• DEMAND-DRIVEN-COSTS: Rising health insurance premiums, projected to increase by 9 percent in 2026, are primarily attributed to higher utilization of medical services rather than insurer profits or hospital pricing.
• PROFIT-MARGIN-DATA: Health insurer profits represent only 0.2 percent of national healthcare expenditures, with the majority of revenue growth absorbed by medical expenses and administrative requirements.
• PRICING-TRENDS: Average real prices paid to hospitals and physicians have decreased in recent years, with physician fees falling 18 percent and hospital care prices dropping 2 percent since 2010.
• TECH-EXPANSION: Cost increases are driven by expanded medical capabilities, including high-priced oncology drugs and advanced surgical procedures like total knee replacements and neurosurgery.
• UTILIZATION-VOLUME: Healthcare spending growth is largely explained by service volume, with 65 percent of county-level variation in spending linked to how much care is consumed by patients.
• MEDICARE-DYNAMICS: Roughly 85 percent of the increase in real per-capita Medicare spending between 1997 and 2011 resulted from the introduction of newly created procedure codes.
• MARKET-DISTORTIONS: Private insurers pay approximately 2.5 times the Medicare rate for hospital treatments, partly because patient price-insensitivity encourages hospitals to compete through expensive facility upgrades.
• REFORM-STRATEGIES: Potential cost reductions depend on shifting payment policies to reward efficiency, such as transitioning insurance control to individual workers and avoiding supplemental funding for new technologies.

---

Americans have long lamented the high cost of health insurance, and the situation will soon get worse. Premiums for employer-sponsored insurance will go up by another 9 percent in 2026. Public spending on Medicare, Medicaid, and Obamacare is also surging.

This is not due to surging profits among insurers or hospitals. Insurance and entitlement programs are largely passing along the rising cost of care, even as average prices paid to hospitals, physicians, and drugmakers decline in real terms. The true driver is higher utilization of medical services—especially newly developed drugs and newly available outpatient procedures.

Technological progress could slash costs by improving diagnosis and treatment or by replacing more expensive methods of delivering care. But that won’t happen without reforming payment policy to reward cost-saving innovations. If insurers and entitlement programs keep paying premiums for products that offer little additional clinical value, these shiny new services will do little more than push costs even higher.

Insurers have borne much blame for climbing health-care costs in recent years. In the grimmest example, UnitedHealthcare CEO Brian Thompson was murdered outside a December 2024 meeting for investors in New York City. Police believe that the suspect, Luigi Mangione, was motivated by animus toward health insurers. Thompson’s death was greeted with horror and sympathy for the victim’s family but also with disturbingly widespread support for the assassin—fueled by outrage at insurers, whom many fault for blocking medical care.

Insurers are indeed responsible for assessing the validity of medical claims and paying for them. This makes them unpopular when they don’t pay profusely for health-care services but also gets them blamed for swelling costs if they do. From 2014 to 2024, average premiums for employer-sponsored insurance climbed from $6,025 to $8,951—a 12 percent increase above general inflation. Over that period, health insurers’ revenues grew by $657 billion. But most of that owed to a $589 billion increase in hospital and medical expenses, while insurers’ administrative costs (claims processing, regulatory compliance, marketing expenses, and taxes) rose by $59 billion. Insurers’ profits amounted to $9 billion—only 0.2 percent of national health-care expenditure. The growth of publicly funded expenditures has been even more significant: from 2014 to 2023, government spending on health care soared from $1.36 trillion to $2.33 trillion.

The hospital industry is often blamed for driving up health-care costs, too, but that story leaves out important facts. Hospital procedures accounted for $1.52 trillion of U.S. health-care spending in 2023. But 80 percent of U.S. hospitals are publicly owned or nonprofits. The most expensive are often small facilities in rural areas facing declining revenues and the threat of closure. Across all payers, average prices for hospital care fell 2 percent in real terms from 2010 to 2024.

Nor do rising physician fees explain the swelling expenses. Physician services accounted for $978 billion in health-care spending in 2023. Payments for treating Medicare patients are often fixed by law, and they’ve gone up only 5 percent since 2001. After accounting for inflation, physician fees across all payers have fallen 18 percent since 2010.

Price increases for prescription drugs are not the reason for rising health-care costs, either. Prescription drugs made up $450 billion of U.S. health-care spending in 2023. But from 2009 to 2018, the average real price of prescriptions for enrollees of Medicare drug plans declined by 13 percent because the use of generic drugs grew by 130 percent, while that of branded drugs fell by 34 percent.

To be sure, stable average prices can conceal the reality that some patients face higher expenses while others see lower costs. For example, federal law requires prescription-drug manufacturers to sell to Medicaid at lower prices than other purchasers. This rewards drugmakers for hiking prices for non-Medicaid patients, who end up paying almost three times as much for the same products.

Policymakers haven’t directly encouraged similar price disparities in hospital care, yet private insurers still pay roughly two and a half times the Medicare rate for hospital treatment. Whereas Medicare’s payment rates are capped by law, private insurers negotiate theirs directly with hospitals. In 2022, the average price of an inpatient admission covered by private insurance—$28,038—far exceeded the average out-of-pocket maximum of $4,355, leaving patients with little incentive to shop based on price. Instead, price-insensitive patients gravitate toward facilities with the most prestigious reputations, cutting-edge equipment, and lavish amenities.

The resulting competition to upgrade facilities has sent hospital fees spiraling upward. A Harvard University study found that, from 2010 to 2019, “hospitals investing more in capital gained market share and raised prices, whereas hospitals investing relatively less in capital lost market share and increased prices less.” These facility improvements benefit all patients, but the added costs fall primarily on those with private insurance.

Yet even if private payers have absorbed price increases for certain services, the overall escalation in health-insurance costs has a simpler explanation: Americans are consuming more medical care.

America’s consumption of most goods and services exceeds that of other countries, and health care is no exception. A 2020 study by the Organisation of Economic Co-operation and Development found that, while the U.S. spends three times as much as the average developed nation on health care, that excess reflects higher utilization—220 percent of the average—more than it reflects higher prices, which were 126 percent of the average.

