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Big Insurance Q1 2026 Earnings Round Up

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https://healthcareuncovered.substack.com/p/big-insurance-q1-2026-earnings-round?utm_source=post-email-title&publication_id=255152&post_id=197291867&utm_campaign=email-post-title&isFreemail=true&r=59t65&triedRedirect=true&utm_medium=email

In Q1 2026, 7 Big Insurers did what their shareholders demanded: hike premiums, slash benefits and dump the sick.

The most recent numbers the nation’s largest for-profit health insurers have shared with investors tell a story the industry is eager to tell Wall Street: the worst is over. After two brutal years of earnings misses, executive firings, and stock price collapses driven by unexpectedly high medical spending, the seven biggest publicly traded health insurers have now completed their first-quarter earnings reports for 2026 and their shareholders are cheering.

Every one of them beat analysts’ expectations in various ways, and most raised their full-year 2026 guidance. But before you read the company-by-company results, it is worth examining the mechanisms behind that recovery because the story the earnings releases tell is not quite the same as the story they leave out.

To get back into Wall Street’s good graces, insurers have:

  • raised premiums
  • cut benefits
  • narrowed their provider networks
  • exited markets that weren’t meeting investors’ profit expectations, and
  • shed members they deemed too costly to cover.

Across the seven companies, total medical membership fell by roughly four million people between the first quarter of 2025 and the first quarter of 2026, and from what executives signaled to investors, many more people likely will be dumped by the end of the year. The patients who already have lost coverage through market exits or who found their benefits reduced this year do not appear as line items in an earnings release. They appear in the year-over-year membership declines and skimpier benefits that analysts note with approval.

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HEALTH CARE un-covered

Inside Big Insurance’s $1.7 Trillion Year | EP 2

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Inside Big Insurance’s $1.7 Trillion Year | EP 2

In second episode of the HEALTH CARE un-covered Show, we walk you through the full year 2025 earnings reports of seven of the largest for-profit health insurance corporations in the country.

The key metric driving the recovery is the medical loss ratio — the percentage of premium revenue that insurers actually spend on medical care. When that number falls, profits rise and investors get richer. Across the sector, medical loss ratios came down in the first quarter, or at least came in lower than Wall Street feared. Insurers credited tighter cost management, a milder flu season, and “repricing” — the practice of raising premiums and cutting benefits, particularly in Medicare Advantage plans, to close the gap between what they collect and what they pay out. (Financial analysts’ term for this is benefit buydown, which is unique among American industries.) Higher revenue coupled with devalued benefits produces better medical loss ratios from investors’ perspective.

The stock market has responded — but the picture is more complicated than a simple sector rebound. Most of these stocks are up year to date, measured from deeply depressed December 31 baselines. But look back a full year and a different story emerges: four of the seven companies are still worth less today than they were a year ago. Molina is down 43% over that period. Cigna and Elevance are each down about 6%. The “recovery” is real in the sense that stocks have bounced off their bottoms.

For much of the sector, it is not yet a return to full health, but the companies clearly are making good on their assurances to investors that they will do whatever it takes to improve their profit margins, regardless of the consequences to patients.

Here is what each of the seven reported — and what each report left out.

UnitedHealth Group

UNH Close (May 11): $384.44 YTD: +17.4% 1-year: +4.4% Dec 31: $327.56 | May 12, 2025: $368.36

UnitedHealth Group, the nation’s largest health insurer, reported first-quarter 2026 revenues of $111.7 billion, with adjusted earnings of $7.23 per share and a medical loss ratio of 83.9% — well below the 85.5% analysts had expected. The company raised its full-year adjusted earnings guidance to more than $18.25 per share.

UnitedHealth attributed the year-over-year declinedecline in its medical loss ratio to strong medical cost management and favorable reserve development, while acknowledging “consistently elevated utilization and unit cost trends.” In plain terms: patients are still using more care than the company would prefer, but UnitedHealth is getting better at managing around it.

The stock’s 17% year-to-date gain requires context. UnitedHealth ended 2025 at $327.56 — the result of a punishing year that included the Change Healthcare cyberattack, the killing of its insurance CEO, and mounting federal scrutiny of its Medicare Advantage risk-scoring practices. Then this past January, a disappointing fourth-quarter 2025 earnings report sent shares plunging nearly 20% in a single session, pushing the stock to its recent lows before the partial recovery began to take hold. The May 11 close of $384.44 leaves the stock about 4% above where it was a year ago — a modest gain that reflects recovery from a deep hole rather than a return to anything resembling its former heights.

CVS Health / Aetna

CVS Close (May 11): $92.23 YTD: +18.2% 1-year: +47.5% Dec 31: $78.03 | May 12, 2025: $62.52

CVS Health reported first-quarter net income of more than $2.9 billion as costs slowed for subscribers of its Aetna health plans. The company’s medical loss ratio fell to 84.6%, compared to 87.3% in the same period a year ago.

CVS attributed the decline primarily to better underlying performance in its government business and the absence of a premium deficiency reserve recorded in the prior year — a liability an insurer must set aside when anticipated claims are expected to exceed the premiums it has collected. Its absence is itself a sign of improved financial positioning.

