients simply receive less care after more of the bill is shifted to them. Those outcomes have different consequences. A useful reform agenda therefore has to ask whether a change lowers the cost of producing or purchasing care, improves outcomes for a given level of spending, or merely moves costs from one payer to another.

Improving costs starts by separating price, use and value

U.S. health spending is large enough that small percentage changes translate into substantial amounts of money. CMS reports that national health expenditures reached $5.3 trillion in 2024, or $15,474 per person, and accounted for 18.0% of gross domestic product. Private health insurance represented 31% of national health expenditures, Medicare 21%, Medicaid 18% and out-of-pocket spending 11%.^[1] That mix is one reason there is no single payer, insurer or government program that can be treated as the sole cause of high spending.

Health spending can rise because the price of a hospital stay, physician service or drug increases, because people use more services, because the population ages, because new treatments become available, or because care moves into settings that are paid more for providing similar services. Administrative expense and insurer margins also matter, but they sit on top of a much larger claims base. Effective reform needs to identify which part of the spending equation it is trying to change before deciding that a particular premium, deductible or insurance rule is the problem.

Value adds another dimension. A more expensive treatment can be worth its cost when it materially improves survival or quality of life, while a cheaper service can still be poor value if it is unnecessary or ineffective. The goal should not be to minimize medical spending regardless of consequences. It should be to avoid paying more than necessary for useful care, reduce care that provides little benefit, and maintain access to services whose health value justifies their cost.

Health insurance is part of the cost equation, but not the whole equation

Health insurance changes how people experience medical prices. Instead of paying the entire negotiated cost when care is received, enrollees pay premiums in advance and then share some claims through deductibles, copayments or coinsurance. The insurer pays the covered balance subject to the plan’s rules. That arrangement protects households against large, uncertain expenses and makes expensive treatment financially possible for people who could not otherwise pay the full bill when they become sick.

Insurance also reduces the patient’s sensitivity to the full price of care once coverage begins paying a substantial portion of the claim. Economists describe this as moral hazard, although the term does not imply bad behavior. A person who faces $50 of a $1,000 service will make a different purchasing decision from someone who must pay the full $1,000. The same effect can apply to clinicians and facilities when patients have little reason or practical ability to compare the negotiated prices behind their cost sharing.

That does not mean the solution is to remove insurance from ordinary care. Patients frequently lack the information, clinical knowledge or time to behave like buyers in a conventional retail market, especially during emergencies or serious illness. Even for scheduled care, provider networks and negotiated prices can make the real cost difficult to know in advance. Insurance design can create useful price signals, but asking patients to bear more of every bill is a blunt substitute for making the underlying care more efficient.

The older argument that insurance itself is responsible for runaway spending also overlooks what is covered by these policies and how coverage is structured. A benefit package that pays for high-value chronic care, evidence-based preventive services and major medical events presents a different economic trade-off from one that pays generously for services with weak evidence of benefit. Reform therefore has to examine both the financial protection provided by insurance and the incentives created by the specific services, networks and payment rules inside the plan.

Provider prices and market power deserve more attention

Premiums reflect the claims that insurers expect to pay, so high prices charged by hospitals and physician groups eventually work their way into the cost of coverage. The Congressional Budget Office has found that commercial insurers pay substantially higher prices, on average, for hospital and physician services than Medicare fee-for-service pays, with the gap particularly large for hospital services. CBO also identifies provider market power and limited price sensitivity among consumers and employers as important contributors to high commercial prices.^[2]

This changes the reform discussion. If an insurer negotiates a hospital service from $20,000 to $15,000, the claim becomes cheaper even if the patient receives exactly the same amount of care. If the insurer instead raises the deductible by $5,000 while the negotiated price stays at $20,000, some of the insurer’s immediate spending is shifted to the patient, but the underlying service has not become less expensive. Premiums can still benefit if utilization changes, yet the mechanism is very different.

Provider consolidation can complicate negotiations because a hospital system or physician group with few local alternatives may have greater bargaining leverage over health plans. An insurer that excludes a dominant system might offer lower premiums but a network that many employers or consumers find unattractive. Including that system can preserve access and choice while accepting higher negotiated prices. Competition policy, contracting rules and the structure of local provider markets therefore matter to health insurance costs even though they sit outside the insurance policy itself.

Payment differences across settings also deserve scrutiny. A service that can safely be provided in a physician office, ambulatory center or hospital outpatient department does not necessarily have the same resource cost in each location. When payment arrangements reward moving routine services into a higher-paid setting without a corresponding improvement in outcomes, spending can increase without creating additional value. Reforming those incentives is more direct than expecting patients to recognize and correct the difference through cost sharing alone.

Better benefit design means targeted cost sharing, not simply more cost shifting

Deductibles and other forms of cost sharing have a legitimate role because insurance does not need to reimburse every predictable or affordable expense to protect against financial risk. Requiring patients to pay part of a claim can also make price differences more visible. The difficulty is that a deductible usually distinguishes services by when they occur in the year and how much the patient has already spent, not by how valuable the service is.

