Cross-posted with permission from Health Affairs Forefront.

[Original Post: Ezekiel J. Emanuel, Kevin A. Schulman “Addressing Medical Affordability Without Compromising Care”, Health Affairs Forefront, July 9, 2026. https://www.healthaffairs.org/do/10.1377/forefront.20260707.545858, Copyright © 2026 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.]

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Americans are being crushed by medical costs. Affordability of medical care is now the No. 1 public concern, higher than the cost of food, rent, or utilities. Nearly 70 percent of Americans are dissatisfied with medical costs. You know the problem is huge because even well-insured Americans are hesitant to use their insurance for fear of what bills they may receive.

There are many factors driving the medical affordability problem. But one stands out as eminently solvable without any compromise in care and potentially able to reduce the frustration of physicians and patients: administrative costs.

Today, the U.S. spends 25 percent of all health care costs on administration. That will be approximately $1.5 trillion this year, more than the total health care spending of France, Germany, and Italy combined. If we reduced these costs by a quarter—eminently doable—then each American would save more than $1,200 on their insurance premiums. At this level, even if Americans’ affordability anxiety would not disappear, it would certainly be much more manageable.

A big part of these administrative costs involves billing for medical services. In the U.S., the billing and related insurance costs for a simple physician office visit are more than $20 per bill, amounting to nearly $1 in $7 of physician office revenue. The billing costs for a surgical procedure done in a U.S. hospital averages more than $215.

As in so many things, the U.S. is a negative outlier on billing costs. For instance, in Germany the cost of that surgical bill is about $60—just a little more than a quarter of the U.S. rate. In Australia, the billing costs of that surgical procedure are about half the U.S. rate. And, in Canada, which conservative politicians and policy makers love to bash, submitting that bill is about $6.

Ironically, in the current arrangement, artificial intelligence (AI) will only raise U.S. health care costs exacerbating unaffordability. AI is supporting hospitals, physicians, and others to submit bills. Simultaneously, the same tech firms are selling insurers products to deny bills. Without addressing the underlying structure of the system, this “AI chatbot war” will actually drive costs higher!

How do other countries have much lower administrative costs associated with billing?

The first thing to recognize is that single payer is not the only path to reducing administrative costs. Germany has about 100 health insurance companies, called sickness funds, and yet its administrative costs amount to about 7 percent of health care costs; the Netherlands is similar.

Sending a bill to an insurance company involves four steps. First is eligibility determinations, such as verifying a patient’s insurance status. Second is coding, which entails documenting the services provided and linking them to specific insurance and billing codes for the service. Third is reviewing and formatting the bill and submitting the invoice. Last is any reworking and adjudication if the insurance company questions or denies the bill.

The overriding factor driving up U.S. billing costs is significantly more “minutes spent by U.S. personnel on billing tasks,” particularly coding. And this step is really expensive, an average of $170 per surgical bill. Why?

First, there are thousands of purchasers of health care. There are almost 318,000 different health plans in the U.S., offered by about 1,000 insurance companies. Each plan sets its own rules about which services are covered, what documentation is required for payment, which services require prior authorization, and which network of hospitals and physicians are covered by the plan. Even the insurers are confused by which patient is covered by which contract and which physicians are in-network for each plan.

Furthermore, in the U.S. medical billing is “unbundled.” There is a separate bill for every part of a medical service. For a surgical procedure, there is a charge for the operating room, a separate charge for the anesthesiologist, a separate charge for the surgeon, a separate charge for the recovery room, a separate charge for medications, and a separate charge for any follow-up visits or physical therapy. Some countries pay hospitals a global budget or bundled payment instead of billing for each service separately.

This complexity is confounded by the simple fact that this entire process is analog. Pull out your health insurance card and compare it to any credit card. Most likely, you will see no bar codes, and certainly no security chips. Questions and disputes quickly escalate to phone calls, and then to that most modern of all technologies, faxes. The resulting paperwork involved is monstrous. In the U.S., almost 100,000 nurses are employed in managing paperwork related to prior authorization for services, a number equal to the entire membership of the California Nursing Association. And this is for only one part of the billing process.

To realize savings requires standardizing and digitizing billing. Section 1104 of the Affordable Care Act is entitled Administrative Simplification and was an attempt at addressing the problem. (Author EJE was involved in its drafting.) Unfortunately, it failed. In addition, the Marketplace has failed, neither standardizing billing codes, prior authorization requirements, and processes nor shifting to bundled payments for common surgical procedures.

The U.S. public is in the mood for substantial changes to the costly, inefficient, and frustrating parts of our economy, such as health care billing.

Modernizing billing requires transparent computable contracts and a systemwide digital adjudication platform. This is what the Federal Reserve does for the financial sector. The result is that when you use your credit card you are paying approximately 2 percent in transaction fees, not 15 percent or 20 percent. This could be done for health care too.

First, Congress needs to establish a new entity with oversight of payment processing for the public and private market, with a mandate to drive efficiency in transactions. This Federal Reserve-type structure would be limited to oversight of billing and transactions, not regulating the health insurance market.

Second, this federal agency would establish standardized digital contracting and transaction standards for all billing and payments. Payers and providers that did not adopt the standards would be penalized with fees on bills that would be high enough to induce transition to the standards.

The third step is to modernize and secure the transaction system with an automated centralized claims clearinghouse instead of faxes. This system would adopt requirements from banking such as know your customer, no trust transactions, and advanced fraud detection.

Congress should require that all this be done in months, not years, so that the various interest groups that profit from the inefficiency of the system do not devise ways to impede reform.

This approach should lower billing costs. It should also produce billions in savings that Congress should mandate be passed through to workers and enrollees in public programs. And Americans would finally have the transparent payment process—and more health care affordability—they deserve.

Authors’ Note

Dr. Schulman reports the following support: The Ludy Family Foundation, The Hirsch Family Foundation, The Mindshare Institute, and the Government, Business and Society Initiative of the Graduate School of Business, Stanford University. Dr. Emanuel reports personal fees from Baylor College of Medicine; honorarium and travel, personal fees from CEO Council Cedar Cares, Koo Foundation, Brown University, Building Together HealthCare Summit, California Orthopedic Association, HCRX, Brocher Summer Academy, Massachusetts Association of Health Plans, University of California, San Francisco, Laurence E. Carroll Lecture, UHG & Bully Pulpit International, New Zealand Health Summit, and Chicago Humanities Festival; travel, personal fees from 10th CVS Accountable Care Symposium, RAISE Symposium, Spring Tide, Avalon Healthcare Solutions, and AHIP26; honorarium, personal fees from TUM Institute for History and Ethics of Medicine, Main Line Reform Temple, United Health Care Group, Jefferson Health Einstein Sivak Lecture, Munk Debates; honorarium and travel, grants from University of Bergen; honorarium and travel outside the submitted work. Dr. Emanuel reports adviser, CalmiGo, Smirk Health Inc., and Notable Health; adviser to director general World Health Organization; advisory board member, Feel Better LTD, JSL Health Capital, and Peterson Center on Healthcare; consultant, Korro; clinical advisory board, Daymark Health; board of advisers, Cellares Corp.

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