Total revenue grew more than 6% to $100.4 billion. CVS raised its diluted earnings per share guidance and confirmed it is exiting the individual Affordable Care Act marketplace after this year. Total medical enrollment fell by roughly 600,000 members compared to year-end 2024, and more than one million year-over-year. This marked CVS’s fifth consecutive quarterly earnings beat.

CVS tells the clearest turnaround story in the group. Its stock is up 18% year to date and up nearly 48% from where it traded a year ago, when the company was in the depths of its earnings crisis and had just replaced its CEO. The trajectory is unambiguous — and so is the strategy behind it.

“Margins over membership”

That recovery was not an accident. It was a stated strategy. CVS CEO David Joyner has said repeatedly over the past year that the company is prioritizing “margins over membership” in its Medicare Advantage business. That means exactly what it says: CVS would rather have fewer, more profitable enrollees than a larger membership it cannot price to break even. On the commercial side, Joyner made the same calculus equally plain. “We do see elevated trends. We took a disciplined pricing approach to that in 2025, which has pressured membership, but we’re going to stay disciplined in our pricing approach,” he told investors last August.

“Pressured membership” is the corporate euphemism. What it describes is people being priced out of their plans, and what it means is that Aetna is once again purging customers it considers a drag on profit margins. (It has done that frequently over the past 25 years.)

The membership losses CVS reported this quarter — roughly 600,000 members gone, more than a million year-over-year — are the direct result of that strategy. Wall Street loved it.

Cigna

CI Close (May 11): $289.00 YTD: +5.6% 1-year: −6.5% Dec 31: $273.72 | May 12, 2025: $309.20

Cigna beat analysts on both earnings and revenue in the first quarter, posting $1.65 billion in profit. Its medical loss ratio came in at 79.8%, a favorable shift from the 82.2% posted a year earlier.

Cigna’s unusually low medical loss ratio reflects both aggressive cost management and a significant structural change. The MLR decline is partly attributable to the removal of its Medicare Advantage business, following Cigna’s sale of that book of business to Health Care Service Corporation. Medicare Advantage has been the primary driver of elevated medical costs across the industry. Cigna’s complete exit from MA made the numbers look cleaner.

Cigna also announced it will exit the individual ACA exchange market beginning in 2027. The company raised its full-year 2026 adjusted earnings guidance to at least $30.35 per share.

Evernorth, Cigna’s pharmacy benefit management and health services arm, generated $58.4 billion in revenue for the quarter, far more than the company’s health plan division. Like its peers, Cigna is increasingly a pharmacy and services company that also sells health insurance — not the other way around. (CVS now takes in more revenue from its PBM, Caremark, than from Aetna’s health plans and the company’s 9,000 retail stores.) Cigna’s stock has recovered to a 5.6% year-to-date gain but remains down about 6.5% from a year ago. A strong quarter has not answered the underlying question investors are asking: now that Cigna has exited Medicare Advantage and is exiting the ACA market, where does future growth come from?

Elevance

ELV Close (May 11): $381.84 YTD: +9.6% 1-year: −6.4% Dec 31: $348.40 | May 12, 2025: $407.98

Elevance Health (previously known as Anthem) reported $1.8 billion in first-quarter profit, down about 19% from the same period a year earlier, though the results exceeded Wall Street expectations. The company, which operates Blue Cross plans in 14 states, posted a medical loss ratio of 86.8% — slightly higher than a year ago, reflecting elevated costs in its Medicaid business, but better than analysts had feared.

Adjusted earnings per share came in at $12.58, above analysts’ consensus expectations. Elevance also raised its full-year 2026 adjusted earnings guidance.

One significant complication: Elevance’s results included a $935 million accrual tied to Medicare Advantage risk-adjustment data the company had previously submitted to federal regulators, where the ultimate liability remains uncertain. Risk-adjustment data — the system by which Medicare Advantage plans submit diagnosis codes to justify higher payments — has come under increasing regulatory scrutiny as a driver of what federal analysts estimate are tens of billions of dollars in annual overpayments to private insurers.

CEO Gail Boudreaux told investors that the company saw “moderately stronger retention” in its ACA segment and attributed better-than-expected results partly to a shift by remaining enrollees toward bronze-tier coverage — lower-premium, higher-deductible plans that tend to see lower utilization in the early months of the year. The stock is up nearly 10% year to date but remains about 6% below where it traded a year ago, with the risk-adjustment liability an unresolved overhang.

Humana

HUM Close (May 11): $274.24 YTD: +7.6% 1-year: +10.2% Dec 31: $254.84 | May 12, 2025: $248.93

Humana’s first-quarter results were the most complicated of the group — a beat on paper, but with enough asterisks to keep analysts cautious.

The company’s insurance segment MLR came in at 89.4%, edging out its own target of just under 90%, with medical and pharmacy cost trends running somewhat lower than anticipated. Revenue for the quarter reached $39.6 billion, up sharply from $32.1 billion a year earlier, driven largely by a 25% surge in Medicare Advantage enrollment.