A high deductible can discourage an unnecessary test, but it can also discourage a useful follow-up appointment, a prescription refill or an evaluation that would have identified a worsening condition early. The patient often cannot know in advance which category a service will fall into. Better benefit design tries to preserve protection for services with strong clinical value while still giving enrollees reasons to consider price when there are genuine alternatives.

That approach can involve lower cost sharing for selected medications or services that are important to managing chronic disease, paired with stronger incentives to use efficient providers when the service is reasonably shoppable. It can also involve reference pricing, tiered networks or other designs that make the enrollee’s cost depend partly on the provider selected. Each approach creates trade-offs because a narrower or more selective network can lower costs while also restricting access to clinicians or hospitals that some patients prefer.

The same reasoning applies to minor expenses. Moving every small claim outside insurance can reduce claims-processing activity, but it can also weaken negotiated-price protections or create affordability problems for lower-income households when several modest expenses arrive together. The relevant question is not whether a service is small in isolation. It is whether the benefit design protects against meaningful financial risk while encouraging efficient use where patients have a realistic ability to choose.

Insurance should make price and quality information easier to use

Price transparency is most useful when it gives people information they can act on before receiving care. A list of charges is less helpful when the amount has little connection to the insurer’s negotiated rate or the patient’s actual responsibility. For scheduled imaging, laboratory work, outpatient procedures and other services with multiple local options, a plan can make comparison more meaningful by showing the allowed price, estimated out-of-pocket cost, network status and relevant quality information together.

Even good transparency tools have limits. Many expensive medical events are not shoppable, and patients facing serious illness may reasonably prioritize clinical expertise, continuity of care or a specialist recommendation over the cheapest available provider. Quality is also difficult to summarize in a single score because the measures that matter for one procedure or condition may be irrelevant for another. Transparency should support decisions where choice is practical rather than being treated as a substitute for better contracting and payment policy.

Employers and other plan sponsors also need usable information because they select or finance coverage for large groups of people. Better data can help them evaluate whether a network is actually buying care efficiently rather than merely obtaining nominal discounts from high list prices. A 50% discount is not impressive if another comparable provider starts from a much lower negotiated amount. Plans become easier to compare when the focus moves from the size of a discount to the actual allowed prices, expected total spending and quality of care.

Payment incentives should reward coordinated care, not just more billable services

Traditional fee-for-service payment rewards the delivery of individual billable services. That model is straightforward and can support access, but it does not automatically reward a provider for preventing a hospitalization, coordinating with another clinician or choosing a less expensive treatment that produces the same outcome. In some situations, doing more generates more revenue even when the additional service adds limited value.

Alternative payment models try to change that incentive by holding groups of providers responsible for a broader measure of cost and quality. Accountable care organizations, bundled payments and episode-based arrangements use different methods, but the common idea is to give providers a financial reason to coordinate care and avoid unnecessary spending rather than being paid only for the volume of separate services. These models are not guaranteed to save money, and poorly designed benchmarks can reward providers for changes that would have happened anyway.

Care coordination is particularly important for people who see several clinicians or manage multiple chronic conditions. Duplicate testing, incompatible treatment plans, medication problems and preventable transitions between settings can result when nobody has responsibility for seeing the whole picture. Better information exchange and clearer accountability can improve care even when the reform does not visibly change the patient’s insurance card.

Primary care can play a central role because it is often the point where prevention, chronic disease management, specialist referrals and follow-up come together. Strengthening access to primary care does not mean assuming that every additional office visit reduces total spending. It means designing payment and staffing so that clinicians have the capacity to manage problems early, coordinate with specialists and direct patients to the right setting without relying on a sequence of disconnected encounters.

Prevention matters when it is evidence-based

The old version of the health-care debate often sets prevention against treatment, as if conventional medical care focuses only on disease after it appears. That framing is too broad. Modern health care already includes vaccination, screening, risk-factor management, counseling and preventive medication alongside acute treatment, surgery and chronic disease care. The real policy question is which preventive interventions improve outcomes enough to justify their costs and how insurance should encourage their appropriate use.

Prevention should not be sold as a promise that every dollar spent today will produce more than a dollar of savings later. Some interventions can avoid expensive disease or complications, while others primarily create health benefits that are worth paying for even if total medical spending does not decline. The financial case and the clinical case therefore need to be evaluated separately. A service can be valuable without being cost-saving, just as a cheap service can be poor value when it offers little benefit.

Health plans can contribute by reducing financial barriers for selected evidence-based preventive care, supporting chronic disease management and using claims data to identify gaps in care. Providers still need clinical discretion because population-level recommendations do not fit every patient in the same way. Insurance policy should encourage appropriate prevention without turning a broad idea such as wellness into an excuse to pay for interventions whose benefits are uncertain.

Health insurers still need stronger incentives for efficiency

Health insurers are businesses, and administrative efficiency matters because premiums finance more than medical claims. Enrollment systems, customer service, claims processing, fraud prevention, utilization management, provider contracting, commissions and other operating costs all consume resources. It is therefore reasonable to examine the money that health insurance companies make, but premium revenue should not be confused with profit.