A recent study published by the Journal of the American Medical Association found a similar pattern. County-level variation in health-care spending was explained 65 percent by service utilization, 24 percent by price differences, 7 percent by disease prevalence, and just 4 percent by age. Higher utilization correlated with broader insurance coverage, higher household incomes, and lower enrollment of Medicare beneficiaries in managed care.

From 2014 to 2023, prices for medical services rose by less than the overall rate of inflation. Increased enrollment has driven up Medicare costs (as baby boomers retire) and Medicaid costs (as eligibility expands). But the main factor behind higher insurance expenses has been greater utilization per enrollee, which has grown by roughly 20 percent across both public entitlements and private insurance.

Greater usage of medical services is reflected in the expanded overall number of medical practitioners: from 6.5 million in 2014 to 9.6 million in 2023. The erosion of physician fees by inflation has also been offset by an increase in volume. Average wages in health care from 2010 to 2024 went up 7 percent after inflation, with surgeons seeing a 14 percent increase.

But this trend reflects more than just more frequent contact with the health-care system. From 2000 to 2019, hospital outpatient visits shot up from 2.10 to 2.74 per capita, while inpatient stays declined slightly, from 0.12 to 0.11. The age-adjusted share of the population taking three or more medications rose only modestly, from 20 percent to 21 percent, over the same period. When patients do seek care, they are increasingly receiving more intensive and technologically advanced treatments.

The fundamental driver of rising health-care costs, then, is the expansion of medical capabilities. Demand for medical care is far less easily satisfied than demand for most other basic goods. A nation will consume only so much extra food as incomes rise, but the willingness to spend more to alleviate illness and infirmity has no real limit. From 1900 to 2023, as agriculture’s share of GDP fell from 15 percent to less than 1 percent, health care’s share went from 3 percent to 18 percent.

Consider, too, the role of technological progress. In 1960, physicians could do little for a heart-attack patient beyond prescribing bed rest and painkillers; by 2019, with new surgical procedures and numerous costly drugs available, Americans were spending $265 billion treating cardiovascular disease. New medications have transformed HIV-AIDS from an imminent death sentence into a manageable chronic condition with a near-normal life span. From 2019 to 2023, U.S. spending on cancer drugs rocketed from $65 billion to $99 billion, with 125 new oncology drugs launched—about 40 percent focused on cancers for which no treatments had previously existed. From 2000 to 2022, age-adjusted cancer mortality dropped 29 percent; HIV-AIDS mortality fell by 73 percent.

Effective new anti-obesity medications have recently emerged. From 2018 to 2023, spending on Glucagon-Like Peptide-1 (GLP-1) drugs leaped from $14 billion to $71 billion. As their net price averaged $8,412 in 2023 and almost half of Americans express interest in consuming drugs to lose weight, these drugs, too, are causing health-insurance costs to surge.

Until the late nineteenth century, most invasive surgeries were often fatal. But advances in diagnostic tools, surgical techniques, and medical devices have made surgery a viable option for a wide range of conditions. As procedures have become more precise, recovery times shorter, and complications rarer, surgeons have grown more willing to operate in cases once considered too risky.

Americans are seeking a greater number of procedures, and the increase is concentrated among the most expensive ones. In the first decade of the twenty-first century, the proportion of Americans living with a total knee replacement doubled. From 2005 to 2021, the volume of physician services delivered per Medicare beneficiary increased by 45 percent in orthopedics, 50 percent in neurosurgery, 115 percent in ophthalmology, and 130 percent in surgical oncology. The more medical science can do for the sick, the more insurance is needed to pay for it. In 2019, the average price tag for heart bypass surgery was $57,240, while 85 percent of cancer drugs introduced over the past five years cost more than $100,000.

The growth of Medicare spending owes largely to the addition of new services and procedures. From 1997 to 2011, 85 percent of the increase in the program’s real per-capita spending came from newly created procedure codes. In 2019, spending on the ten most expensive Medicare outpatient procedures from 2009 had risen by less than the general rate of inflation, yet overall outpatient spending grew 19 percent in real terms. Medicare expenditures on physician-administered drugs blasted from $3 billion in 2000 to $17 billion in 2019—$15 billion of that for drugs that hadn’t existed at the century’s start.

Will all this technological innovation eventually bring down costs? That depends largely on policy choices.

The pharmaceutical industry offers a useful example. Americans often overpay for newly developed drugs that add little extra clinical value. Manufacturers trumpet incremental “innovations” to extend patent protection and delay competition that would otherwise push prices lower. Yet when drug markets work as intended, few industries offer better value for money—keeping patients healthy and reducing the need for expensive, labor-intensive hospital and specialty care.

After the introduction of Lipitor, for instance, cholesterol drug spending surged from $5 billion in 1995 to $35 billion in 2005. Following the expiration of the manufacturer’s patent, this figure fell to $10 billion per year, with generics accounting for 90 percent of consumption. As generic heart medications have become more widely available, the number of heart surgeries has declined, deaths from heart disease have dropped by 35 percent, and overall real per-capita spending on the treatment of heart disease has fallen—even as America’s obesity rate has continued to increase.

Many in Silicon Valley argue that artificial intelligence will similarly improve treatment outcomes while greatly reducing costs. Recent advances in language processing allow computers to digest vast and rapidly expanding bodies of medical research. Improvements in image recognition enable them to detect diagnostic signals that clinicians often overlook. Powerful processors can now integrate these data with patient-specific genetic information to identify rare diseases and reduce diagnostic errors. At the same time, progress in robotics has made surgery more precise while reducing reliance on costly skilled labor.

“When people buy their own insurance, they flock to plans that exclude the costliest hospitals—reducing prices for outpatient procedures. ”

Safety concerns will likely limit the deployment of fully autonomous health-care technology, at least for now. AI systems inherit the limitations of the data they employ, often draw false conclusions, and proceed without appropriate caution. The consequences of misdiagnosis can be catastrophic. Automated feedback loops, which function without the transparency needed for effective oversight, could amplify them. And dependence on electronic systems greatly magnifies cybersecurity and privacy risks.

Even so, AI could still reduce costs. Automating routine or repetitive clinical and administrative tasks could boost physician productivity, letting doctors treat more patients per hour. Decision-support systems might expand the scope of practice for lower-cost clinicians—allowing primary-care physicians to handle cases once referred to specialists—and nurses to perform tasks previously reserved for doctors. Telehealth and remote surgery could even enable the offshoring of medical services.

