Health Care Cost Drivers and Options for Control

The growth of health care costs remains a serious concern in the United States. Slowing this growth involves understanding what drives health care costs and how to target those drivers effectively. In this brief, we review the relative importance of different health care cost drivers, including insurance benefits design, price inflation, provider incentives, technological growth, and inefficient system performance. We analyze the impact of these factors on the growth of health care spending in the last decade, which has been concentrated in hospitals and felt most acutely in the private market. We find that unit prices and technology remain the most important cost drivers of this recent growth. In reviewing public and private payer initiatives that target health care costs, we find that some have yielded modest results, but the evidence on most strategies is inconclusive or mixed. Designing and implementing effective interventions to slow cost growth remains a challenge, particularly in the privately insured market, where premiums have risen considerably in the last decade.