Why US Healthcare Prices Differ From Peer Nations

Americans do not consume more health care than people in other wealthy countries. They pay more for each unit of it. That finding has held up across two decades of comparative research, and it reframes the entire question: the United States does not have a demand problem that could be solved by making patients use less care. It has a price problem, and prices are set by the structure of who buys and who sells.

Prices, not volume

The Peterson-KFF Health System Tracker has examined this repeatedly, and the conclusion is consistent. Higher prices, rather than higher utilization, explain why the United States spends so much more on health than other high income countries. Utilization in the United States, measured across doctor visits, hospital admissions, and surgical procedures, is generally lower than in comparably wealthy nations.

Lower use and higher spending can only both be true if the per unit price is much higher. It is.

The size of the gap

Peterson-KFF comparisons have put U.S. health spending at nearly twice the per person level of comparable countries, roughly $13,400 per person against about $7,400 across the comparison group. The difference works out to several thousand dollars per person per year, and almost 80 percent of that gap comes from inpatient and outpatient care rather than from drugs, administration, or long term care taken separately.

That last detail is worth pausing on, because the public conversation focuses on drug prices. Pharmaceutical spending is higher in the United States, but hospital and physician services account for the large majority of the difference.

Nobody negotiates as a single buyer

The structural cause sits in the buying side. Most peer nations negotiate prices centrally, either through a single payer, a national fee schedule, or an all payer rate setting system in which every insurer pays the same rate for the same service. The buyer is large and the price is one number.

The United States has thousands of separate payers negotiating separately with thousands of separate provider systems. Every combination produces its own negotiated rate, which is why the same procedure at the same hospital carries different prices depending on the insurance card. Fragmentation reduces the bargaining power of each individual buyer, and a provider system negotiating against many small buyers extracts a better price than one negotiating against a national payer.

No global budget and no reference price

Peer systems typically operate under some form of budget constraint at the system level, whether a global hospital budget, a national fee schedule, or a reference price against which everything else is set. The United States has none of these for the commercial market. Medicare rates function as an informal benchmark, but commercial rates routinely run well above them and are not bound to them.

Consolidation on the selling side

Provider markets have concentrated substantially over the past two decades, through hospital mergers, hospital acquisition of physician practices, and the growth of multi hospital systems. Health economics research has consistently found that greater provider concentration is associated with higher negotiated prices in commercial markets.

The mechanism is straightforward and does not require anyone to behave badly. An insurer selling a plan in a region must include the dominant health system in its network or the plan is unsellable. A system that is required to be in network negotiates from a stronger position than one that can be excluded. This is a structural description of a market, not a claim about the conduct of any particular institution.

The cost of complexity

Administrative spending is higher in the United States than in peer systems, on both the payer side and the provider side. The reason is the fragmentation described above: thousands of payers with different rules, formularies, prior authorization requirements, coding conventions, and appeals processes mean every provider maintains staff whose entire function is billing and negotiation with insurers, and every insurer maintains staff to adjudicate against them.

That overhead is real spending on real salaries, and it buys no clinical care. It is the direct price of having a system with many buyers and no common rulebook.

What the structure costs a household

System level prices land on ordinary budgets through the premium. KFF’s 2025 Employer Health Benefits Survey put the average annual premium for employer sponsored family coverage at $26,993, up 6 percent from 2024, with covered workers contributing an average of $6,850 from their paychecks. Single coverage averaged $9,325. The same survey found the average general annual deductible for single coverage at $1,886, with 34 percent of covered workers in a plan carrying a single coverage deductible of $2,000 or more.

Higher unit prices flow through to premiums and deductibles because that is the only place they can go. Organizations working on household affordability, Fight For A Living Wage among them, group health costs with housing and childcare for exactly this reason: a household experiences all three as one number at the end of the month, regardless of which policy debate each belongs to.

What follows from a price diagnosis

Getting the diagnosis right narrows the plausible interventions. If the problem were overconsumption, cost sharing would be the fix, and higher deductibles would be the right policy direction. The comparative evidence does not support that: utilization is already lower than in peer countries, and raising patient cost exposure reduces necessary and unnecessary care at similar rates because patients cannot reliably distinguish them in advance.

If the problem is prices, then the interventions that matter operate on how prices get set: consolidating purchasing power, setting reference prices, constraining rate growth, or increasing price transparency enough for the market to function as a market. Those are contested policy questions with real tradeoffs on each side, and reasonable people land differently on them.

The diagnosis itself is not especially contested. Americans use less care and pay more for it, and the reason is the price per unit, not the number of units.