The Healthcare Affordability Crisis in NJ and Nationally

In 1992, political strategist James Carville famously said, “It’s the economy, stupid!” in reference to the messaging needed to get Bill Clinton elected. Carville’s admonition applied just as much to this year’s state and local elections. There is broad consensus that Mikie Sherrill and other Democrats swept the polls because they centered their campaigns on affordability.

For Healthcare, It’s the Prices

The late Princeton health economist Uwe Reinhardt borrowed from Carville in his 2003 coauthored article titled “It’s the prices, stupid” which compared healthcare spending in the U.S. to other advanced economies. They concluded that “the difference… is caused mostly by higher prices… in the United States.”

A large and growing body of research demonstrates the continuing role of healthcare prices in driving spending in the U.S., which is today about twice the average per person of other developed nations. Hospital market consolidation, through mergers and acquisitions, stands out as a key driver of rising costs, even when consolidation occurs across different markets within a state. Despite this, policymakers have done little to rein in this market failure.

If the new crop of elected leaders is to keep their campaign promises, they will need to take on the healthcare price problem, especially for hospitals. Nationally, and in New Jersey, healthcare spending accounts for nearly 1 in 5 dollars of gross domestic product, a share that will continue to increase in light of underlying trends. Hospital care is the largest category of healthcare spending.

Healthcare Affordability in the Garden State

As Gov.-elect Sherrill develops her agenda, she would be well served to build on the work of the New Jersey Health Care Affordability, Responsibility, and Transparency (HART) Program. Findings of the HART Program’s first cost-driver analysis are consistent with Reinhardt’s conclusion—it’s the prices. This chart shows that from 2016 to 2021 per capita prices for hospital inpatient and outpatient services increased by well over a third, even as utilization of those services declined. Other types of care—professional services (including visits to physician offices, therapists, and other professionals) and prescription drugs—also contributed to rising costs, but not nearly to the degree as hospital services.

Source:  Exhibit III.1 in Health Care Spending Trends for New Jersey Residents with Commercial Insurance, 2016-2021.    https://www.nj.gov/dobi/division_insurance/HART/reports/HealthCareSpendingTrendsNJResidentsCommercialInsurance2016_2021.pdf

Work by our team adds to the HART program findings. We found that from 2009 to 2020, New Jersey hospital market consolidation led to rising hospital profitability, driven principally by hospital price growth. We also found as of 2020, 71 percent of hospital admissions in New Jersey were in “highly consolidated” markets, based on Federal Trade Commission standards.

Healthcare Must Be Part of Meeting the Affordability Mandate

Hospitals have achieved amazing things for the health and wellbeing of New Jersey residents, but they also are major contributors to our affordability problem. There is ample evidence that we can continue to achieve great healthcare outcomes while also stemming out-of-control costs. Healthcare is complex, and reaching this goal won’t be easy, but doing so is essential if the political leaders that swept the 2025 elections are to keep their promises to voters.

Joel Cantor is a technical consultant for the NJ HART program.  The views expressed in this Blog are those of the authors and do not necessarily reflect those of the HART program or other sponsors of work by the authors.

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