Healthcare

Healthcare is the most expensive component of the SSOL calculation in most U.S. markets, and it is the one most in need of structural reform. Understanding why requires looking honestly at where the money goes - because a large fraction of what Americans spend on healthcare does not go toward medical care.

Where the healthcare dollar goes

An estimated 40-45% of every healthcare dollar in the United States goes to activities that are not direct medical care: insurance company administration and profit, hospital billing departments, pharmacy benefit manager fees, malpractice insurance, and the administrative burden of operating within a complex multi-payer system.

To trace the path of a single dollar: when you pay a premium to a private insurer, the insurer retains between 8% and 16% for administration and profit before any money reaches a provider. The remaining amount reaches a hospital, which then spends approximately 25% of its revenue on billing, prior authorization battles, and administrative compliance - leaving about 68 cents of the original dollar for actual care. By comparison, Medicare's administrative overhead is approximately 1%.

Insurance company overhead

The ACA's Medical Loss Ratio rule requires insurers to spend at least 80% of individual and small-group premiums on actual medical care, and at least 85% for large group plans. In practice, major insurers currently retain between 8% and 13% of every premium dollar. Medicare, by contrast, spends approximately 1.1% on administration. Swiss insurers, operating under a regulated private insurance model, are capped at 5%.

The structural reason for this inefficiency is straightforward: private insurers' administrative expenses are capped at a percentage of what they pay to providers. The higher the provider rates, the more the insurer can retain in absolute dollar terms while staying within the percentage limit. There is no incentive built into the system for private insurers to reduce the prices charged by providers - doing so would reduce their own allowed administrative take.

Hospital administrative burden

Hospitals in the United States spend approximately 25% of their total budget on administration - more than double the rate in Canada and higher than any other country studied. Much of this cost is driven directly by the complexity of dealing with multiple private insurers, each with its own prior authorization requirements, formulary rules, billing codes, and denial processes.

In 2025, hospitals spent approximately $43 billion trying to collect payments from insurers for care already delivered. That $43 billion did not treat a single patient. It paid for billing specialists, denial appeals, compliance documentation, and the administrative infrastructure of extracting payment from payers who benefit from delaying it.

Pharmacy benefit managers

Three companies - CVS Caremark, Express Scripts, and OptumRx - control roughly 80% of the prescription drug benefit market. Their revenue is structured as a percentage of drug list prices. This creates a direct financial incentive to favor high-list-price drugs over lower-cost alternatives: a larger list price generates a larger rebate, regardless of what it costs the patient.

The result was documented in the FTC's 2024 lawsuit against all three companies: insulin prices rose approximately 600% over two decades while the medication itself barely changed, because the PBM rebate structure systematically excluded lower-cost alternatives. In January 2025, the FTC also found that PBM-owned pharmacies were marking up specialty generic drugs by hundreds to thousands of percent, generating over $7.3 billion in excess revenue between 2017 and 2022. A February 2026 settlement with Express Scripts began unwinding some of these practices.

Malpractice insurance and defensive medicine

Medical malpractice insurance costs physicians an average of approximately 3.2% of their annual income - ranging from around $7,500 per year for low-risk primary care to over $200,000 for OB-GYNs in high-litigation states. These costs are passed directly into procedure pricing. Beyond the premiums themselves, the fear of malpractice drives defensive medicine - ordering additional tests and procedures not because they are medically warranted but to document against potential litigation - adding billions more to the system's cost with no corresponding improvement in care.

The structural problem: everything runs on percentages

The unifying thread through all of these problems is that every party in the healthcare supply chain earns more when prices are higher. Insurers retain a percentage of premiums - 20% of a $1,000 premium is $200, but 20% of a $2,000 premium is $400. PBMs earn rebates calculated off list prices. Hospital billing departments are sized to fight for higher reimbursements. The profit motive, which works well in elastic markets, operates in inelastic healthcare markets to continuously extract upward price pressure with no consumer-side resistance.

Before the ACA's individual mandate made coverage legally required, consumers could - and did - exit the market by going uninsured when premiums became unaffordable. That represented at least some demand-side discipline. Once coverage became mandatory, the last check on premium growth effectively disappeared.

How SSOL changes the incentive

Currently, large employers absorb healthcare costs as a diffuse operational expense. They pass as much as possible to employees through premiums and deductibles. They complain about costs but have no direct mechanism that connects those costs to a clear financial pressure to reduce them.

Under SSOL, every dollar of healthcare premium increase translates directly and immediately into higher labor costs across every hour of minimum-wage labor the employer uses. A company with 10,000 minimum-wage employees and a $100/month healthcare premium increase just saw their annual labor cost rise by $12 million - automatically, visibly, on every quarterly payroll calculation.

That company now has a direct financial stake in healthcare cost reform that it did not have before. Not because it cares about its workers' healthcare in the abstract, but because the math is on the balance sheet. The same companies with enough political leverage to influence healthcare legislation - major retailers, logistics firms, food service chains - are exactly the companies with the most minimum-wage employees and therefore the most to gain from structural healthcare reform.

SSOL makes healthcare costs impossible to externalize. They sit on the employer's ledger every quarter, fully visible, directly connected to labor costs. That is a different set of incentives than the current system provides, and it points toward reform rather than tolerance.