Rising health care costs are breaking their backs on American families. In many ways as a Anne Case and Angus Deaton have argued that the germs of economic discontent so many in the US are feeling can probably be attributed in part to the health system. The extent to which health care cost growth has outpaced wage growth is astounding. From 2000 to 2019, healthcare spending increased in the United States 87 percent The median household income only increased 10 percent. Today is the average annual health insurance premium for a family of four $ 21,342. That’s the equivalent of a family buying one new Toyota Corolla Insurance value every year.

The sheer scale of the US healthcare system is what makes reform so difficult. If the US health care system were a country, measured in dollars, it would be the fourth largest country in the world, larger than the economies of Germany, India, and the United Kingdom. By doing US $ 3.8 trillion healthcare systemSeveral factors contribute to our being an international outlier. Just as there is not a single problem driving our oversized spending, there will not be a single political solution. We certainly want silver bullet intervention and hope that smart people out there are looking for one. In the meantime, however, we have an obligation to cover the oversized health care costs in this country. The advantage is that we actually already know what to do.

Rather than talking about healthcare spending in abstraction, consider high US healthcare costs as the result of a series of discrete problems, each incrementally increasing healthcare spending by a percent or two – called “one percent problems.” While each problem is nondescript on its own, the collective impact of a number of one percent problems can explain why the US spends more than other nations. By refreshing healthcare spending as a series of discrete issues, we can also create a roadmap for how policy makers and industry can begin cutting costs and making the US healthcare system more efficient.

Example: surprise medical bills

Surprise medical bills are a good example of a discreet problem that increases healthcare costs, has no public benefit, and can be addressed. Surprising medical bills arise when a patient is treated by a doctor outside her insurer’s network in an on-network hospital. They are the result of a single market failure: some groups of doctors – radiologists, pathologists, anesthesiologists, and emergency doctors with privileges in a particular hospital – are not directly selected by patients and can therefore choose not to join insurance networks without losing significant patient volumes . The consequences of surprise billing are obvious: patients face large, unexpected, and inevitable bills. The cost of health care is increased by approximately $ 60 billion annually (five percent of commercial health expenditure).

In December 2020 Congress passed surprising accounting reforms that will largely eliminate this problem. Efforts to pass the surprise reckoning were backed by a strong evidence base that the Scope of surprise billing at national level, studied the drivers of the problem, and tested possible solutions. Research that analyzed New York State’s efforts to address surprise bills through arbitration showed that state politics reduced the in-network rate of emergency doctors by 15 percent. New York’s laws became the model for national law. As a result, we estimate that recent national legislation should reduce commercial health spending by about three percent ($ 38 billion per year).

One percent steps to reduce healthcare spending

Economists studying health care reform in the United States regularly identify these types of solvable, discrete problems in their research. Indeed, this is generally how knowledge is generated. Empirical economists – those of us who work with data – are best at answering certain questions, such as: For example, whether coverage of organ donation costs increases organ donation, whether hospital fusions increase hospital prices, and whether people are better able to choose the best insurance plan for themselves financially when options that are never good for them are removed from their selection sets. Each study is like a small brick that is used to build a large structure.

The findings of empirical economists about the health system can help to create a roadmap for concrete reforms. To this end, we have brought together leading economists and produced 16 individual briefs that each highlights a significant one percent problem in the US healthcare system that is increasing healthcare spending without corresponding profits. These briefs then provide evidence-based steps to resolve the problem. Together, the 16 letters, of which more will follow, form the backbone of the “1 percent steps for the health reform project.”

The individual suggestions are decidedly unsexy. They focus on eliminating tight inefficiencies in the health system. Taken together, however, they provide a way to reduce US health care spending by hundreds of billions of dollars annually (roughly nine percent of total health care spending).

The briefs cover a range of topics from reforming the inefficient coding used by the Centers for Medicare and Medicaid Services for medication administered by doctors, to helping individuals choose insurance plans more effectively, to reducing health care insurance Home Health Fraud. The aim of the project and the assignment of the authors was to come up with proposals with which health expenditure can be reduced without compromising quality. make concrete policy recommendations from academic research. Wherever possible, we wanted the policy recommendations to be based on the authors’ academic fellowship.

