Why Healthcare Costs Keep Rising in the U.S.
Why Healthcare Costs Keep Rising in the U.S.
U.S. healthcare costs keep rising because the country combines unusually high medical prices with growing use of services, an aging population, expensive new treatments and increasing public-program spending. Provider consolidation can also strengthen pricing power in commercial insurance markets. In 2024, total national health spending rose 7.2% to $5.3 trillion.
In this article, “healthcare costs” refers primarily to total U.S. health spending. Prices charged by providers, insurance premiums, government expenditures and out-of-pocket payments are related parts of that broader total, but they are not interchangeable measures.
The latest historical figures come from the Centers for Medicare & Medicaid Services National Health Expenditure Accounts for 2024. CMS projections for 2025–2034 are presented separately from observed data. Congressional Budget Office analysis and international comparisons are used to examine demographic pressure, provider consolidation and the difference between U.S. healthcare prices and utilization.
National Health Expenditure Accounts.
National health expenditures per U.S. resident in 2024.
Nominal increase from 2023 to 2024.
Health spending as a share of the economy in 2024.
Healthcare spending increased across the largest parts of the system
The 2024 increase was broad rather than concentrated in a single type of care. Spending rose for hospitals, physician and clinical services, prescription drugs and the major public and private insurance programs.
Hospital care remained the largest major service category at $1.635 trillion. Physician and clinical services exceeded $1.1 trillion, while retail prescription drug spending reached $467 billion.
Major U.S. healthcare spending categories, 2024
| Category | Spending | 2024 growth | Scope |
|---|---|---|---|
| Hospital care | $1,634.7B | 8.9% | CMS National Health Expenditure service category. |
| Physician & clinical services | $1,109.7B | 8.1% | CMS National Health Expenditure service category. |
| Retail prescription drugs | $467.0B | 7.9% | Retail drugs; drugs billed through hospitals or physician services can appear in other expenditure categories. |
Service categories and payer categories describe the same healthcare system from different accounting perspectives and should not be added together.
Who financed the spending?
Private health insurance spending reached about $1.645 trillion in 2024. Medicare spending was $1.118 trillion, Medicaid spending was $931.7 billion and out-of-pocket spending reached $556.6 billion. When expenditures are classified by sponsor, the federal government accounted for 31% of national health spending and households for 28%.
What keeps pushing U.S. healthcare costs upward
Hospital and physician care starts from a very large spending base
Hospital care and physician services account for a large share of U.S. health expenditures. A high single-digit increase in either category can therefore add a substantial amount to national spending.
In 2024, hospital spending increased 8.9%, while spending on physician and clinical services increased 8.1%.
Use of healthcare services and treatment intensity increased
The 7.2% rise in national health spending in 2024 was much larger than medical price growth alone. CMS estimated medical price growth of about 2.5%, while non-price factors accounted for roughly 4.7%.
Those non-price factors include changes in the use and mix of healthcare goods and services, population growth and demographic changes.
U.S. healthcare prices remain high by international standards
The long-term U.S. spending gap is different from the explanation for a single year's increase. International comparisons show that Americans do not consistently use more healthcare than residents of other wealthy countries. Use of several common services is lower.
The United States nevertheless spends substantially more because prices for many hospital, physician and other healthcare services are considerably higher.
An aging population increases demand for medical care
Healthcare use generally rises with age. CMS's latest detailed age-specific spending estimates cover 2020 and show that personal healthcare spending per person aged 65 and older was more than twice the level for working-age adults.
The Congressional Budget Office expects the population aged 65 and older to continue growing during the next decade, increasing Medicare enrollment and adding pressure to federal healthcare spending.
New drugs and medical technologies can increase spending
Medical innovation can improve survival, reduce disability and replace older treatments. It can also expand the number of patients eligible for treatment or introduce therapies with substantial prices.
Retail prescription drug spending increased 7.9% in 2024. CMS projects retail prescription drugs to have the fastest average growth among the major National Health Expenditure service categories during 2025–2034.
Provider consolidation can increase negotiating leverage
Hospital and physician consolidation does not explain every increase in healthcare spending, but it can influence prices in commercial insurance markets.
CBO finds that greater provider concentration can strengthen bargaining leverage with private insurers. Hospital ownership of physician practices can also move some services into hospital outpatient settings where payment rates may be higher.
Administrative complexity contributes to the high U.S. cost structure
The United States relies on many public and private insurers, provider networks, billing systems, contracts and payment rules. Insurers, hospitals and physician practices all devote resources to claims processing, billing, coding and payment administration.