But Humana did not raise its full-year guidance, unlike most of its peers. The company said it expects its second-quarter medical loss ratio to come in slightly above 91%, a deterioration from the first quarter — a signal that the cost pressures driving last year’s sector-wide crisis have not fully abated – and the expectation that Humana picked up many of the more costly MA enrollees that its competitors dropped.

Humana confirmed it expects to earn at least $9 per share for the full year and projects a full-year medical loss ratio of 92.75%, far higher than its rivals. Humana executives said the company’s primary objective is returning to a sustainable individual Medicare Advantage margin of at least 3% by 2028. Getting there will require continued benefit cuts, premium increases, and geographic retreats — all of which bear directly on the Medicare beneficiaries enrolled in Humana’s plans. What that means is that Humana likely will purge many of its new MA enrollees in the same way it did in 2025 after it disappointed Wall Street the year before.

Humana’s stock recovered sharply after the Q1 report, closing Monday at $274.24 — up nearly 8% year to date and up about 10% from a year ago. But investors’ enthusiasm should be tempered by one number: Humana’s aggressive Medicare Advantage membership growth this quarter mirrors exactly what CVS did in 2024, just before badly missing its cost targets as expenses came in far higher than expected. If that pattern repeats, the recovery will be short-lived.

Centene

CNC Close (May 11): $56.35 YTD: +36.9% 1-year: −10.4% Dec 31: $41.15 | May 12, 2025: $62.87

Centene kicked off the year with better-than-expected revenue and adjusted earnings, signaling a recovery from a rough 2025. Its stock rose more than 13% the day after its earnings call — and at nearly 37% year to date, it is the strongest year-to-date performer in the sector so far in 2026.

The company posted total revenues of $49.9 billion, with its consolidated medical loss ratio falling slightly to 87.3%. Adjusted diluted earnings per share came in at $3.37, and Centene raised its full-year adjusted EPS guidance to above $3.40.

Centene is primarily a Medicaid and ACA marketplace insurer, and its recovery story is rooted in those markets. The company’s Medicaid medical loss ratio fell half a percentage point — driven by rate increases from states and continued cost management.

The ACA marketplace, however, remains a source of volatility. Centene’s ACA enrollment fell sharply as the expiration of enhanced premium tax credits pushed many lower-income consumers out of the market — a policy shift that, for Centene, paradoxically helped near-term financial results by reducing exposure to a segment that had been generating losses.

As with the rest of the sector, context matters. Centene ended 2025 at $41.15, deeply depressed from its year-ago price of $62.87. The stock has bounced hard off that bottom but remains down more than 10% from where it stood a year ago. The recovery is real but the hole it is recovering from is also real.

Molina

MOH Close (May 11): $185.17 YTD: +6.7% 1-year: −43.5% Dec 31: $173.54 | May 12, 2025: $327.69

Molina is the outlier in the sector’s recovery narrative — the one company whose headline numbers looked genuinely bad, even as management insisted the underlying story was better than it appeared.

Molina reported a 95% year-over-year drop in net income for the first quarter, falling to just $14 million from $298 million in the same period last year. The collapse was driven primarily by a one-time charge: a $93 million impairment of intangible assets tied to the company’s planned 2027 exit from the Medicare Advantage–Part D market.

Total revenue was $10.8 billion, with premium revenue down about 4% year over year. The consolidated medical loss ratio rose to 91.1%, up from 89.2% in the first quarter of 2025.

The company’s executives reaffirmed full-year guidance for about $42 billion in premium revenue and at least $5 in adjusted earnings per share, and CEO Joe Zubretsky called the quarter “solid under the circumstances.” Molina has described 2026 as a “trough year” for its Medicaid margins, with the expectation that new contracts and the exit from unprofitable Medicare lines will improve results in 2027.

The stock market has rendered a harsher verdict. Molina’s shares are down 43% from where they traded a year ago — by far the worst one-year performance in the sector. The 7% year-to-date gain is recovery from a floor, not a foundation. Investors who held the stock through 2025 have lost nearly half their money.

The Second Quarter Will Be the Real Test

From Wall Street’s perspective, the industry has stabilized. Whether the companies’ management teams have learned anything different is a question the second quarter will begin to answer.

Analysts have flagged Q2 as especially critical — particularly for Humana, whose aggressive Medicare Advantage membership growth while holding benefits stable mirrors a pattern CVS followed in 2024, before badly missing its medical loss ratio targets. If that pattern repeats, the stock gains of recent months will not hold.

More broadly, the mechanisms driving this quarter’s “recovery” — premium hikes, benefit cuts, member shedding, and structural exits from unprofitable markets — are not cost reductions. They are cost shifts. The medical spending did not go away. It was simply transferred: onto patients through higher out-of-pocket costs, onto states through Medicaid pressure, and onto the federal government through the ongoing overpayment dynamics in Medicare Advantage that regulators have not yet fully addressed.

Wall Street calls this a recovery but it is worth being precise about what has actually been recovered and what has simply been moved off the balance sheet and onto someone else’s.