Take for example: the letters dealing with increasing kidney donation. There are about 90,000 People in the United States with end-stage kidney disease who need a kidney. Mortality rates are significantly higher in people with end-stage kidney disease who do not receive a kidney transplant and instead rely on dialysis. Crucially, each completed transplant saves roughly the Medicare program overall $146,000 by eliminating the need for dialysis. That is, increasing kidney donation increases the quality of life, leads to economic gains from a higher quality of life, and saves the Medicare program money. Kidney donation naturally increases efficiency. We have a shortage of donor organs, however, so two briefs offer steps to increase their supply. Together, these steps could save 0.1 percent of national health spending.

As we illustrate in Figure 1, in our 16 briefs, we identified steps that, if fully implemented, would reduce healthcare spending by nearly nine percent of national healthcare spending. Some proposals address prescription drug spending, others focus on commercial markets, and others on Medicare policy. Some proposals require federal intervention, some require action from state-level policymakers, and others require intervention from payers and providers.

Appendix 1: The 1% Steps Briefs



Annual savings as a percentage of national health expenditure

Breaking down cost barriers for living kidney donations

Mario Macis (Johns Hopkins)


Expansion of the renal exchange

Nihkil Agarwal (MIT), Itai Ashlagi (Stanford University), Michael Rees (Toledo University Medical Center), Alvin Roth (Stanford University)


Combating orphan drugs

Amitabh Chandra (Harvard University)


Expansion of the preferred pharmacy networks

Amanda Starc (Northwestern University), Ashley Swanson (Columbia University)


Reform of Medicare reimbursement for biosimilars

Fiona Scott Morton, Yale University


Elimination of co-pay coupons for prescriptions

Leemore Dafny (Harvard University), Christopher Ody (Northwestern University), Christopher Schmitt (UCLA)


Reducing Home Health Fraud

Stephen Lee (Benesch), Jonathan Skinner (Dartmouth College)


Reform of payments for long-term hospitals

Amy Finkelstein (MIT)


Addressing surprising medical bills

Zack Cooper (Yale University), Fiona Scott Morton (Yale University)


Addressing hospital consolidation

Zack Cooper (Yale University), Martin Gaynor (Carnegie Mellon University)


Combating the vertical integration of hospitals and doctors

Daniel Kessler (Stanford University)


Improving the choice of health insurance plans

Jason Abaluck (Yale University) and Jonathan Gruber (MIT)


Increasing the efficiency of claims settlement

Peter Orszag (Lazard), Rahul Reiki (Lazard)


Introduction of intelligent provider networks

Jonathan Gruber (MIT)


Regulation of prices for healthcare providers

Michael Chernew (Harvard University), Leemore Dafny (Harvard University), Maximilian Pany (Harvard University)


Improved the automatic assignment of plans in Medicaid Managed Care

Chima Ndumele (Yale University), Jacob Wallace (Yale University)


Total savings


Source: Author analysis based on data from the 1% steps for the health reform project

looking ahead

Realistically, policies that eliminate waste in the US healthcare system will generally reduce the income of at least one organization. Companies that could lose income then thwart reforms. For example, surprise billing benefited medical personnel companies like EmCare and TeamHealth, as well as some nonprofit hospitals that used off-network billing as a business strategy. As a result, these firms and their private equity owners tens of millions of dollars spent Attempt to thwart surprise settlement legislation. If Congress is to address US health care spending sensibly in the future, it must understand that there will be frustrated parties and stick to its mission of helping consumers.

We understand the appeal of hoping for solutions to reform the US healthcare system. There aren’t many country songs that are written about incrementalism. Even so, health economists owe it to the public to find concrete steps to cut health care costs now. Today our project includes 16 proposals that, if all implemented, would cut healthcare costs by hundreds of billions of dollars. We anticipate that as more economists participate, our list of ideas will grow over time. Policy makers should focus on identifying and implementing evidence-based solutions to address high health care costs, even if the expected gains are not dramatic. These kinds of incremental and continuous advancements will change the US healthcare system in the long run.