As media attention focused on Minneapolis, Greenland and Venezuela last week, the Center for Medicaid and Medicare Services (CMS) released its 2024 Health Expenditures report Thursday: the headline was “Health care spending in the US reached $5.3 trillion and increased 7.2% in 2024, similar to growth of 7.4% in 2023, as increased demand for health care influenced this two-year trend. “
Less media attention was given two Labor Department reports released the Tuesday before:
- Prices: The consumer-price index (CPI) for December came in somewhat higher than expected with an increase of 0.3% and 2.7% over the past 12 months. Overall inflation isn’t rising, but it also isn’t coming down.
- Wages: The Labor Department reported average hourly earnings after inflation in the last year rose 0.7% during the first five months of this year, but real hourly earnings have declined 0.2% since May. They’re stuck.
Prices are increasing but wages for most hourly workers aren’t keeping pace. That’s why affordability is the top concern for voters.
Meanwhile, the health economy continues to grow—no surprise. It’s a concern to voters only to the extent it’s impacting their ability to pay their household bills. They don’t care or comprehend a health economy that’s complex and global; they care about their out-of-pocket obligations and surprise bills that could wipe them out.
As Michael Chernow, MedPAC chair and respected Harvard Health Policy professor wrote:
“The headline number, 7.2% growth in 2024, is concerning but hardly a surprise. It follows 7.4% growth in 2023. This rate of NHE growth is not sustainable. It exceeds general inflation and growth in the gross domestic product (GDP), pushing the share if GDP devoted to health care spending to 18% in 2024; the share of GDP devoted to health care is projected to rise to 20.3% by 2033. In fact, these figures may be an underestimate of the fiscal burden of the health care system because spending on some things, such as employer administrative costs, are not captured… Given all the attention to prices and insurer profits, it is important to note that those factors are not the main drivers of spending growth—this time, it’s not the prices, stupid. There was virtually no excess medical inflation (medical inflation above general inflation) for 2023 or 2024. In fact, prices for retail drugs (net of rebates) rose at a rate below inflation. There will certainly be cases of rising prices driving spending, but on average, price growth is not the problem. This does not mean high-priced products and services are not an important component of spending growth, but instead it implies that their contribution to spending growth on average stems from their greater use, not rising prices. The main driver of spending growth is greater volume and intensity of care…”
My take:
Since 2000 to 2024, total healthcare spending in the U.S. has been volatile:
- 2000–2007: High growth, typically 6–8% per year (driven by rising utilization and prices).
- 2008–2013: Growth slowed to 3–4% during and after the Great Recession.
- 2014–2016: Growth ticked up to 4.5–5.8% with ACA coverage expansion.
- 2017–2019: Moderation around 4.5%.
- 2020: COVID‑19 shock—growth slowed to ~2% due to deferred care.
- 2021: Rebound to ~4%.
- 2022: 4.8%, close to pre‑pandemic norms.
- 2023: 7.4%, fastest since 1991–92.
- 2024: 7.2%, reaching $5.3 trillion (18% of GDP)
Between 2000 and 2024, total health spending in the U.S. increased $3.9 trillion (279%) while the U.S. population grew by 58 million (20.4%). 2025 spending is expected to follow suit. The underlying reason for the disconnect between health spending and population growth is more complicated than placing blame on any one sector or trend: it’s true in the U.S. and every other developed system in the world. Healthcare is expensive and it’s costing more.
This is good news if you’ve made smart bets as an investor in the health industry but it’s problematic for just about everyone else including many in the industry who’ve benefited from its aversion to spending controls and cost cutting.
The current environment for the healthcare economy is increasingly hostile to the status quo. Voters think the system is wasteful, needlessly complicated and profitable. Lawmakers think it’s no man’s land for substantive change, defaulting to price transparency, increased competition and state regulation in response. Private employers, who’ve bear the brunt of the system’s ineffectiveness, are timid and reformers are impractical about the role of private capital in the health economy’s financing.
The healthcare economy will be an issue in Campaign 2026 not because aggregate spending increased 7-8% in 2025 per CMS, but because it’s no longer justifiable to a majority of Americans for whom it’s simply not affordable. Regrettably, as noted in Corporate Board Member’s director surveys, only one in five healthcare Boards is doing scenario planning with this possibility in mind.
Paul
P.S. The President released his Great Healthcare Plan last Thursday featuring his familiar themes—price transparency for hospitals and insurers, most favored pricing and elimination of PBMs to reduce prescription drug costs—along with health savings accounts for consumers in lieu of insurance subsidies. The 2-page White House release provided no additional details.
HENRY KOTULA 