Why affordability will be a key issue in the 2026 midterm elections

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Why affordability will be a key issue in the 2026 midterm elections

Since the pandemic, Americans have ranked the cost of living (often labeled “affordability”) as the top problem they want America’s leaders to address. The typical household budget has many different components, of course. Some of them, such as health care, have been pressuring families for several decades. Problems in other areas, such as housing, have become acute only in recent years. But the rapid rise in overall prices since the beginning of the pandemic has merged these areas into a broader public concern. Although average hourly wages have risen by 30.8% since then1, costs for many core elements of household budgets have risen even more, and most Americans feel that they are at best running in place.2 Because the rate of price increases remains well above the Federal Reserve Board’s target of 2%, this concern shows no sign of abating, and the effects of the war with Iran will make matters worse.

Health care

Between 1999 and 2024, health care rose from 13% to 18% as a share of GDP, an increase that has serious consequences for family budgets. While wages rose by 119% during this period, workers’ contributions to family health care insurance premiums surged by 308%, almost three times the pace of wages. This increase was not the result of employers shifting the burden of health insurance to workers; the overall cost of insurance premiums rose even faster, by 342%—more than five times as much as the economy-wide rate of inflation. Since the pandemic began, the burden on average families has accelerated: Out-of-pocket expenses per person rose by nearly one-third, from $1,239 to $1,652, in just five years.

Against this backdrop, it is not surprising that health care has risen to the top of Americans’ concerns about affordability. A recent survey found that 32% of respondents were “very worried” about health care costs, compared to 24% for food and groceries, 23% for rent or mortgage payments, 22% for utilities, and 17% for gas and other transportation.

Because the problems of health care in the U.S. are structural and deeply rooted, the prospects for quick relief are not bright.

Housing

Unlike health care, the housing affordability crisis mostly began with the pandemic. Since early 2020, the cost of median-priced housing has risen by 28%, from $317,000 to $405,000, while mortgage interest rates surged from 3.45% to 6.11%.

These increases have disrupted the long-established balance between housing prices and household incomes. Until 2020, a median-income household could afford mortgages to buy median-priced homes. Now, households need incomes of $120,000 to qualify for such mortgages, but the median income stands at only $85,000. Otherwise put, families in the middle of the income distribution can afford houses that cost about $330,000, 20% below the sales price of the median home. The result: the majority of homes are now beyond the reach of average families.

This development has hurt young families trying to buy their first homes especially hard. For decades, the median age for first home purchases moved in a narrow range between 29 and 31 years—about when young adults were getting married and starting families. Today, the median age for first home purchases stands at 40 years. Families headed by young adults in their 30s are stuck in apartments that are too small, many in locations that no longer meet their changing needs.

Mounting evidence suggests that the receding prospect for homeownership has troubling ripple effects. Because home ownership is the most reliable source of wealth accumulation for average families, lower rates of homeownership will diminish the assets on which many families can draw as they move through the life cycle. Young adults who have given up on homeownership have no incentive to save for a down payment, reducing their savings rate and encouraging an outlook focused on the present, not the future. Some are plunging into sports betting, while others are turning to risky investments that are hard to distinguish from gambling. When traditional paths to economic mobility seem blocked, the calculus that leads working-class Americans to buy lottery tickets spreads to educated young people. Homeownership has positive externalities that will be hard to replace.

Groceries

For most Americans, trips to the grocery store provide the most regular and vivid indication of what is happening to prices. Since the beginning of the pandemic, the news has been mostly bad. Overall grocery prices have risen by 31% since February 2020, and for some high-profile items—ground beef, for example—the increase has been much steeper.

Even short-term changes are noticeable. The government’s inflation report for February 2026 showed grocery prices rising by 0.4% during the month, an annual pace of roughly 5%. There was bad news for salad-eaters: Lettuce prices rose by 12.2% during the month, and tomatoes, 6.4%. Coffee prices, which rose by 18.4% in 2025, increased by another 1.7% in February.

The surge in energy prices resulting from the war in Iran will probably ratchet grocery prices up another notch. Much of the food U.S. consumers buy is transported long distances from the point of production, and many of the factories that produce fertilizer for U.S. farmers are located in the Persian Gulf.

Other key elements of the affordability issue

Utilities

Household utility costs have risen by 41% in the five years after the beginning of the pandemic. Electricity is up 32%, water 43%, and natural gas 60%, and 17% of households have fallen behind on their monthly electricity bills. These figures help explain the political sensitivity of AI data centers, which consume large amounts of water and put upward pressure on household electricity rates.

Automobiles

Since the onset of the pandemic, the average price of a new car has risen from $38,000 to $50,000, an increase of 32%. Hard-pressed consumers who turned to used cars found little respite; used cars rose by 28% during this period. And auto purchasers have been hit by an array of rising fees, such as “destination charges” for moving purchased autos to the point of sale. Meanwhile, auto insurance premiums have risen by a stunning 55% since the pandemic began.

Child care

Between 2020 and 2024, the average cost of child care rose by 29%, 7 points more than the overall inflation of 22% during these years. Starting in mid-2024, the pace of child care inflation accelerated to twice the rate of overall inflation, a trend that persisted through 2025. Parents are increasingly likely to cite the costs of child-rearing as hard to manage and as a reason to have fewer children than they otherwise would have.