For many private health plans, current federal medical loss ratio rules require issuers to spend at least 80% or 85% of premium revenue, depending on the market, on medical care and quality improvement, with rebates required when the applicable standard is not met.^[3] The rule constrains how much premium can be retained for administration and other purposes, but it does not solve the underlying problem of high medical claims. An insurer can satisfy the ratio while premiums remain expensive because hospital, physician or drug spending is high.

This creates a more precise way to think about insurer incentives. Plans have reasons to negotiate lower provider prices and manage unnecessary utilization because doing so can make premiums more competitive, yet they also operate in markets where employers and consumers may value broad networks and low friction more than the lowest possible claims cost. A plan that aggressively excludes expensive hospitals or uses strict prior authorization can reduce spending while creating access problems or administrative burdens for patients and clinicians.

Improvement therefore requires more than demanding that insurers deny more claims. Prior authorization and utilization review should focus on situations where they are likely to prevent low-value or unsafe care, with clear rules and timely decisions. Administrative processes that repeatedly request the same information, delay routine treatment or shift clerical work to medical practices can consume resources without improving outcomes. Efficiency means reducing waste on both the medical and administrative sides of the claim.

Insurers also have information that individual patients do not. Claims data can reveal price differences, repeated services, patterns of preventable hospital use and gaps in chronic care across large populations. Using that information well can improve network design and care management, but the measures need to reward outcomes rather than simply lower short-term claims. The broader various aspects of health insurance should be evaluated together because a change that looks efficient in one part of the system can create cost or access problems somewhere else.

Reform has to preserve access and financial protection

One of the easiest ways to reduce an insurer’s claims is to make coverage less generous, raise cost sharing or restrict the provider network. Those changes can produce legitimate savings when they steer people toward efficient care, but they can also reduce valuable care or transfer financial risk back to households. A reform should therefore be judged by what happens to total spending, health outcomes, access and household exposure rather than by the insurer’s claims expense alone.

Catastrophic protection is especially important because the largest medical expenses are precisely the ones most households cannot self-finance. Insurance that leaves routine costs largely with the patient can still perform that function if the deductible and out-of-pocket limit are affordable relative to the household’s resources. For lower-income families, however, a deductible that looks manageable as a percentage of a medical bill can still represent a large share of available cash, which makes nominal insurance coverage less protective in practice.

Network design presents a similar trade-off. Selective networks can give insurers more bargaining leverage and direct patients to providers that offer better combinations of price and quality. A network becomes problematic when it is too thin to provide timely access, omits important specialties or forces patients to travel unreasonable distances for care. Lower prices achieved by genuine competition are different from savings achieved by making covered care difficult to obtain.

Reform also needs to recognize that patients are not equally able to navigate complex insurance rules. People dealing with serious illness, cognitive limitations or complicated family circumstances may have less capacity to compare providers, appeal denials or manage multiple bills. Simpler benefit designs, accurate provider directories, clear explanations of benefits and effective appeals processes are not peripheral consumer conveniences. They determine whether the financial protection promised by the policy can actually be used.

What improvement looks like in practice

Improving health care and health insurance is unlikely to come from one dramatic change. The largest opportunities sit in different parts of the system: paying more sensible prices for care, preserving competition among providers, designing benefits around value rather than indiscriminate cost shifting, improving coordination, reducing low-value services, simplifying administration and giving patients useful information when they have a genuine opportunity to choose. Each reform addresses a different source of cost or friction.

The insurance system should remain focused on pooling risks that would be difficult for households to bear alone while also supporting access to high-value care that is likely to be delayed when patients face the full price. That does not require insurance to pay every dollar of every service. It requires benefit design to distinguish financial protection from convenience and to use cost sharing where it helps people make meaningful choices rather than where it simply discourages care.

Providers and insurers also need incentives that make efficiency financially worthwhile. A hospital should not earn more merely because a routine service moves into a more expensive setting, and an insurer should not rely on opaque complexity to make a plan appear cheaper than it is. Employers, government programs and individual buyers need to be able to compare actual prices and total costs, while payment models should reward coordination and outcomes without making access dependent on aggressive underuse.

Consumers cannot fix the system by themselves, but they still make decisions within it. When choosing coverage, the premium should be considered alongside the deductible, out-of-pocket limit, network, prescription coverage and likely cost of the care a household expects to use. When care is scheduled and comparable alternatives exist, asking about the negotiated price and lower-cost settings can be worthwhile. These decisions work best when insurers and providers supply accurate information rather than expecting patients to reconstruct the economics of a claim after the bill arrives.

The most useful standard for reform is therefore not whether it makes the role of insurance larger or smaller. A better system is one that buys necessary care at defensible prices, protects households from medical costs they cannot reasonably absorb, limits administrative friction and gives providers reasons to improve outcomes rather than simply produce more billable activity. Health care and health insurance need to be improved together because each shapes the incentives and costs faced by the other.