Is $1.6 Trillion in Healthcare Waste Holding America Back?

Photo: Zoshua Colah

Healthcare spending in the United States is approaching one-fifth of the nation’s gross domestic product, a share unmatched by any other advanced economy. Yet outcomes remain uneven, and costs continue to rise. Now estimated at roughly $1.6 trillion annually, healthcare waste alone would rival the GDP of most countries if measured as a standalone economy. The scale reframes the debate: this is not marginal inefficiency at the edges of the system, but a structural economic burden embedded within it.

A landmark 2019 study published in JAMA estimated that between $760 billion and $935 billion of U.S. healthcare spending each year could be classified as waste. The researchers identified several major categories, including administrative complexity, pricing failures, overtreatment, fraud, and abuse. Importantly, the study concluded that proven interventions could potentially save between $191 billion and $282 billion annually. Since that analysis, overall healthcare expenditures have continued to climb toward $5 trillion per year, suggesting that the absolute dollar value of waste has likely grown as well.

For employers, the issue is immediate and concrete. More than 160 million Americans receive coverage through self-insured employer health plans, with companies collectively spending hundreds of billions of dollars each year. Yet many lack detailed visibility into how those dollars are allocated across providers, intermediaries, and pharmacy benefit managers. Rising healthcare costs translate directly into higher premiums, constrained wage growth, and deferred investment.

Jude Odu, founder of Health Cost IQ and author of upcoming book Model Optimal Care, argues that opacity has allowed inefficiencies to persist. “You cannot fix what you cannot see,” he said in a recent interview. “Waste persists because transparency is limited and accountability is diffused across too many intermediaries.” According to Odu, employers often function as passive payers rather than informed purchasers, despite their fiduciary responsibilities under federal law.

The system’s complexity developed over decades. Administrative layers multiplied as insurers, third-party administrators, brokers, and pharmacy benefit managers assumed specialized roles. Compensation structures tied to transaction volume or drug prices created incentives that did not always align with cost efficiency. Contracts grew opaque, rebate arrangements difficult to trace, and data fragmented across platforms.

There are, however, early signs of structural shift. Proposed bipartisan legislation known as the PBM Reform Act of 2025 seeks to address spread pricing and opaque rebate structures within pharmacy benefit management. At the same time, federal price transparency rules now require hospitals and insurers to publish machine-readable pricing data, enabling employers to compare what they paid against benchmark rates. Artificial intelligence-driven claims analytics has also matured, making it technically feasible to audit 100 percent of claims in near real time, detect billing irregularities, and flag high-cost conditions before they escalate.

Odu contends that these tools are necessary but insufficient without disciplined application. In his forthcoming book, he outlines a framework aimed specifically at self-insured health plans, integrating payment integrity, pharmacy optimization, and AI-powered analytics with clearer governance standards. “The playbook for eliminating healthcare waste exists,” Odu said. “It requires leaders willing to apply it.”

The economic implications extend beyond individual balance sheets. If even a fraction of the $191 billion to $282 billion in annual recoverable savings identified by researchers were realized, the effect would reverberate through wages, investment, and public spending. Dr. Donald Berwick of the Institute for Healthcare Improvement has described healthcare waste as a reservoir of untapped relief at a time when costs strain families and businesses alike.

Beyond fiscal strain, the persistence of waste raises a governance question. Self-insured employers are fiduciaries under ERISA and the Consolidated Appropriations Act, yet many continue to rely heavily on intermediaries whose compensation models are not fully transparent. As regulatory scrutiny increases and data becomes more accessible, employers may face growing pressure to demonstrate that they have actively managed healthcare spending rather than simply absorbed annual increases.

Healthcare waste in America is measurable, systemic, and increasingly difficult to justify in a multitrillion-dollar industry. The tools to confront it are emerging. Whether employers and policymakers deploy them at scale may determine how much longer the hidden trillion continues to weigh on the broader economy.