Three major forces pushing health care costs higher

Health care spending in the United States is expected to keep rising, at roughly 6% per year for more than a decade. If the industry wants to slow that climb, it has to focus on what is actually driving the increase.

For a long time, cost control has centered on “utilization,” meaning how much care people use. Over the last 20 years, the system has also invested heavily in chronic care programs, value-based contracts, and preventive care. The goal has been to use care more wisely and improve affordability.

But there is a problem with the “it’s all overuse” explanation. The United States spends far more per person than many similar countries, yet Americans do not use dramatically more care. Hospital stays are not longer on average. There are not unusually high numbers of discharges. Doctor visits per person are not higher either. So higher use by itself does not fully explain why spending keeps rising.

Some people point to aging as the main reason. The population is getting older, and that will require new ways to care for seniors. Still, aging explains only a portion of projected cost growth. The larger driver is unit cost, meaning what it costs to deliver care and what it costs to consume it.

That may sound like bad news, but it is actually a solvable problem. If unit cost is the biggest driver, then the industry has real leverage. It can change how work is done, how systems run, and where money flows. Three areas stand out.

1) Labor-heavy care delivery is reducing efficiency

Most care today takes a lot of people. Many of them are highly trained. Too often, those clinicians spend time on paperwork or low-value tasks instead of patient care. That wastes expensive skills and adds friction to the system.

Looking ahead, health care is projected to need new workers at a pace far faster than the rest of the economy. That is not sustainable. The system has to reduce how labor-intensive care is. It needs better staffing models, better tools, and clearer task division so people can work at the right level of skill.

2) Administrative costs keep growing and add weight to the system

Health care has not become more efficient as it has grown. Administrative spending continues to rise alongside clinical spending. In many cases, “new innovation” also creates new admin work, which cancels out savings.

Medicare Advantage is a useful example. It has supported new care models and better patient outreach. At the same time, it has helped expand large, costly back-office functions like coding and quality reporting. If leaders do not stop this cycle, administrative costs will keep climbing and will keep pushing overall spending up.

3) Drug spending is rising fast, especially specialty drugs

High-cost specialty drugs have grown quickly. They now make up a large share of total drug spending, much higher than they were a decade ago. This trend is expected to continue.

Medications can be cost-effective compared with hospital care or procedures. The issue is that drug costs are not replacing other spending at scale. Instead, they are often being added on top of existing costs. That compounds the problem. If nothing changes, drug spending could squeeze budgets, reduce access, and push the system toward a breaking point.

The cost curve will not bend without hard choices

The industry will need major changes to slow these trends. Not everyone will benefit equally from those changes. Some parts of the system will feel pressure. Still, without action, the alternative is worse: higher costs, less access, and poorer outcomes for many people.

Why innovation needs to happen now

Health care can change quickly when it has to. The COVID-19 pandemic proved that. Vaccines were developed at record speed. Telehealth expanded fast. Care moved to settings that made more sense for many patients.

Beyond that, pilots have shown that updating legacy processes, changing staffing models, and improving pricing methods can save money without harming outcomes. New tools also widen the opportunity. Artificial intelligence, better diagnostics, and smarter workflows could reshape how work gets done and how patients move through care.

Why lowering costs matters for the future

Affordability is not just good for patients. It is also essential for long-term stability and competitiveness. Many current business models rely on hidden fees or services that are not clearly different from competitors. Those models are vulnerable as new options enter the market and as buyers demand more transparency.

As cost pressure rises, affordability will become a basic requirement to compete. That is why cost reduction has to move from a side project to a top priority for every major player in the health care ecosystem.

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