Highlights

• Healthcare spending per capita in New York is higher than ever, rising by 48 percent in nominal terms from 2010 to 2019, well outpacing a nationwide increase of 37 percent.
• New York’s per-capita spending on hospital care rose even faster, increasing by 54 percent—15 percentage points above national levels.
• Private-sector health insurance is driving spending growth—seeing much higher increases in spending per beneficiary (38 percent) compared to Medicare (16 percent) or Medicaid (8 percent).
• The rise in private health insurer spending is tied to higher prices for hospital care.
• Increases in private payer spending have burdened consumers: inflation-adjusted out-of-pocket spending rose by 59 percent from 2010 to 2019, and average deductibles for individual plans rose by 86 percent.

Introduction

Spending on healthcare for New York residents is higher than ever. From 2010 to 2019, nominal healthcare spending in the state rose by 48 percent to nearly $13,000 per capita. During the same period, per capita healthcare spending across the US rose by a much lower margin of 37 percent.

While New York politicians often point to rising Medicaid spending as a key policy concern, the data tell a different story: Our analysis will show that private-sector (largely employer-sponsored) health insurance has driven spending increases while public payer spending growth has been comparatively low. In the decade after 2010, Medicare and Medicaid spending rose by just 16 and 8 percent per beneficiary, respectively, while private insurance spending in New York skyrocketed by 38 percent.

These spiraling costs have dramatic consequences for ordinary New Yorkers and the state economy more broadly. Increased healthcare spending burdens consumers directly by saddling them with higher out-of-pocket payments, including copays and coinsurance, which can lead to medical debt. Higher private insurance costs are also a burden to employers, who typically pay over 70 percent of insurance premiums—putting downward pressure on wages and discouraging job creation in New York.

Why has the private sector done such a poor job of controlling healthcare costs, particularly compared with public payers such as Medicare and Medicaid? Data from the Centers for Medicare & Medicaid Services (CMS) show that among the different categories of healthcare goods and services, hospital care is the biggest driver of rising spending. Hospital spending rose by 48 percent in nominal terms in New York between 2010 and 2019, compared to 37 percent nationally.

In principle, growth in hospital spending might be driven by either rising prices or rising utilization— New Yorkers may be using more services, or we may spend more per service. But our analysis of new data from the University of Washington’s Disease Expenditure Project shows that utilization has in fact declined among New York’s privately insured population: New Yorkers had fewer inpatient admissions and ambulatory visits in 2019 than in 2010. Instead, these data show that rising prices for hospital care likely explain spiraling healthcare costs. These increases have hit private payers especially hard, resulting in dramatic increases in out-of-pocket spending in New York. Indeed, private payers in New York now pay nearly three times what Medicare pays for hospital care.

Why have hospital prices risen so much for private payers, particularly in comparison to public payers? Some commentators argue that the two phenomena are related: Because Medicare and Medicaid prices are so low, hospitals are forced to shift costs onto private payers by paying them more. However, research has disproven this theory, showing that the hospitals most exposed to low public-payer prices tend to receive low prices from private payers as well, and that hospitals facing lowered payments from public programs tend to cope by cutting costs rather than raising prices. High prices are associated with hospital mergers and acquisitions, which increase a hospital system’s bargaining power with private insurers.

These two facts point to a stark divide between New York’s safety-net hospitals, which struggle to provide quality care for low-income and uninsured people, and its larger, wealthier institutions, which have greater leeway to raise prices for their privately-insured patients. Merely allowing private prices to continue rising well past public payer rates will not lead to greater access or quality of care for all. Instead, it further widens gaps in an already inequitable system.

Policies from New York’s not-so-distant past may help point the way forward. In the 1980s, New York and other states enacted programs for setting hospital rates (rather than relying on individual hospital-payer negotiations) that proved effective at containing costs and improving access to care. The state could adopt similarly comprehensive programs in the future to balance cost control with the need for quality, affordable care.