Administrative costs help explain the high overall level of U.S. healthcare spending, although they were not the main source of the acceleration in 2024.
Insurance spreads costs across households, employers and government
Much of the cost of healthcare is not paid directly at the point of treatment. It is financed through employer premiums, employee contributions, Medicare and Medicaid spending, taxes and other insurance payments.
Insurance also affects negotiated prices, provider networks, benefit design and incentives to use care. It therefore influences both how medical spending is financed and, in some cases, the prices and utilization that contribute to total expenditures.
Growth in major healthcare spending categories in 2024
The three large service categories below all recorded strong nominal spending growth. Hospital care had the highest growth rate of the three and also began from the largest spending base.
Annual nominal spending growth. Bar scale: 0% to 10%.
Recent spending growth and high U.S. prices are different problems
Why did spending rise sharply in 2024?
CMS estimates indicate that utilization, treatment mix and other non-price factors accounted for more of the 2024 increase than medical price growth. National health spending rose 7.2%, while medical prices increased by about 2.5%.
Why does the U.S. spend more than peer countries?
International comparisons point much more strongly to prices. The United States generally pays more for healthcare services even though use of many services is no higher, and is sometimes lower, than in comparable wealthy countries.
These findings are consistent. The U.S. entered 2024 with an already high price level. Increased utilization and service intensity then added further spending on top of that expensive baseline.
Reducing unnecessary care can slow spending growth, but utilization alone does not explain the international spending gap. Price differences remain central when U.S. healthcare is compared with other high-income economies.
Aging adds predictable pressure to healthcare spending
Older adults use more healthcare on average, particularly hospital services, physician care, prescription drugs and long-term services and supports.
CMS's most recent detailed age-and-sex National Health Expenditure estimates cover 2020. Those estimates show much higher personal healthcare spending per person among adults aged 65 and older than among working-age adults. This dataset describes differences in spending by age; it should not be read as a 2024 age-specific spending estimate.
CBO's 2026 budget outlook projects that the U.S. population aged 65 and older will increase by about 15% between 2027 and 2036. A larger older population increases Medicare enrollment, while growth in spending per beneficiary creates additional pressure.
Aging is an important structural driver, but it does not by itself explain why U.S. healthcare spending is so high. Price levels, treatment intensity, medical technology and market structure remain important as well.
Provider consolidation can affect commercial healthcare prices
Healthcare markets differ from ordinary consumer markets. Patients may need care urgently, prices are often difficult to compare in advance and insurers negotiate many payment rates on behalf of their members.
CBO reports that the share of hospitals affiliated with health systems increased from 53% in 2005 to 68% in 2022. The share of physicians employed by hospitals or health systems increased from 29% in 2012 to 41% in 2022.
Greater market concentration can give large hospital systems or physician groups more leverage in negotiations with private insurers. Higher negotiated provider prices increase insurer claims costs and can later contribute to higher premiums for employers and households.
Ownership structure can also affect where care is delivered. When services previously provided in an independent physician office move into a hospital outpatient setting, payment for similar care may increase because of hospital outpatient rates or facility fees.
Consolidation is not a complete explanation for national healthcare spending, and individual transactions can have different effects. Its importance lies in the relationship between local market power and the prices paid in commercially insured healthcare.
CMS projects healthcare spending to continue growing faster than GDP
The latest CMS projections cover 2025 through 2034. They point to continued growth in national health expenditures relative to the size of the U.S. economy.
National health expenditures
Projected average annual growth, 2025–2034.
U.S. GDP
Projected average annual growth over the same period.
Health spending share of GDP
CMS projection for 2034, compared with 18.0% in 2024.
Medicare spending
Projected average annual growth, 2025–2034.
CMS projects average annual growth of 5.7% for retail prescription drug spending, 5.5% for physician and clinical services and 5.2% for hospital expenditures over 2025–2034.
These figures are official projections rather than observed future spending. Actual outcomes can change with legislation, economic conditions, insurance enrollment, medical innovation, new drug introductions, healthcare utilization and prices.
Common explanations that are incomplete on their own
Americans simply use more healthcare
That explanation does not fit the international evidence. Americans use some services more often, but use of many common services is similar to or lower than in peer countries. Higher prices account for a large part of the spending difference.
Prescription drugs are the main cause of healthcare spending
Drug spending is significant and is projected to grow quickly, but hospital and physician services account for much larger totals. Retail prescription drug statistics also exclude some medicines administered and billed through hospitals or physicians.
Aging explains the entire increase
Population aging increases demand for medical services and Medicare coverage, but it cannot explain the full U.S. spending gap with other wealthy countries.