The danger, however, is that medical AI could simply layer new expenses atop existing ones instead of replacing them. Practitioners are likely to resist technologies that threaten their incomes, and the combination of restrictive licensing rules and the insurance-based financing of most care makes the health-care sector especially hard to disrupt.

Tech firms would not mind such an outcome. Many have lobbied for add-on payments for the use of AI-powered medical devices in treating Medicare patients. But this approach would exacerbate some of health care’s most perverse incentives—with the government paying for inputs without regard to their clinical value, encouraging the creation of technologies that raise costs rather than reduce them.

A better approach would be for Medicare and Medicaid to pay indirectly for newly developed medical technologies. Federal programs should rely on insurers, hospitals, and physicians to use payments already provided to them to employ new cost-slashing treatments. Lawmakers should refuse to establish supplemental funding streams.

Incentives for private insurance to control health-care costs can also be improved by switching control over the purchase of insurance from employers to individual workers. Individuals are much more price-sensitive and willing to forgo extraneous expenses when spending their own money. (Think airline tickets.) When individuals buy their own health insurance, they flock to narrow-network plans that exclude the costliest hospitals—reducing prices for outpatient procedures by 26 percent.

Politicians would like to believe that rising health-insurance costs result from bloated hospital budgets, physician overpayments, or administrative waste—problems that could be trimmed away painlessly. But the reality is that health insurance is more expensive because Americans are consuming more, and costlier, medical services, a trend far tougher to reverse. So far, under current payment systems, technological improvements have mostly driven expenditures higher. Smart reforms could shift innovators’ focus toward reducing costs instead.

This article is part of “An Affordability Agenda,” a symposium that appears in City Journal_’s Winter 2026 issue._

Chris Pope is a senior fellow at the Manhattan Institute.

Photo: Patient demand is growing for innovative technologies and treatments. (Stacey Wescott/Chicago Tribune/Tribune News Service/Getty Images)

• Strategic Reorientation: SpaceX is delaying its planned 2026 Mars mission to prioritize lunar voyages for NASA.
• Lunar Timeline: The company is targeting March 2027 for an uncrewed lunar landing to support the Artemis program.
• Corporate Consolidation: SpaceX has acquired the startup xAI, resulting in a combined company valuation of $1.25 trillion.
• Technological Focus: The merger is intended to facilitate the development and launch of artificial-intelligence data centers into space.
• Financial Roadmap: SpaceX plans to execute an initial public offering (IPO) potentially as early as the summer of 2026.
• Technical Requirements: Achieving the updated schedule depends on mastering Starship reusability and complex in-orbit refueling operations.
• Institutional Pressure: NASA officials have urged the company to focus on the moon to ensure the success of upcoming crewed missions.
• Commercial Rivalry: Blue Origin is actively competing to develop its own moon-landing system, recently shifting resources away from space tourism.

---

By

Becky Peterson

,

Micah Maidenberg

, and

Berber Jin

Feb. 6, 2026 6:17 pm ET

---

SpaceX's Starship is launched for a test near Brownsville, Texas, in 2024. spacex/Reuters

SpaceX has put off a mission to Mars planned for this year, shifting its focus to a long-promised lunar voyage for NASA.

The rocket company told investors it will prioritize going to the moon first and attempt a trip to Mars at a later time, according to people familiar with the matter. The company will target March 2027 for a lunar landing without humans on board, another person said. 

The strategic shift comes as SpaceX doubles down on plans to launch artificial-intelligence data centers in space after acquiring Elon Musk’s startup xAI. That deal, announced Monday, gives the combined company a $1.25 trillion valuation. SpaceX also plans to go public in an IPO that could come as soon as summer.    

In a memo announcing the merger, Musk, who also serves as SpaceX’s CEO, outlined the company’s plans to help build a permanent presence on the moon. He referenced aspirations to use it as a base for exploration deeper in space.

“The capabilities we unlock by making space-based data centers a reality will fund and enable self-growing bases on the Moon, an entire civilization on Mars and ultimately expansion to the Universe,” he said.

NASA hired SpaceX a few years ago to prepare a version of its Starship vehicle to meet an agency spacecraft near the moon, take on a crew and transport U.S. astronauts down to the lunar surface. Landing U.S. astronauts there is a key part of the agency’s Artemis space-exploration program.

The Texas-based company has used its billions of dollars in NASA funding to help develop Starship, a more than 400-foot-tall rocket which is designed to be fully reusable.

Last year, Musk called the moon “a distraction” and said SpaceX is going “straight to Mars.” Musk previously lobbied President Trump for backing on his Mars mission by telling the president that getting people to the planet would cement his legacy as a “president of firsts,” The Wall Street Journal reported.

SpaceX previously said it planned to launch five Starships to Mars in late 2026 to take advantage of a time when the distance between Earth and Mars shrinks, creating an easier voyage. 

In a podcast interview aired in January, Musk downplayed the prospects of getting to Mars this year. “We could but it would be a low probability” and “somewhat of a distraction,” he said. 

The company will be hard-pressed to meet the March 2027 schedule. Doing so will require the company to frequently launch Starship and show it can refuel the vehicle while it is in orbit. 

Agency officials put pressure on SpaceX last year, calling on the company to prioritize the moon. In October, Transportation Secretary Sean Duffy, who was then running NASA, said SpaceX was behind and wanted more competition to deliver a vehicle that could get astronauts on the moon.

Since then, SpaceX has pitched NASA on what it has called a simplified path back to taking crews down to the moon.

Jeff Bezos’s Blue Origin is pushing to beat SpaceX to the moon with its own simplified moon-landing system. In January, Blue Origin said it would pause its suborbital tourism business to focus on lunar efforts.

NASA Administrator Jared Isaacman said at his confirmation hearing last year he welcomed competition between SpaceX and Blue Origin in creating lunar lander vehicles.

The agency plans to launch astronauts soon on a lunar fly-by called Artemis II. That mission would set the stage for a potential astronaut moon landing in 2028 with SpaceX or Blue Origin.