The politics of affordability

The political power of affordability became undeniable when Zohran Mamdani won an improbable victory last November in the contest for mayor of New York, while Mikie Sherrill and Abigail Spanberger won the governorships of New Jersey and Virginia by surprisingly wide margins. Since then, Democratic candidates have continued to press their Republican opponents on the issue, and the inflationary effects of the war in Iran may make the midterms even tougher for the GOP.

The affordability issue has affected President Trump’s standing as well. Most Americans believe that his priorities do not align with theirs, and they want him to focus more on the bread-and-butter challenges they face every day. Whatever the merits of the president’s claim that he inherited these challenges, Americans reject it by a margin of 2-to-1. It is Mr. Trump’s economy now, and Americans want him to do more to fix it than he has so far.

The electorate’s judgment matters because President Trump’s job approval affects his party’s prospects in the forthcoming midterm election. Right now, his dismal approval rating of 34% for his handling of inflation is endangering the survival of Republican House candidates in swing districts and is raising the odds (which are still low) that Democrats will take control of the Senate. With the war in Iran raising energy prices, which will flow through much of the economy, the time for the administration to turn this around is growing shorter.

Wall Street stagflation chatter rises

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https://www.axios.com/2026/03/10/oil-iran-wall-street-stagflation?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiospm&stream=top

Flared jeans are in style, an oil crisis is driving pain at the pump, and unemployment is rising: It’s not 1978, but it kinda feels that way.

The big picture: 

Talk of stagflation is rising on Wall Street, as investors fret the dreaded pairing of high inflation and high unemployment is making a comeback.

Zoom in: 

On Monday alone, at least six notes from investment managers and Wall Street analysts warned of “stagflationary” concerns.

  • Media outlets have run with this.
  • Last Friday, Chicago Fed President Austan Goolsbee noted that rising unemployment on top of an oil price shock creates “exactly the kind of stagflationary environment that’s as uncomfortable as any that faces a central bank,” per the Wall Street Journal.

Flashback: 

Analysts and media started tossing out the “s” word when inflation revved up back in 2021.

  • The term “stagflation” really took off the next year, when Russia invaded Ukraine, spiking energy prices. Everyone then predicted a recession that never materialized.

State of play: 

Today is different for two reasons. First, the job market is more sluggish than it was a few years ago.

  • Second, the oil shock from the Iran war is potentially magnitudes larger than from the Russian war, taking 20% of global supply oil off the board.
  • “Disruption to the Strait of Hormuz creates a far larger potential supply shock that extends beyond oil,” Skylar Montgomery Koning, a macro strategist with Bloomberg, wrote in a note.
  • “Shipping flows more broadly are being disrupted. That is pushing up energy and food costs, lifting inflation and squeezing growth.”
  • “This stagflationary mix is particularly toxic for markets, as it increases the risk that bonds and equities sell off together.”

Reality check: 

It’s not the 1970s. Economists believe the Iran war will slow economic growth and cause an increase in inflation, but not to the extremes seen back then.

  • “If you want the word ‘stagflation’ with a very little ‘s,’ you could,” says David Kelly, chief global strategist at JPMorgan Asset Management.
  • He recently revised his economic growth projections slightly downward this year due to the war. And he is projecting slightly higher inflation.
  • The difference between now and the 1970s is, back then, higher prices led to wage increases, which led to more inflation in a wage-price spiral that got out of hand, he says. Workers just don’t have the power for that today.
  • “This is probably just going to slow the economy down, rather than trigger some long wave of inflation,” says Michael Madowitz, principal economist at the progressive Roosevelt Institute.

The bottom line: 

This is not your father’s economic shock. Yesteryear’s bell bottoms would look a bit weird if you trotted them out today.

CBO’s Updated Projections of the Hospital Insurance Trust Fund’s Finances

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https://www.cbo.gov/publication/62165?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

The Congressional Budget Office regularly updates the Congress on our projections of the Hospital Insurance (HI) Trust Fund’s financial position as well as changes in our outlook on that position. This blog post serves as that update.

The HI trust fund is used to pay for benefits under Medicare Part A, which covers inpatient hospital services, care provided in skilled nursing facilities, home health care, and hospice care. The fund derives its income from several sources. Over the next 30 years, about three-quarters of its annual income comes from the Medicare payroll tax and roughly one-eighth comes from income taxes on Social Security benefits. The rest comes from other sources.

Budget Projections

We estimate that the HI trust fund’s balance is exhausted in 2040. The balance generally increases through 2031, but spending begins to outstrip income in the following year.

That projection is based on our demographic projections published in January 2026, our economic and 10-year budget projections published on February 11, 2026, and our long-term budget projections that extend those earlier projections. It does not account for any effects, including effects on the economy or the budget, of the Supreme Court’s ruling on tariffs on February 20, 2026 (Learning Res., Inc. v. Trump, Nos. 24-1287, 25-250, slip op. (S. Ct. Feb. 20, 2026)).

As required by the Deficit Control Act, our projections reflect the assumption that benefits would be paid as scheduled even after the HI trust fund was exhausted. If the balance of the fund was exhausted and the fund’s spending continued to outstrip its income, total payments to health plans and providers for services covered under Part A would be limited by law to the amount of income credited to the fund. Total benefits would need to be reduced (in relation to the amounts in our baseline projections) by an amount that rises from 8 percent in 2040 to 10 percent in 2056, we estimate. It is unclear what changes the Centers for Medicare & Medicaid Services would make to operate the Part A program under those circumstances.