Administrative costs explain everything
Administrative complexity is part of the U.S. cost structure, but hospital care, physician services, prescription medicines and other direct healthcare services account for much larger amounts of national spending.
Insurance simply reduces the cost of care
Insurance protects patients against unpredictable medical bills and redistributes financial risk. The underlying medical services still have to be financed through premiums, employer contributions, public spending, taxes, deductibles and other payments.
What rising healthcare spending means for households, employers and government
National healthcare expenditures ultimately reach households and taxpayers through several channels rather than through medical bills alone.
- Households pay insurance premiums, employee contributions, deductibles, copayments and direct medical expenses.
- Employers finance a substantial share of employment-based health insurance as part of worker compensation.
- The federal government finances Medicare, part of Medicaid, Marketplace subsidies and other health programs.
- State governments finance part of Medicaid and other health services.
- Workers can bear part of rising employer healthcare costs through changes in the composition of total compensation over time.
No single factor explains U.S. healthcare spending. High prices operate alongside growing service use, demographic pressure, medical innovation, prescription drug spending and provider market power.
The 2024 data show that recent spending growth was not driven by prices alone. The international comparison points to a different structural problem: the U.S. continues to pay unusually high prices for many forms of care. Under the current CMS projection, national health expenditures continue growing faster than the economy through 2034.
FAQ
How much does the United States spend on healthcare?
National health expenditures reached $5.3 trillion in 2024, equal to $15,474 per person and 18.0% of U.S. GDP, according to CMS.
How fast did U.S. healthcare spending grow in 2024?
National health expenditures increased 7.2% from 2023 to 2024.
Were higher medical prices the main cause of the 2024 increase?
Not by themselves. CMS estimated medical price growth of about 2.5%, while non-price factors contributed roughly 4.7% to the increase in national health spending. Those factors include utilization, treatment mix, population growth and demographic change.
Why does the U.S. spend more on healthcare than other wealthy countries?
International comparisons show that high prices are a major reason. Americans do not consistently use more healthcare than residents of peer countries, but many U.S. hospital and physician services are more expensive.
What is the largest major category of U.S. healthcare spending?
Hospital care is the largest major service category in the National Health Expenditure Accounts. Spending on hospital care reached approximately $1.635 trillion in 2024.
How much does prescription drug spending contribute?
Retail prescription drug spending reached $467.0 billion in 2024 and increased 7.9%. CMS projects it to grow by an average of 5.7% annually during 2025–2034.
How does an aging population affect healthcare spending?
Older adults spend substantially more on healthcare per person, and the U.S. population aged 65 and older is expected to continue growing. That increases Medicare enrollment and demand for medical services, although aging is only one part of the overall cost picture.
Can hospital consolidation raise healthcare prices?
CBO finds that provider consolidation can increase bargaining leverage with commercial insurers and can contribute to higher negotiated prices. The effect can vary across markets and individual transactions.
Will U.S. healthcare spending keep rising?
CMS projects national health expenditures to grow by an average of 5.4% per year from 2025 through 2034, faster than projected GDP growth of 4.1%. Health spending is projected to reach 20.6% of GDP by 2034.
Sources
Centers for Medicare & Medicaid Services — National Health Expenditure Fact Sheet
Primary source for total U.S. health spending, per-capita spending, GDP share, payer totals and major service-category values for 2024.
Centers for Medicare & Medicaid Services — Historical National Health Expenditure Data
Official National Health Expenditure Accounts, historical series and methodological definitions.
Centers for Medicare & Medicaid Services — National Health Expenditure Projections
Official projections for national healthcare spending, GDP share, Medicare and major service categories through 2034.
Centers for Medicare & Medicaid Services — Health Expenditures by Age and Sex
Source for the age-specific comparison used in the section on older adults. The latest detailed estimates used here cover 2020.
Congressional Budget Office — The Budget and Economic Outlook: 2026 to 2036
Source for demographic projections, growth of the population aged 65 and older, Medicare enrollment and federal healthcare spending context.
Congressional Budget Office — Testimony on Hospital and Physician Consolidation and Its Impact on the Federal Budget
Evidence on healthcare market concentration, provider bargaining leverage, commercial prices and changes in the site of care.
Peterson-KFF Health System Tracker — Healthcare Prices and Use
International comparison of U.S. healthcare prices and utilization using OECD and related datasets.
Peterson-KFF Health System Tracker — U.S. Healthcare Spending Over Time
Supporting analysis of long-run spending, medical prices, utilization and administrative costs based primarily on CMS National Health Expenditure data.
https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/