Write to Becky Peterson at becky.peterson@wsj.com, Micah Maidenberg at micah.maidenberg@wsj.com and Berber Jin at berber.jin@wsj.com

Copyright ©2026 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the February 7, 2026, print edition as 'SpaceX Delays Mars Plans, Eyes Moon'.

---

What to Read Next

[

When Your AI Hobby Becomes a Supermeme

](https://www.wsj.com/tech/ai/when-your-ai-hobby-becomes-a-supermeme-96c93df3?mod=WTRN_pos1)

9 hours ago

[

Plus, a glassmaker becomes a tech superstar, comparing 2026 capex to the moon landing and the areas where AI is tearing through corporate America.

](https://www.wsj.com/tech/ai/when-your-ai-hobby-becomes-a-supermeme-96c93df3?mod=WTRN_pos1)

Continue To Article

---

[

Is Elon Musk Giving Index Funds FOMO?

](https://www.wsj.com/finance/stocks/is-elon-musk-giving-index-funds-fomo-a9ef9652?mod=WTRN_pos2)

[

Plus, Amazon’s big bills

](https://www.wsj.com/finance/stocks/is-elon-musk-giving-index-funds-fomo-a9ef9652?mod=WTRN_pos2)

Continue To Article

---

EXCLUSIVE

[

Inside Elon Musk’s $1.25 Trillion AI and Space Megamerger

](https://www.wsj.com/tech/elon-musk-xai-spacex-merger-2896ae1e?mod=WTRN_pos4)

[

The fast-tracked deal is premised on SpaceX’s satellite prowess combining with xAI’s technology.

](https://www.wsj.com/tech/elon-musk-xai-spacex-merger-2896ae1e?mod=WTRN_pos4)

Continue To Article

---

EXCLUSIVE

[

SpaceX Seeks Early Index Entry as It Prepares Massive IPO

](https://www.wsj.com/finance/stocks/spacex-seeks-early-index-entry-as-it-prepares-massive-ipo-8445ed59?mod=WTRN_pos5)

[

Advisers to Elon Musk have reached out to major index providers seeking ways to secure earlier inclusion in market benchmarks to lift shares.

](https://www.wsj.com/finance/stocks/spacex-seeks-early-index-entry-as-it-prepares-massive-ipo-8445ed59?mod=WTRN_pos5)

Continue To Article

---

[

The Out-of-This-World Reasons for Elon Musk’s SpaceX Deal

](https://www.wsj.com/tech/ai/the-out-of-this-world-reasons-for-elon-musks-spacex-deal-7c075951?mod=WTRN_pos6)

[

The billionaire is turning to his old playbook to keep his AI ambitions aloft.

](https://www.wsj.com/tech/ai/the-out-of-this-world-reasons-for-elon-musks-spacex-deal-7c075951?mod=WTRN_pos6)

Continue To Article

---

[

SpaceX, xAI Tie Up, Forming $1.25 Trillion Company

](https://www.wsj.com/tech/elon-musk-says-spacex-has-acquired-xai-038a4072?mod=WTRN_pos7)

[

The merger puts Elon Musk’s rocket and artificial-intelligence companies under one roof.

](https://www.wsj.com/tech/elon-musk-says-spacex-has-acquired-xai-038a4072?mod=WTRN_pos7)

Continue To Article

---

[

Tesla’s stock rallies to recover some of its losses this week

](https://www.marketwatch.com/story/teslas-stock-rallies-to-end-a-rough-week-c1f1d5e5?mod=WTRN_pos8)

[

The company is making inroads on two potential growth segments: driverless cars and solar energy.

](https://www.marketwatch.com/story/teslas-stock-rallies-to-end-a-rough-week-c1f1d5e5?mod=WTRN_pos8)

Continue To Article

---

[

A One-Time Teardown Finds New Life as a Stylish Mid-Century Modern Home in the Hamptons

](https://www.mansionglobal.com/articles/a-one-time-teardown-finds-new-life-as-a-stylish-mid-century-modern-home-in-the-hamptons-3ced52ff?mod=WTRN_pos9)

[

A star of “Owning Manhattan” snapped up a Harry Bates-designed house in East Hampton, New York, for less than $1 million and took on a grueling renovation

](https://www.mansionglobal.com/articles/a-one-time-teardown-finds-new-life-as-a-stylish-mid-century-modern-home-in-the-hamptons-3ced52ff?mod=WTRN_pos9)

Continue To Article

---

---

Videos

• Lease Structure: Carnegie House operates as a ground-lease cooperative, meaning residents own building shares while leasing the underlying land from a separate entity.
• Cost Escalation: Ground rent for the property increased by 450 percent in 2025, rising from $4.36 million to $24 million based on fair-market land values.
• Equity Depletion: The drastic increase in operating costs has caused shareholder equity values to collapse and raised the risk of building dissolution.
• Risk Awareness: Purchasers in ground-lease buildings typically pay lower prices to compensate for the inherent risk that land values will appreciate faster than building values.
• Legislative Proposal: New York Senate Bill S2433 seeks to cap annual ground-rent increases at 3 percent or the Consumer Price Index for leases older than 30 years.
• Market Impact: Imposing rent caps on land may discourage investment, prevent property redevelopment to its highest use, and undermine the residential ground-lease market.
• Legal Constraints: Legislative interference with existing private contracts may violate the Contract Clause of the U.S. Constitution, which prohibits states from impairing contractual obligations.
• Economic Solution: Maintaining the integrity of property rights and expanding the overall housing supply are presented as the viable alternatives to government-mandated contract revisions.

---

[

](https://images.unsplash.com/photo-1639095150499-923d59490bad?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wzMDAzMzh8MHwxfHNlYXJjaHw0fHxiaWxsaW9uYWlyZXMlMjByb3d8ZW58MHx8fHwxNzcwMTQxNDAwfDA&ixlib=rb-4.1.0&q=80&w=1080)

Photo by Garrett Lawrence on Unsplash

For decades, residents of Carnegie House enjoyed what looked like a rare bargain at one of Manhattan’s most coveted intersections. Their apartments on 57th Street and Sixth Avenue sold at a steep discount to nearby market prices.