We estimate that the HI trust fund’s actuarial balance measured over a 25-year period is negative: an actuarial deficit of 0.30 percent of taxable payroll (or 0.13 percent of gross domestic product, or GDP).

The actuarial balance is a single number that summarizes the fund’s current balance and annual future streams of revenues and outlays over a certain period. It is the sum of the present value of projected income and the current trust fund balance minus the sum of the present value of projected outlays and a year’s worth of benefits at the end of the period. A present value is a single number that expresses a flow of current and future income or payments in terms of an equivalent lump sum received or paid today. And taxable payroll is the total amount of earnings—wages and self-employment income—subject to the payroll tax.

To eliminate the actuarial deficit, lawmakers would need to take action. They could increase taxes, reduce payments, transfer money to the trust fund, or take some combination of those approaches. The estimated size of the change needed—0.30 percent of taxable payroll—excludes the effects of changes in taxes or spending on people’s behavior and the economy. Those effects, which would depend on the specifics of the policy change, would alter the size of the tax increase, benefit reduction, or transfer needed to eliminate the actuarial deficit.

Changes in Our Projections Since March 2025

The year in which the HI trust fund’s balance is exhausted in our current projections, 2040, is 12 years earlier than in our most recent estimate of that date, which was published in March 2025. Measured in relation to taxable payroll, the trust fund’s 25-year actuarial deficit is 0.17 percentage points greater in the current projections than in last year’s. (Measured in relation to GDP, the actuarial deficit is 0.07 percentage points greater than we projected last year.) Those changes are driven largely by projections of less income to the fund. Projections of greater spending also contribute to the changes.

Our projections of income to the HI trust fund are less this year than last year for three main reasons:

  • First, revenues from taxing Social Security benefits are smaller in the current projections because of changes put in place by the 2025 reconciliation act (Public Law 119-21), which lowered tax rates and created a temporary deduction for taxpayers age 65 or older.
  • Second, we decreased our projections of revenues from payroll taxes to account for projections of lower earnings.
  • Finally, we now project interest income credited to the trust fund to be smaller than estimated last year because of the smaller trust fund balances in this year’s projections.

Spending is projected to be greater mainly because of an increase in expected spending per enrollee. Per-enrollee spending in Medicare Part A’s fee-for-service program in 2025 and bids in 2026 by providers of Medicare Advantage plans were both higher than we expected, leading to projections of greater per-enrollee spending in both programs.

Projections of the HI trust fund’s balances are sensitive to small changes in projections of its spending and income. As a result, those estimates are highly uncertain.

CMS’ 2024 Health Spending Report: Key Insights

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CMS’ 2024 Health Spending Report: Key Insights

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.

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.

Is HCA the Exception or the Rule?

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Is HCA the Exception or the Rule?

Last Tuesday, HCA, the largest investor-owned hospital system, released their Q4 2025 and year-end earnings and they’re impressive. The 190-hospital system reported:

  • Net income of $6.8 billion in 2025, a 17.8% increase year over year.
  • Revenue of $75.6 billion, a 7.1% increase year over year.
  • On a same facility basis, growth in revenue of 6.6%, equivalent admissions of 2.4% and net revenue per equivalent admission of 4.1% versus prior year.
  • For 2026, projected a net income between $6.5 billion and $7 billion and adjusted EBITDA between $15.6 and $16.5 billion on revenue between $76.5 billion and $80 billion.

CFO Mike Marks told the 16 analysts on the investor call “Consolidated adjusted EBITDA increased 12.1% over prior year, and we delivered a 90-basis point improvement in adjusted EBITDA margin. Cash flow from operations was $2.4 billion in the (4th) quarter and $12.6 billion for the year. This represents a 20% increase in operating cash flow in 2025 over full year 2024.”

And CEO Sam Hazen added “Let me add to just the whole resiliency agenda. This is not an episodic event for us. It just happens to be a maturation of what in my estimation is cultural within HCA, and that is being cost effective in finding ways to leverage scale, utilize best practices. Now we have tools… that are in front of us as opportunities to create even more consistency, efficiencies and transparency in the company’s overall cost. And that’s why the program is lining up in a well-timed manner with some of the enhanced premium tax credit challenges.

But we see this program continuing to mature. And as we get more capable at using these tools, it’s going to help us find even more opportunities. But this is not a onetime event. It’s a cultural dynamic in our company around being cost effective, being high quality and finding ways to improve from a process standpoint and a leverage standpoint with our overall scale.”

Shares of HCA closed at $488.27 last week, down from its peak at $527.55 (January27). Per MarketWatch, “shares of HCA Healthcare Inc rose $1.19% to $488.27 Friday on what proved to be an around grim trading session for the stock market, with the S&P Index falling 0.43% to 6939.03 and Dow (DJIA) falling 0.36% to 48,892.47. The stock demonstrated a mixed performance when compared to some of its competitors Friday, as Community Health Systems (CYH) rose 1.26% to $3.21 and Tenet (THC) fell 0.11% to $189.28.”

