Why Your Medical Bill Is So High

Summary

Morgan Stanley's Andrew Sheets and Mark Schmidt explore the paradox of high perceived US healthcare costs versus low official inflation. They detail how hospitals absorbed rising expenses, the opaque insurance negotiation process, the impact of an aging population and Medicare, and conclude that hospital margins have compressed, implying healthcare inflation is likely to firm.

• US healthcare accounts for about one-fifth of the economy, with Americans spending nearly $6 trillion annually.
• Official healthcare inflation has stayed low for years, conflicting with consumer experience of high costs.
• Hospital prices are trade secrets; insurance negotiations cause lumpy and lagged inflation data.
• Hospitals initially absorbed post-COVID cost increases, compressing margins, but budget guidance now points to price firming.
• Growing Medicare enrollment and its under-reimbursement may accelerate commercial insurance prices.
• The expiry of enhanced ACA subsidies increased the number of uninsured, potentially raising overall system costs over time.