But like over 100 similarly situated “ground-lease” cooperatives across New York City, the low prices came with a catch. Carnegie House does not own the land on which it sits. Instead, its residents own shares in the building while leasing the land from a separate owner—a structure that keeps purchase prices low while shifting long-term risk onto buyers.

Yet Carnegie House’s ground lease recently renewed, and rent owed to the landowner skyrocketed. Shareholders saw their equity values collapse overnight. The co-op now faces the risk of dissolution, a move that would erase what remains of owners’ equity and turn them into rent-stabilized tenants.

The result has been litigation and calls for legislative intervention in Albany. But legislation that interferes with the rights and obligations of a ground lease would likely invite constitutional challenges and set a harmful precedent for property rights and urban land use, with consequences extending far beyond a single building.

Carnegie House’s ground lease has been the subject of concern for years. The lease, signed in 1959, set the building’s annual ground rent at 8.1667 percent of the fair-market value of the unencumbered land, with three 21-year renewal options. That structure worked reasonably well for decades. But when the lease renewed in 2025, soaring land values caused the ground rent to spike by 450 percent, from $4.36 million to $24 million, causing panic among residents.

A legal fight ensued. After an arbitration panel allowed the ground-rent hike to proceed, the co-op appealed the decision to a New York trial court. It lost, leaving residents uncertain about whether the building would default. If that happens, shareholders would see their equity wiped out while remaining responsible for any outstanding mortgage payments. The building itself would revert to rent-stabilized rentals, effectively ending the cooperative.

Share

The vast majority of New York City’s co-op buildings own the land beneath them, so rising land prices translated into higher share prices. Carnegie House’s shares, by contrast, did not capture this appreciation, which is one reason they traded at lower prices.

That distinction matters. Real estate functions both as a consumable good and a store of value. Demand for a given unit depends largely on two factors: its location and its physical characteristics.

Sometimes a parcel becomes particularly valuable or worthless because of its proximity to a nearby attraction or hazard. Carnegie House, for example, happens to sit along what has become known as “Billionaires Row,” home to multiple ultra-luxury condo towers. Land next to a new power station or homeless shelter, by contrast, may fall in value.

Cities, after all, are labor markets. Land located near centers of productivity and opportunity tend to appreciate over the long run. Since the 1970s, Manhattan land values have risen steadily as the city’s jobs market and economy have grown.

A co-op share or a condo unit in a building that owns its underlying land allows residents to benefit from both proximity to a productive labor market as well as rising land values. But in a ground-lease building like Carnegie House, the landowner carries the risks and rewards associated with the local economy and surrounding area, for better or worse.

Carnegie House’s shareholders can’t plausibly claim they were unaware of the risks associated with a ground lease. Any lawyer seeking to avoid a malpractice claim would inform his client of these dangers. Mortgages for ground-lease co-ops are much harder to secure, and cash purchases are often the only way a buyer can acquire shares at all. These constraints exist because lenders understand that ground leases introduce significant uncertainty, especially as renewal dates approach. According to the landowners, more than 100 units in Carnegie House are held as investment properties—suggesting many buyers were speculating that the lease terms would be overridden or unenforced in some way.

Unfortunately, some lawmakers in Albany are trying to give them the cover they were expecting. Senate Bill S2433 would cap annual ground-rent increases at 3 percent or the consumer price index, whichever is higher, for leases that are 30 years old or more. Capping increases in this way would effectively kill the market for residential ground leases and prevent land from being redeveloped to accommodate new circumstances.

Urban land should generally be free to be priced and redeveloped as circumstances change to achieve its highest and best use. Artificially suppressing ground rents would sever the link between land values and land use, discouraging redevelopment even when economic conditions warrant it. The destruction of the magnificent Gilded Age mansions that once lined Fifth Avenue along Central Park may be lamentable, but it was necessary to allow New York to grow—quite literally—to new heights.

S2433 would also grant co-op owners subject to a ground lease a right of first refusal if the landowner ever sought to sell the lease. Landowners would be required to disclose the price and material terms of any proposed sale and give the co-op up to 120 days to match the offer and purchase the land.

If this sounds familiar, it’s because the proposal nearly matches the Community Opportunity to Purchase Act (COPA), a New York City Council bill nearly passed last fall that would have given qualified nonprofit organizations the right of first refusal when certain residential buildings were put up for sale.

The bill would have introduced delay, uncertainty, and political considerations into ordinary property transactions, discouraging investment. After sustained criticism of the bill—especially in City Journal—COPA fell short of a veto-proof majority. Mayor Eric Adams vetoed the bill, and new City Council Speaker Julie Menin declined to revive it (at least for now).

Despite the harsh consequences for co-op owners, ground leases should be enforced as written, without legislative intervention. For one thing, a bill like S2433 risks violating the Constitution’s Contract Clause, which prohibits states from passing any law “impairing the Obligation of Contracts.”

And if a law like S2433 passes, it would fundamentally undermine the reliability of real property leaseholds. Carnegie House’s owners can’t plausibly claim not to have understood the risks; many bet that they’d get bailed out in some form. Many enjoyed living in a location coveted by billionaires at a relative bargain. The co-op’s board can attempt to purchase the land and charge shareholders a special assessment—as the owners of Trump Plaza did in 2015 without government intervention—but the price would likely be too steep for most Carnegie House owners to bear.

Sympathy for co-op owners caught in bad ground-lease deals is understandable. But legislative relief for Carnegie House would invite appeals from other investors who made bad—or at least risky—deals and now want Albany to rescue them from unfavorable outcomes. If these owners had more housing alternatives available to them, their predicament wouldn’t be quite as dire.

As Albany has proven time and again, measures like S2433 are likely to make a bad deal worse. The real solution lies not in rewriting contracts, but in expanding housing supply.

Share

Blue States’ Demographic Nightmare Mamdani Needs to Close a $10 Billion Budget Gap. He Should Start with Schools Who We Are: On Civil Terrorism

/ Editors’ Picks/ Reader Spotlight

Until shortly before the coronavirus pandemic, real electricity costs for most American families had been declining for a decade. From 2009 to 2019, the fully loaded cost—that is, the total price per kilowatt-hour including generation, transmission, distribution, and surcharges—rose from 11.5 cents to 13 cents, an increase of 13 percent, well below the 19 percent growth in the Consumer Price Index. Despite inflation, the average annual national rate even ticked down in a few of those years.