Hospital stock market analysts are keen to gauge how companies like these are navigating choppy waters for healthcare.  It’s understandable: Healthcare is one of the 11 sectors that comprises the overall S&P 500 and is 9.6% of its weighting. Historically, the healthcare index had beaten the S&P (30-year average 9% vs. 8% overall) but in recent years, it has lagged largely because regulatory policy changes and healthcare budget volatility dampened investor confidence.

Investors are increasingly hedging their bets in healthcare services reasoning even market bell-weathers like HCA face headwinds. And that sentiment has profound impact on operators in not-for-profit health sectors like community and rural hospitals, nursing and home care and ancillary services like EMS, hospice care and others that see their credit-worthiness slipping and costs for debt capital increasing.

My take

HCA is not an exception. It is culturally geared to the business of running hospitals and amassing scale in its markets vis a vis outpatient services and physician relationships. It follows a playbook geared to earnings per share and strategic deployment of capital to optimize its ROC, and it rewards its leaders accordingly. These are not unique to HCA.

And, like other systems, HCA is a lightning rod for critics. Studies have shown for-profit hospitals lean on staffing, aggressive on procurement, concerning to physicians and increasingly problematic to private insurers. Those same studies have shown quality of care to be comparable and charity care to be at or above same-market competitors. But this discipline also enables a higher price to cost ratio, a better payer mix and pruning of clinical services where margins are thin. Again, leverage in payer contracts and high pricing are not unique to the HCA playbook. Some not-for-profit systems have done the same or better.

What’s unique for each system like HCA are 1-the markets in which they enjoy leverage by virtue of scale and 2-the aggressiveness whereby they use their leverage. Ownership status—not for profit vs. investor-owned—matters in some markets and organizations more than others. But market dominance by any system, and how it’s leveraged, is a differentiator.

Case in point: In Asheville NC, HCA’s Mission Health dominates. HCA paid $1.5 billion for the legacy Mission-St. Joseph’s system in 2019. Despite, difficult media coverage and 3 warnings from CMS about quality shortcomings, it’s profitable.

On December 10, 2025, I had quadruple by-pass surgery there. Over the course 2 ED visits in November, the 5-day inpatient stay and post-surgical interactions since, I had the opportunity to see its operations firsthand. The bottom line for me is this: HCA Healthcare is a successful business. It operates Mission aggressively and profitably. Every employee knows it. Staffing is lean. There are no frills. Coordination of care is a crap shoot: connectivity between offices, services, and physicians is limited; price transparency is a joke and care navigation for patients like me is haphazard.  But all say patient care is not compromised as my surgical experience confirmed. Every hospital aspires for the same. All are trying to do more with less.

HCA’s financial success is not the exception in acute care, but it’s certain to draw attention to business practices that enable results like it enjoyed last year across the spectrum of hospital care. And it’s certain to intensify competition between hospitals to get the upper hand.

References in addition to citations in the sections that follow:

HCA faces up to $1.4B hit from ACA, Medicaid headwinds Beckers January 27, 2026 https://www.beckershospitalreview.com/finance/why-hca-says-it-can-navigate-2026-policy-uncertainty

Companies are tired of absorbing tarifffs

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Businesses that held the line on tariff-related price increases last year might be passing more of those costs on to consumers at the start of 2026.

Why it matters: 

The Trump administration is celebrating how little its huge levies have impacted inflation. But new signs indicate the policies are appearing with a lag, complicating their push to address affordability concerns.

Zoom out: 

Many companies reassess pricing at the start of the year — one factor that historically makes January a month of above-average price increases.

  • Tariffs could be supercharging that historic trend: Companies might finally be raising prices to address the costs they ate throughout much of last year.
  • Adobe’s Digital Price Index rose by the most, month on month, in its 12-year history in January — even faster than at the height of the inflation shock in 2022.
  • “The strong increase could be a sign of greater tariff pass-through to start off the new year,” with large price changes for electronics, furniture, bedding and appliances, economists at UBS wrote in a note.

Yes, but: 

The bank’s economists caution that the series can be volatile, and it was down sharply in November, so it could be a head fake.

State of play: 

Official government inflation data for January is not scheduled to be released until next week, pending a government shutdown. Still, there’s other evidence that January could be a spicy month for price hikes.

  • The Institute for Supply Management’s manufacturing survey sub-index for prices ticked up to 59 in January, from 58.5, the highest since September.

Zoom in: 

While there is still caution that higher prices could crimp demand, several references in the Federal Reserve’s compilation of anecdotal information from across the U.S. point to price increases in the new year.

  • In Atlanta, for instance, “many contacts expect to implement price increases in the first half of 2026 to preserve margins, especially those who held prices steady in 2025,” according to the most recent Beige Book.
  • The Philadelphia Fed notes that many businesses anticipated “tariffs to seep into general price levels.”

In a speech this morning, Richmond Fed president Tom Barkin said that he has spoken with about 75 companies since the start of the year, and described a dynamic within companies regarding price-setting.

