This month, the Center for Medicare and Medicaid Services (CMS) released the most recent report on U.S. healthcare financing. This covers calendar year 2024 and shows us how we pay for healthcare in the United States. Additionally, CMS has projected how we will be spending our healthcare dollars over the next 8 years.
U.S. healthcare is expensive
Americans spend more on healthcare than citizens of any other country. In 2024, we spent $15,474 per person on healthcare. That works out to 18.1% of the country’s entire gross domestic product! Not only is healthcare more expensive in the U.S., but it has also been increasing at a faster pace than any other country. The graph below based on data from the OECD shows expenditures on healthcare as a percentage of GDP from 1980 to 2021. United States in the green line shows that our healthcare expenditures are increasing much faster than any other developed country.
The CMS data shows that healthcare expenditures increase dramatically with age. In 2020, healthcare for those under age 18 only costed an average of $4,217 per person but for those over age 85, the average healthcare expenditures were $35,995 per person. Importantly, the most recent CMS data on age-related expenditures is from 6 years ago, in 2020. In that year, the average U.S. per capita healthcare expenditure was $12,637 and increased 22% by 2024. Based on the recent 7.2% annual healthcare cost inflation rate, we can estimate that in 2025, the cost of healthcare for Americans over age 85 was approximately $46,500 per year. This is roughly twice the amount of the average retired American’s annual Social Security benefit.
Where did the American healthcare dollar go?
So, why is it that Americans spend so much for healthcare compared to the rest of the world? Inevitably, any discussion about U.S. healthcare finances leads to finger pointing at individual healthcare costs: drug costs, hospital charges, physician charge, nursing home costs, etc. But the reality is that we pay a lot for all of the various healthcare costs. The figure below from the recent CMS report shows how Americans spent money on healthcare in 2024.
The largest expense was for hospital care at 31% of total healthcare expenditures or $1.64 trillion. The next largest was for physician and other clinical services at 21% or $1.11 trillion. Prescription drugs accounted for 9% of healthcare expenditures and nursing home expenditures only accounted for 4% of the total. In contrast, 7% of healthcare expenditures went toward the administrative costs of insurance companies and Medicare – that was a total of $370 billion in 2024.
The types of healthcare expenditures that Americans pay for has not changed appreciably over the past 24 years. The table below shows the percent of types of healthcare expenditures on a per capita basis. There has only been a 1 – 2 percentage point change in each of these categories between 2000 and 2024. In other words, all types of healthcare services and products have increased similarly since 2000.
Where did the American healthcare dollar come from?
Private health insurance companies were the largest source of healthcare funding at 31%, followed by Medicare at 21% and Medicaid at 17%. Out of pocket expenditures accounted for 11% which works out to an average out of pocket cost per American of $1,700.
Estimates of future U.S. healthcare expenditures
The CMS report also includes projections of healthcare expenditures through 2033. The report anticipates a per capita 4.7% to 5.2% annual increase in healthcare expenditures. As a result, in 2033, the average American’s healthcare expenditure will be $24,200. That equates to an increase to 20.3% of the nation’s gross domestic product in 2033.
CMS projects that all types of healthcare expenditures will increase with hospital care continuing to be the largest healthcare expenditure in 2033.
Not all types of healthcare expenditures are projected to increase at the same rate, however. The greatest increase between 2025 and 2033 is projected to be in home health (71% increase) and private insurance company administrative costs (69%). At the other end of the spectrum, public health is only projected to increase by 21% from 2025 to 2033. In contrast, the Congressional Budget Office projects that the consumer price index will increase by 19.8% from 2025 to 2033, indicating that all types of healthcare costs will substantially outpace the general inflation rate over the next 8 years.
One implication of these projections is that home healthcare will be a growth opportunity over the next 8 years and hospitals would be well advised to invest in home health delivery.
The other implication is that commercial health insurance company administrative cost increases will outpace increases in other healthcare expenditures and increase nearly twice as much as governmental insurance administrative costs, such as Medicare. There are several reasons why this will likely occur. With the steady growth in Medicare Advantage Plans (Medicare Part C), commercial insurance companies will increasingly assume administrative costs previously incurred by Medicare when in the past, a majority of Medicare beneficiaries were covered under traditional Medicare, rather than Medicare Part C. In addition, insurance company CEO pay has increased more than other healthcare costs with an increase of 27% between 2023 and 2024 alone. Collectively, the CEOs of the six major national health plans earned $159.4 million in total compensation in 2024.
However, this also indicates a financial vulnerability of American healthcare – dozens of individual commercial health insurance companies all have redundant administrative costs, such as employment of company-specific actuaries, CEOs, underwriters, contract analysts, and sales staff. From a macro national healthcare economic standpoint, these redundant costs add considerably to what Americans pay for healthcare and represent opportunities for policy changes that could lower future costs.
There is not a simple fix to the problem
From all of the above data, it is clear that there is no simple way to reign in U.S. healthcare costs. We cannot reduce per capita healthcare expenditures by simply reducing prescription drug costs. Nor by simply reducing physician reimbursement. Nor by reducing payments to nursing homes. The problem with the cost of American healthcare is that all types of healthcare expenditures are increasing and they are all increasing faster than the general inflation rate.
But there is reason to hope. Other countries have been able to provide as good or better healthcare to their citizens for a fraction of the cost in the United States. And although healthcare expenditures as a percent of GDP are increasing in all countries, all other developed countries have been able to control the rate of increase in expenditures more effectively than the U.S. If other countries have been able to do it, we should be able to as well.
January 25, 2026