That changed in 2019. From that year through 2024, residential rates jumped 27 percent (faster than inflation) to an average of 16.5 cents nationally. These recent price shocks have not been evenly distributed. Most states still saw rates rise more slowly than CPI, meaning that they fell in real terms. The fully loaded cost of a kilowatt-hour today varies more than ever. In 2024, it ranged from 11.5 cents in Nebraska, Idaho, and North Dakota to 29.4 cents in Massachusetts, 32 cents in California, and 42.9 cents in Hawaii.

Much of the rise in the national average stemmed from California’s eye-watering 67 percent increase, the nation’s biggest.

The next largest hikes, as a percentage of 2019 rates, were in the District of Columbia, New York, Maryland, and Maine—all at 36 percent, or roughly 50 percent above inflation.

Electric bills pose a special hazard for the political class because they serve as monthly reminders of policy failure. Public officials scramble to show that they’re “doing something.” New Jersey governor-elect Mikie Sherrill, for instance, has called for rate freezes. Utilities remain a favorite scapegoat for state legislators, even as their rates (and profits) remain tightly regulated by those same states. Some populists, meantime, blame data centers for consuming massive quantities of electricity. But today’s high prices stem from decisions made years ago by governments and the utilities they regulate. Much of the recent increase was purposeful—indeed, avoidable—and the worst is likely still to come.

Electric rates have two main components: the cost of generating power; and what transmission and delivery companies—mostly utilities—are paid to deliver it. For most of the past century, this boiled down to a single rate set by a local electric monopoly, with the blessing of state utility regulators.

Beginning in the late 1990s, deregulation swept the country as many states, including New York, Texas, and California, required utilities to sell off their power plants. Generators would compete in newly created wholesale markets, while utilities focused on maintaining and operating their parts of the grid. The new landscape attracted fresh capital, with high prices serving as a beacon for investment where the need was greatest. Much of the added capacity came from natural-gas plants, taking advantage of the vast new supply unlocked by the fracking boom.

Gas fueled a transformation in American power generation. In 2008, half of U.S. electricity still came from coal, while natural gas and nuclear each provided about 20 percent. By 2024, gas was supplying 42 percent of the grid, and coal had fallen to just 16 percent.

The consumer benefits of cheap gas obscured the extent to which state governments, prodded by environmentalists, were deliberately making electricity more expensive. One method was requiring power plants to pay for their carbon-dioxide emissions through “cap-and-trade” programs. Ten Northeast and Mid-Atlantic states, including New York, participate in the Regional Greenhouse Gas Initiative (RGGI).

The cost of these allowances has surged in recent years. In 2019, the four RGGI allowance auctions brought in $284 million. The four most recent rounds took in $1.4 billion, with costs passed on to ratepayers and the windfalls flowing to state governments to divvy up. New England’s grid operator, ISO–NE, estimated that RGGI compliance pushed up prices from gas plants (the region’s main power source) by 0.7 cents to 1 cent per kilowatt-hour.

California and Washington also operate emissions-allowance systems for fossil-fuel power plants. California’s grid operator estimated that the requirement added roughly 1.6 cents per kilowatt-hour “for a relatively efficient gas unit” in 2024.

All nine mainland states where residential electric rates have risen by 4 cents or more since 2019 were either part of RGGI or California. These gas-related up-charges weren’t the only factor, but they undeniably work at cross-purposes with the affordability concerns that many governors now voice.

Another driver of rising electricity costs is nuclear-power subsidies. The low gas prices of the 2010s prompted five states—New York, Ohio, New Jersey, Illinois, and Connecticut—to craft subsidy deals for nuclear plants that had previously been profitable. The cost of that assistance, about $500 million for New York in 2024, was passed along to customers.

More states have enacted renewable-energy mandates, requiring utilities and large customers to pay premiums for projects that often wouldn’t be built otherwise, even with separate federal subsidies. The solar panels now tiled atop upstate New York farmland are a vivid example. Beyond closing that price gap, adding new renewables—especially in remote areas—imposes additional interconnection and transmission costs, which states expect utilities to absorb and then “recover” through rate cases.

Intermittent renewables have distorted electricity markets. Grid operators need additional plants connected and ready for times when wind lulls or clouds cut output. That is capacity that must be paid for—which ultimately drives up costs.

Especially over the last decade, state governments have pushed for what can fairly be described as the biggest transformation of the grid since the last rural homes got electric lights after World War II.

Skyline-defining power plants sending high-voltage transmission lines to the horizon are no longer the grid’s defining image. The rise of “behind-the-meter” generation, particularly rooftop solar, means that electricity is now flowing both to and from homes. That shift has changed how much energy utilities deliver from power plants and, with it, how the costs of running local distribution networks get allocated. Ratepayers have gone from simply maintaining the grid to underwriting its transformation.

The Washington Post reported last October that supply prices had fallen, in nominal dollars, by 35 percent since 2005 (chiefly between 2010 and 2020) but that transmission and distribution charges had more than doubled, up 141 percent and 181 percent, respectively. Falling supply costs concealed rising delivery expenses, until they couldn’t.

Part of the increase in delivery expenses reflects utilities facing the same inflationary pressures as their customers. Utility wages rose—and with them, utility delivery rates. But utilities’ role was also changing almost as much as the grid itself, as companies were pushed out of the generation business and pulled deeper into the climate-industrial complex.

Even before Covid, utilities’ capital expenditures were rising faster than inflation. They leaped 44 percent between 2019 and 2024, an Edison Electric Institute review found. Covid disruptions made grid hardware scarcer—and more costly. The Producer Price Index for electric transformers, measuring the price of producing key grid-related components, surged more than 60 percent in 18 months, starting in late 2020.

The price of state and federal efforts to reconfigure electricity supplies has spilled far beyond generation alone and into the rising outlays for transmission and distribution. Demand for hardware—and the associated charges—has been driven up by state climate policies. Utilities in states with aggressive mandates are now accommodating more interconnections from small generators (mostly wind turbines and solar panels) than ever before. New York alone has approved more than $8 billion in transmission upgrades, prompted almost entirely by its 2019 climate law. The deluge of state and federal subsidies encouraged developers to build more projects—especially rural wind turbines—than the grid could readily receive. Residential customers bear the bulk of the expense.

