Why is Healthcare So Expensive?

What is health insurance, and how do Americans get it?

Like other forms of insurance, health insurance is a system for spreading medical risk. Individuals pay monthly premiums, and insurers cover some or all medical costs when care is needed. For insurance markets to function, healthy people must participate alongside sicker people, allowing costs to be shared across the entire group.

In the United States, most people receive insurance through one of five channels:

• Employer- or union-sponsored insurance
• Medicare (primarily for seniors who are 65+)
• Medicaid (disabled, pregnant, and low-income individuals and families) and the Children’s Health Insurance Program (CHIP)
• Individual plans purchased directly or through Affordable Care Act (ACA) exchanges
• Active Duty and Veterans programs

Over 90 percent of Americans have health insurance, but where coverage comes from matters. It determines which doctors someone can see, which treatments are covered, how much care costs out-of-pocket, and how secure coverage is over time.

The largest share of insurance is done through employment. Medicare, which provides coverage for older Americans, is second. Third is Medicaid, which covers low-income families and people with disabilities and pays for most long-term care services for older adults, including home- and community-based care, after they have spent down their assets and then qualify for Medicaid.

Why do costs keep rising?

Americans spend far more on healthcare than residents of other wealthy countries. Today, roughly one out of every five dollars spent in the U.S. economy is spent on healthcare. Federal health care spending has grown dramatically over the last several decades, driven largely by increased expenditures for Medicare and Medicaid, and by changes in health insurance subsidies.

There are several reasons for these increases, but a few key forces have driven costs upward.

Demographic changes undeniably contribute to our overall increased costs. As Americans live longer, they require more medical care over time. Consequently, Medicare enrollment continues to grow, and Medicaid bears a greater share of the costs of long-term care for an aging population.

Fragmentation and administrative complexity add to our costs. States regulate insurance markets separately, insurers operate on a state-by-state basis, and coverage rules vary widely. Additionally, because the U.S. health care system relies on thousands of insurers, plans, billing systems, and rules, the myriad associated administrative costs account for a large and growing share of health care spending and are substantially higher than in peer countries. The fact that many health care providers are for-profit companies also increases costs to some extent.

For most Americans with employer-sponsored health insurance, the full cost of coverage is shared, with employers paying a substantial portion of the premium and workers paying the rest. A similar cost-sharing structure exists for people who buy insurance through ACA exchanges, where government subsidies cover part of the monthly premium. Before the ACA, insurers could deny coverage or charge far higher prices to people who were already sick, making insurance unaffordable or unavailable for many.

Once the ACA was enacted, healthy and sick individuals were pooled to increase overall coverage while spreading risk and lowering average premiums. To do this, government subsidies helped keep out-of-pocket costs manageable. At the start of 2026, many of the government subsidies expired. Although the current Congress is considering bills to extend subsidies, people enrolled in ACA plans are now seeing their monthly premiums increase by 25-30 percent because the government is no longer covering a share of the cost. With this said, such government subsidies were intended to be temporary as other cost-reduction options were to be further explored and implemented throughout the insurance industry.

The Takeaway  

Healthcare in the United States is expensive, not because Americans lack insurance, but because coverage is delivered through a fragmented system that depends on broad participation, shared costs, and government subsidies. When any component of that balance shifts, the overall cost of care changes.

Healthcare is also expensive because the cost of treatment reflects the infrastructure, research, and personnel required to provide the standard of care to which Americans are accustomed. In many other countries, citizens have lower costs but also longer waits for care and a narrower range of treatment options.  

At the core of every health care debate is a value question: What does society owe its members when it comes to care? For example, most Americans support Medicare for older adults, even though it is expensive, because they view care in old age as socially valuable and morally necessary.

At the same time, most care for working-age people is provided through employment, reflecting a value placed on linking medical care to individual effort. Notably, support for Medicaid is lower, reflecting a potential misperception that most Medicaid recipients are able-bodied and a value judgment that they should pay for care.