Americans are desperate for relief from rising health insurance premiums. Average annual premiums for single-coverage plans have risen from $7,491 in 2020 to $9,325 in 2025. For family plans, the cost increase was steeper, from $21,419 to $26,993 over the same period.
Massachusetts Senator Elizabeth Warren blames these rising prices on “massive health care companies,” which created “layers of complexity to jack up the price of everything from prescription drugs to a visit to the doctor.” She argues that the “only way to make health care more affordable is to break up these health care conglomerates.”
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Teaming up with Missouri Senator Josh Hawley, Warren has introduced the Break Up Big Medicine Act to stop large insurers from steering enrollees to medical providers they own.
Health-care consolidation may make for a politically convenient scapegoat, but blaming it for rising costs misdiagnoses the problem. America’s largest insurers directly employ only a tiny fraction of the nation’s medical professionals. Hospitals are responsible for the bulk of consolidation that has occurred, though the country’s most expensive hospitals tend to be in its most competitive markets.
Health insurers may not be popular, but they do not “own or control every part of the health care supply chain,” as Senator Warren’s press release on the bill claims. UnitedHealthcare’s 90,000 physicians account for only 5 percent of the 1.7 million medical professionals it reimburses for care. Cigna and Aetna rely almost exclusively on independent medical providers. Overall, only 1 percent to 2 percent of physicians work directly for insurers.
Insurers bear an increasing share of the cost of prescription drugs, thus reducing the portion borne by patients. From 1990 to 2022, the share of prescription spending paid out of pocket dropped from 57 percent to 14 percent. For insurers, integrating prescription drug coverage with insurance for other medical services is common sense, allowing them to improve medication adherence and thus avoid more costly hospitalizations.
Most economists believe that hospital-centric integration is more problematic as a cost driver, but Warren’s bill ignores it entirely. The decline in the share of physicians in private practice from 60 percent in 2012 to 42 percent in 2024 was largely driven by increased employment by hospitals. Physician-hospital integration can improve the coordination of care, but it has pushed up costs for physician services, outpatient procedures, and childbirths.
We’ve also seen a wave of hospital mergers. To some extent, mergers eliminate duplicative overhead costs, but they also strengthen the pricing power of facilities in negotiations with insurers. As these mergers were typically piecemeal acquisitions of single hospitals rather than the combination of giant hospital systems, they failed to command the attention and resources of antitrust enforcers. From 2002 to 2020, the Federal Trade Commission challenged only 13 of 1,000 hospital mergers.
Yet, the overall impact of hospital mergers has been modest. The most rigorous analysis of the phenomenon concluded that only mergers between nearby competitors significantly increased prices, and that prices set by local hospital monopolies were only 12 percent higher than those in markets with four or more nearby competitors.
In fact, hospital competition can often push up costs, as facilities vie to attract well-insured patients by hiring the best physicians, newest equipment, and most luxurious amenities. Patients seeking MRI scans bypassed an average of six lower-priced providers. The 12 percent average price disparity between competitive and consolidated markets is dwarfed by differences within the most competitive markets. In 2021, equivalent hospitalizations at New York Presbyterian Hospital in 2021 cost 162 percent more than those at Mount Sinai.
Nationally, hospital markets are most competitive in the largest metropolitan areas, which have a population capable of supporting multiple facilities close to each other. By contrast, the most concentrated hospital markets are largely synonymous with rural areas. Rural hospitals are more expensive because they have low patient volumes and fewer economies of scale—and the paucity of nearby competitors is a consequence of this, not the cause. Nonetheless, despite the absence of local competition, rural residents still travel far from home to receive 48 percent of elective surgeries.
In a recent hearing, Missouri Representative Jason Smith, chair of the Ways and Means Committee, blamed “consolidation and mergers” for the “borderline extortionary prices hospitals charge patients.” He noted the story of a Florida man who “had an emergency CT scan that the hospital billed for $13,000,” before “a follow-up scan at a different location cost him only $79.” Yet, price discrepancies like these owe more to poorly designed payment rules for out-of-network emergency care than to monopoly pricing power. After all, the patient in Smith’s example subsequently used a competitor offering a lower price.
The general pricing power of hospitals is nonetheless excessive, even in the most competitive markets. Facilities bill private insurers on average 254 percent of what Medicare pays for the same procedures. But, again, consolidation is more a symptom than the underlying cause. Hospital pricing power owes to the price-insensitivity of broad-network, employer-sponsored plans, in which most privately insured Americans are enrolled. The appropriate remedy here is to let workers switch to narrower-network plans, which exclude the costliest providers.
Why is trust-busting so popular among politicians like Senators Warren and Hawley? Because large impersonal institutions make good villains. It’s easier to repeat a familiar story about diabolical profiteers than to explain the intricacies driving high health-care costs. But, most of all, scapegoating holds out the promise of a free lunch: the idea that we could easily reduce high costs by cutting needlessly inflated profits.
What’s mainly responsible for the rising cost of health insurance? The growing use of increasingly sophisticated medical technologies. Serious attempts to reduce costs would present painful trade-offs that politicians prefer to avoid.