“Too much of the permitting process depends on who is in the White House and whether he roots more for oil exploration or for offshore wind.”

Some of these programs, such as energy-efficiency incentives, can theoretically pay for themselves by “shaving” the amount of generation needed to meet peak demand for just a few hours in the hottest afternoons each summer. In other cases, though, the delivery charge becomes a vehicle for adding new expenses. It is a handy mechanism—an alternative to raising state taxes—for making people fund initiatives that policymakers want but prefer not to budget for, such as shifting customers to electric heat pumps (which, in turn, increase grid demand).

Climate policy is a major driver of rising electricity charges but isn’t the only one. Recent bills have also climbed as utilities recover the cost of uncollectible accounts. Arrears have always existed, but they swelled in 2020, first as households fell behind and then as states blocked utilities from disconnecting nonpaying customers. Nationally, households remain more than $15 billion in utility arrears, up from $10 billion in early 2022. As these balances become officially uncollectible, the burden will shift to other ratepayers. On top of that, states are experimenting with new forms of income-based electricity pricing, which will discourage conservation while pushing up other customers’ costs.

How can we make electricity more affordable? It starts by identifying Public Enemy Number One: uncertainty.

Fortunately, strong interest remains in generating and delivering electricity more efficiently, and opportunities abound. New or upgraded power plants and transmission lines remain attractive investments, especially as older coal facilities retire. But many projects never get off the ground because the path from approval and construction to interconnection and operation is so murky.

The arduous process for federal permitting, including environmental reviews under the 1969 National Environmental Policy Act (NEPA), hinders major interstate transmission projects that would better connect generation with the places where it is needed. The duration of reviews has lessened in recent years, but most still take more than two years to complete. Litigation remains a preferred, and effective, weapon for project opponents.

Too much of the permitting process depends on who occupies the White House and whether he roots more for oil exploration or for offshore wind. The June 2023 debt-ceiling legislation made modest changes to narrow the scope of certain NEPA reviews, but more can be done, including stricter limits on when lawsuits can be filed and steps to create more predictability in the system.

At the state level, unattainable climate targets—such as New York’s plan to more than double its renewable generation in the next five years—are preventing new, more efficient gas plants from replacing older, less reliable units. Several states have begun recognizing that they are purposefully making electricity less affordable in pursuit of objectively unreachable greenhouse-gas reduction goals. These choices often conflict with other state priorities, including affordability and reliability. States can relax such targets (some immediately) to ease rate pressures.

As for natural gas, Congress could curb states’ ability to misuse the Clean Water Act. New York has invoked the law to block pipelines serving New England, where gas-starved power plants must switch to burning oil on the coldest winter days. Setting aside the broader trade-offs involved in reducing emissions, some state legislatures have also adopted “carbon-free” or “zero-emissions” rules for the electric sector that would require power plants to stop using natural gas as soon as 2040. These deadlines create major obstacles for siting or financing more efficient plants that could not just lower costs but also improve reliability and reduce emissions in the meantime.

States have also increased expenses by mandating specific technologies within the broader category of renewables. New York, for instance, has committed its utilities and large customers to subsidizing 9,000 megawatts of offshore wind—arguably the least economical form of generation and one that would necessitate the addition of almost unimaginable amounts of battery storage for periods when the turbines don’t spin. Instead, states should take a more pragmatic approach to adding zero-emissions resources. A technology-agnostic framework, along with a freeze on mandatory renewable-purchase volumes, would ease upward pressure on electric rates, since new projects typically arrive with a fresh invoice for subsidies.

State lawmakers like using utilities as political punching bags, and utilities that punch back do so at great risk to their ability to operate. The result is predictable: utilities often agree to play the villain and the bagman, collecting funds and carrying out tasks that lawmakers don’t want to vote for, secure in the knowledge that their rate hikes will be approved. New Yorkers would be surprised to learn that the state’s energy agency holds more U.S. Treasury bills ($1.9 billion) than some banks, chiefly because it has been collecting money indirectly from electricity customers faster than it can be spent. That’s only possible because customers can’t see it happening.

An immediate, and overdue, step that state governments could take is fully to disclose how much their own policy choices are inflating electric bills. States should allow, and perhaps oblige, utilities to be more forthright about how much of a customer’s bill reflects market conditions, how much results from government mandates, and how little of the remainder represents actual profit. At a minimum, utilities should itemize the premiums that customers pay for RGGI or other emissions programs, the outlays for energy credits and subsidies, and the added cost from transmission or other grid build-outs required by state climate goals.

No state tells ratepayers the full story, though a few have made halting moves toward transparency. Connecticut, better than most, now breaks charges into four buckets: supply, federally regulated transmission, local distribution, and a “public benefit” line that includes its power-purchase deal with the Millstone nuclear plant. New York went in the other direction. In 2017, it barred utilities from showing the price of nuclear subsidies, and it has kept most renewable-energy expenses out of sight as well.

Without reform, the price pressures will only intensify. Near-total electrification—New York’s goal, and that of several other states—will require more than doubling the power delivered to some regions that still rely on fuel for home and building heat. Customers will keep receiving utility bills that feel too high and explain too little. But the utility is only the messenger, not the culprit. The real authors of those bills are the elected officials who designed, and still want, the system to work this way.  

This article is part of “An Affordability Agenda,” a symposium that appears in City Journal’s Winter 2026 issue.

Photo: Nationally, residential electricity rates jumped 27 percent from 2019 to 2024—with some states showing much greater increases. (Dominic Gentilcore/Alamy Stock Photo)

As public support wanes, U.S. Immigration and Customs Enforcement (ICE) has become the target of nationwide protests. While many of these protests are peaceful and popular, they have also created an opening for aggressive activist networks with long histories of revolutionary politics. Some of these groups are moving beyond lawful dissent, with organizers and online channels increasingly promoting confrontation, disruption, and other unlawful actions against federal authorities.

