Why US health care costs stay high: Subsidies, profits and elections

The U.S. health care system is a paradox. In 2021, health care spending accounted for 18.3% of U.S. GDP, compared to 8.8% to 12.8% of GDP in other developed nations. However, health care remains unaffordable for many Americans. As the 2024 elections approach, it’s crucial to examine how political influence, corporate profit motives and past reforms are shaping the health care landscape.

The U.S. government spends vast sums to subsidize and support the health care industry. Medicare and Medicaid alone accounted for $1.5 trillion of federal spending in 2022, providing coverage to more than 135 million Americans. The Affordable Care Act provides billions more in subsidies to help Americans afford private insurance, and pharmaceutical companies benefit from billions of dollars in research and development support through the National Institutes of Health. 

Despite this substantial financial support, patients continue to face rising costs. The average annual premium for family health insurance coverage through an employer was $22,463 in 2022. Prescription drug costs have skyrocketed as well — Americans spent nearly $1,500 per capita on medication in 2021 — roughly double the amount spent in other developed countries. But these subsidies are largely nullified by health care companies motivated mainly by profit, with some of the largest insurance providers and pharmaceutical companies reporting billions in profits year after year.

This absurd and unsustainable disparity is a direct result of the extensive lobbying of health care corporations. In the 2022 midterms, the health care industry spent more than $700 million on lobbying, with health insurance companies contributing a significant portion. In the 2024 election cycle, large insurance companies are once again pouring millions of dollars into political campaigns to ensure that any meaningful health care reform remains off the table.

Health insurance companies, pharmaceutical giants and hospital groups are all deeply invested in maintaining the status quo. Because many candidates on both sides of the political aisle receive significant support from these corporations, it is difficult for them to champion reforms that would threaten corporate profits. It’s no secret that the health insurance industry is among the biggest spenders in Washington. In 2022 alone, Blue Cross Blue Shield spent $28 million on lobbying efforts, while pharmaceutical companies such as Pfizer and Amgen contributed nearly $22 million to lobbying campaigns.

However, there have been significant health care reforms that have had a positive impact. One of the most significant was the ACA, passed during the Obama administration. The ACA’s most popular provision was its protection for individuals with preexisting conditions, which has benefited an estimated 133 million Americans. Before the ACA, millions of Americans were denied coverage or charged unaffordable premiums simply because they had a health condition like diabetes, cancer or heart disease. The ACA also expanded Medicaid, providing health coverage to more than 24.5 million low-income Americans.

The Biden administration has also made significant strides in reducing drug prices. For example, under the Inflation Reduction Act of 2022, insulin prices were capped at $35 per month for Medicare recipients, which provided critical relief for nearly 3.3 million seniors. The administration is also negotiating the prices of other drugs for Medicare recipients, which is expected to save billions in health care costs over the next decade.

Unfortunately, these hard-won reforms are under constant threat. Pharmaceutical companies are fighting back against the Biden administration’s efforts to lower drug prices, claiming that price controls will stifle innovation, as that much of global medical innovation occurs in the U.S. where higher drug prices fund research and development. However, institutions not funded by private profits like the NIH contribute significantly to early-stage research, and other countries with price controls, such as Germany and Switzerland, still foster medical innovation. Striking a balance between promoting innovation and keeping medications affordable is possible, as demonstrated by these countries.

The U.S. health care system is designed to prioritize corporate profits, and political influence from health insurance providers has stymied meaningful reform. By electing leaders who prioritize the well-being of the people over corporate interests, we can push for real change. True reform can only happen when the needs of patients come before the profits of corporations.

Seth Gabrielson is an Opinion Analyst who writes about the intersection of politics, science and philosophy, while studying physics, philosophy, aerospace engineering and German. He can be reached at semiel@umich.edu.

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