  • “In boardrooms around the country, sales and finance teams are debating how aggressively to increase prices, for example, in the context of increased tariff-driven input costs,” Barkin said.
  • “If I can stereotype: Sales doesn’t want to pass through those costs at the risk of lost volume; finance doesn’t want to eat the cost at the risk of reduced margins,” Barkin said.
  • “I imagine some finance teams have done well recently (at least based on the increases I’ve seen in my streaming services and homeowners insurance),” he added.

What they’re saying: 

“The Fed is telling us, ‘Don’t worry, the inflationary effects of [tariffs] will subside,’ but I am a little bit skeptical of that,” James Knightley, chief international economist at ING, told reporters in Washington, D.C., this morning.

  • “I do get the sense that there is some delay related to the Supreme Court decision — a lot of companies are hoping it will just disappear,” Knightley said, referring to a pending decision about the legality of the bulk of President Trump’s tariffs.
  • “There is a risk that costs end up getting passed along to you and I in time … it just will come through more slowly,” Knightley said.

CMS’ 2024 Health Spending Report: Key Insights

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CMS’ 2024 Health Spending Report: Key Insights

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.

The bond market keeps the score

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The bond market isn’t as responsive to Federal Reserve interest-rate policy as President Trump’s rhetoric might suggest. That makes the market a powerful check on the president.

  • We explore the tension — and what it means for this volatile week in geopolitics — below. 🏔
  • Plus, a dark horse to be the next Fed chair looks to be gaining ground. 🐎

Situational awareness: 

The Commerce Department released shutdown-delayed data that showed solid growth in incomes and spending for October and November.

  • Consumption expenditures were up 0.5% both months (0.3% inflation-adjusted), pointing to steady underlying demand.
  • The Fed’s preferred inflation measure rose 0.2% both months, and in November was up 2.8% over the previous year.
  • Q3 GDP was revised slightly higher, to a 4.4% annual growth rate (from 4.3% previously), reflecting an upward adjustment to exports.

Trump really, really wants lower interest rates, and the Federal Reserve and other tools of state power have tried to deliver them. The bond market isn’t cooperating.

Why it matters: 

Longer-term borrowing rates are set on global markets, as savvy players who together deploy trillions of dollars make bets on the future of growth and inflation.

  • In an era of vast power concentrated in the Oval Office, that makes it one of the few forces even Trump can’t control. It is a constraint on his actions that will not respond to insults or threats.
  • That, in turn, shows why the TACO trade — the bet that Trump Always Chickens Out when his rhetoric or actions start to ripple across global markets — has been in full force this week.

Driving the news: 

Trump sees the Fed as the main mechanism to bring rates down. That was evident in his latest plea for lower rates, which he brought to the global stage yesterday in Davos, Switzerland.

  • “I’ll be announcing a new Fed chairman in the not-too-distant future. I think he’ll do a very good job,” Trump told a room of global CEOs and government leaders at the World Economic Forum.
  • “Problem is, they change once they get the job. You know they’re saying everything I want to hear and then they get the job … and all of a sudden, it’s ‘let’s raise rates a little.'”
  • Trump said he hopes his pick “does the right thing” with lowering rates. He later added that the U.S. should be paying “the lowest interest rate of any country in the world” on its debt “because without the United States, you don’t have a country.”

Reality check: 

The Fed cut interest rates by a full percentage point in 2024 and another three-quarters of a percentage point in 2025. Yet longer-term borrowing costs are up in that time.

  • The day that rate-cutting began, Sept. 18, 2024, the 10-year U.S. Treasury yielded 3.7%. When the second wave of cutting began this past September, it was 4.06%.
  • This morning, the 10-year yield was 4.27%.
  • The rise in longer-term borrowing costs has happened for a mix of good reasons (higher growth prospects) and bad (higher inflation being priced in). But regardless, the swing shows the limit of the Fed’s ability to cater to the president’s wishes.

What they’re saying: 

“The Fed doesn’t really set interest rates,” JPMorgan Chase CEO Jamie Dimon said in Davos.

  • “What happens if inflation goes up? They raise interest rates. What happens if inflation goes down? They reduce interest rates. They are a follower.”

Yes, but: 

That doesn’t mean the president has no power over long-term interest rates. Tax and spending policy determines government deficits and, in turn, bond issuance and supply.

  • And this administration in particular has been creative in using the tools of government to try to encourage demand for longer-term securities, including directing Fannie Mae and Freddie Mac to buy hundreds of billions of dollars in mortgage bonds and tweaking regulations to encourage banks to hold more Treasuries.
  • Fed appointments also matter — though not necessarily in the way Trump emphasizes. A key to longer-term rates remaining low is investor confidence that the Fed will do what it takes to prevent inflation from taking off — even if that means rate increases in the near term.

Between the lines: 

Last April, a bond market sell-off was a big factor in Trump backing away from “Liberation Day” tariffs.

  • This week’s threats of military force against Greenland and new tariffs on Europe — followed by backtracking — seemingly had echoes of that episode.
  • Treasury Secretary Scott Bessent, however, said on a podcast that “the bond market didn’t change the calculus” and that “President Trump always knew where he was going.”

CMS’ 2024 Health Spending Report: Key Insights

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CMS’ 2024 Health Spending Report: Key Insights

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.