Two leading anti-ICE groups are Centro Community Service Organization (Centro CSO) and the Freedom Road Socialist Organization (FRSO). Both have been subjected to federal scrutiny, including raids by the Federal Bureau of Investigation. Working variously through local chapters and affiliate networks, both groups have pushed militancy into protests that were once nonviolent.

Even organizations in the progressive mainstream, including the Sunrise Movement and 50501, have become entangled in this ecosystem through coalition alignment and tactical approaches that involve acknowledged legal violations or heightened legal exposure.

What began as criticism of federal immigration policy is now tied up with illegal, targeted agitation campaigns. Anti-ICE Democrats and centrists need to take responsibility for policing their movements, or they risk being seen as willing participants in escalating radicalism.

A demonstration organized by the Minnesota Immigrant Rights Action Committee. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images)

Much of this radical momentum is channeled through FRSO, which plays a central role in “big tent” coalitions. These coalitions often coalesce around popular causes, such as opposition to President Donald Trump, and offer logistical infrastructure for protests, ranging from social media promotion to on-the-ground leadership, along with established networks of allies prepared to mobilize in the streets on a moment’s notice.

FRSO chapters are listed as a member and steering committee member, respectively, of the People’s Action Coalition Against Trump in Minnesota and the Coalition Against the Trump Agenda in Chicago.

While mainstream progressives are often attracted to these groups, FRSO does not necessarily consider the normal Left its allies. Mira Altobell-Resendez, an organizer with the Minnesota Immigrant Rights Action Committee (MIRAC) and FRSO member, made that clear on a podcast earlier this month: “All of our movements that have been active here [in Minneapolis] have an enemy with Jacob Frey and with Tim Walz.”

In the same podcast interview, Altobell-Resendez mocked what she described as Governor Tim Walz’s threat to deploy the National Guard to “keep down riots,” arguing that politicians use the word “riots” to describe “people who are rightfully expressing their anger at this system.”

Despite criticizing some elected Democrats, Altobell-Resendez has collaborated publicly with others, including at a protest with Representative Ilhan Omar. This demonstrates how easily FRSO affiliates move between mainstream Democratic and radical activist spaces.

But Altobell-Resendez is a committed radical and has supported illegal actions. On a recent FRSO webinar, she stated, “Just because, like, something is illegal doesn’t mean that we won’t do it,” before adding a caveat about not wanting “to put us in hot water.”

She is just one cog in a broader network that includes more mainstream organizations, such as Black Lives Matter and the anti-Trump organization 50501—both of whose Minnesota chapters are part of a coalition with FRSO Twin Cities—and the eco-activist Sunrise Movement.

Sunrise partnered with Altobell-Resendez’s organization, MIRAC, to target hotels hosting ICE agents, banging pots and pans and pressing car horns in a “wake-up” operation. Leaders within the Sunrise Movement have openly acknowledgedtheir awareness that these actions can violate the law.

Representative Kelly Morrison, Representative Ilhan Omar, and Representative Angie Craig. (Photo by Octavio JONES / AFP via Getty Images)

Some of the most fervent—and sometimes violent—anti-ICE activity has happened in California.

One of the leading anti-ICE organizers in the region is Centro CSO. The group emerged in the 1990s by reviving and repurposing the historic CSO name associated with its predecessor, the “Community Service Organization,” which trained Cesar Chavez.

Carlos Montes has led Centro CSO since the 1990s. During this period, he “self-recruited” into the Freedom Road Socialist Organization (FRSO). He reportedly believed a revolutionary organization such as FRSO would better aid him in the “fight for Chicano liberation and socialism.” He is not the only Centro CSO member also to be in FRSO.

Centro CSO is alsolisted as a “supporting organization” for the national Legalization For All network, a large coalition of activists and groups advocating for the legalization of all illegal immigrants.

Leaders of Centro CSO are clear about the tactics they endorse. At a major conference in Chicago this past fall, one member described confronting ICE vehicles in Los Angeles.

“You should have seen how f*cking scared they were when a couple dozen Chicanos surrounded their unmarked black tinted truck,” Gabriel Quiroz Jr., a Centro CSO member, said. He mentioned that a number of WayMo cars caught fire “by accident,” prompting laughter from the audience.

On a separate movement call late last month, FRSO member, Legalization for All signatory, and Centro CSO leader Carlos Montes highlighted a “spontaneous upsurge of thousands of young people” that “took over the streets” and occupied freeways in Los Angeles for a day in February 2025 to protest the Trump administration. He called the effort a “community self-defense coalition.” According to Montes, these actions have inspired “a whole new generation of young activists” to join Centro CSO.

On that same call, Marisol Marquez—a member of FRSO, Centro CSO, and Legalization for All—noted that the Legalization for All network trained activists in other cities on “barrio walks,” “rapid response networks,” and coordinated responses to ICE activity during attempted raids.

Centro CSO’s tactics and ideas are spreading into the mainstream anti-ICE movement, too. Ron Gochez, a leading academic activist who has been involved in ICE watch activities, publicly thanked the group for leading a local protest. Centro CSO also hosted the Emergency Southwest Summit Against Deportations, which was attended by more than 150 activists and featured workshops on “topics like how to set up rapid response systems and barrio organizing, fighting deportations, how to fight for and win sanctuary cities and schools, and how to build coalitions to fight back.”

FRSO and Centro CSO have faced federal scrutiny in recent years. Last summer, the FBI seized electronics from a Centro CSO member and raided another’s home. That second member was arrested and charged, though the Department of Justice later dropped the charges.

Federal focus on these groups is not restricted to the Trump administration. During President Barack Obama’s first term, Montes and other FRSO leaders faced raids of their own. The Department of Justice also investigated the organization for material support of terrorism; it remains unclear why the DOJ did not pursue charges.

Popular animus toward ICE has created an opening for the FRSO and Centro CSO. These groups’ goal is not merely reform. The goal, as FRSO member Chrisley Carpio put it, is to “lead ever larger numbers of people into confrontations with the enemy.”

In spite of this radicalism, groups like FRSO and Centro CSO are increasingly welcomed into the anti-ICE tent. Progressives can police their movements to drive out such radicals—or risk giving in to their most dangerous ideas.

Top Photo: A demonstration organized by the Minnesota Immigrant Rights Action Committee (Photo by Mostafa Bassim/Anadolu via Getty Images)