U.S. healthcare spending spiked 7.3% last year to reach $5.7 trillion, driven by soaring spending on hospital services and pricey prescription drugs like GLP-1s, according to new government data.
The sharp spending growth isn’t primarily caused by increasing prices. Cost growth has been moderate. Instead, Americans are consuming more healthcare after a lag during the coronavirus pandemic, CMS actuaries said. It’s the same trend they called out in the national health expenditures report for 2024.
But the high rate of growth last year was still surprising, according to Jacqueline Fiore, an economist with the CMS’ Office of the Actuary.
“Spending growth continuted to grow more rapidly for 2025 than we had expected,” Fiore said on a call with press Wednesday to discuss the projections, which the CMS released in the journal Health Affairs.
The forces accelerating spending, however, are no surprise. Retail prescription drug spending is forecast to grow at the fastest clip over the next decade, but especially in 2025 and 2026 due to more Americans utilizing expensive drugs for conditions like cancer — and rabid demand for GLP-1s.
Drug spending is expected to grow fastest, especially now
Average annual growth in spending category, 2024-2034 projected
GLP-1s, or glucagon-like peptide-1 receptor agonists, were created to treat diabetes, but are increasingly prescribed for other conditions, especially weight loss. One in eight Americans report taking a GLP-1. But the medications come with a sky-high price tag — around $1,000 per month.
GLP-1s are a major contributor to the current spike in U.S. health spending, according to John Poisal, the deputy director of the National Health Statistics Group in the CMS’ Office of the Actuary.
“A big, big part of this is GLP-1s, and that is pushing growth rates up for private health insurance for sure, for Medicare for sure,” Poisal said.
Overall health spending growth will be especially high through the end of this year, after which it’s expected to moderate as a result of recent policy changes, according to the CMS. Those include controversial Medicaid cuts in the GOP’s “Big Beautiful Bill,” which should tamp down on spending growth in the safety-net program — while increasing the number of Americans without insurance over the next decade.
Still, the findings highlight healthcare’s growing burden on the nation’s coffers. Last year was the third consecutive year where U.S. health spending increased faster than 7%, blowing past overall economic growth, the CMS said.
That mismatch is expected to continue over the coming years, with the sector gobbling up larger and larger slices of the U.S. gross domestic product.
National health spending is expected to swell from 18% of the GDP in 2024 to $20.6% in 2034, when it will account for a whopping $9 trillion in spending, CMS actuaries predict.
It’s a dour reminder for policymakers in Washington, who continue to equivocate on the best path forward to curb sky-high healthcare spending.
The Trump administration has largely relied on securing voluntary commitments from private healthcare companies, including insurers and drugmakers, to lower costs and remove barriers to care, a strategy that critics slam as ineffective given stakeholders’ profit motivations to retain the status quo.
Rectifying the situation has long been top of mind for patient advocates, value-based care evangelists and budget hawks concerned that the U.S. isn’t getting bang for its buck. The U.S. spends twice as much on healthcare as other wealthy nations, but ranks consistently last among peer countries in life expectancy, preventable deaths, maternal mortality and other metrics.
The CMS’ new projections are likely to bring more attention to the issue, especially as lawmakers remain hyper-focused on healthcare in advance of November’s midterm elections.
“Policy makers will undoubtedly continue to explore options for addressing the significant financing challenges for a sector that is expected to account for more than one-fifth of the economy by 2034,” CMS actuaries wrote.
Medicaid growth slows, Medicare spikes
Policy changes from the Republican-led Congress during President Donald Trump’s second term are expected to remake the U.S. insurance landscape, and the nation’s health spending over the next decade, CMS actuaries said.
In 2024, 91.8% of the U.S. population had insurance. But that figure is expected to drop to 90.8% this year, before dipping further to 90.5% by 2034, according to the report.
That’s largely due to two forces: the expiration of more generous subsidies for Affordable Care Act plans and Medicaid cuts in the “Big Beautiful Bill,” the GOP’s budget reconciliation legislation passed last summer.
“Together, these legislative provisions play a role in reducing the insured share of the population,” Fiore said.
They also have notable trickle-down effects on the U.S.’ health spending outlook.
Medicaid spending growth will slow this year, due to several provisions in the “Big Beautiful Bill” curbing funding and enrollment in the safety-net program, CMS actuaries said. Those include restrictions on mechanisms states use to boost their federal Medicaid funding, and a requirement that certain enrollees meet monthly work requirements in order to continue receiving Medicaid coverage.
Private health insurance spending is also expected to moderate this year as a result of lower ACA coverage rates, after the loss of the subsidies priced many Americans out of the exchanges set up by the Obama-era law.
Though, per-enrollee spending is set to jump, as people who stayed in the exchanges are likely to be sicker and require higher spending for their care, Fiore said.
The CMS’ predictions mirror those from insurers, which say they’ve been left with a smaller and higher acuity population after Congress allowed the subsidies to expire at the end of 2025 after a drawn-out but ultimately fruitless battle, with Democrats stumping for an extension and Republicans lobbying against.
Medicare spending is expected to grow at the fastest rate of any payer type over the next decade, as the youngest wave of Baby Boomers finally ages into the program and the oldest Baby Boomers need more robust care, necessitating higher spending, according to the CMS.
Medicare, which provides health insurance to U.S. seniors over the age of 65 and some disabled individuals, will experience an annual growth of 7.7% through 2034, significantly higher than growth in Medicaid (5%), private health insurance (5%) or out-of-pocket spending (4.7%), CMS said.
Medicare will swell until the federal government bears 33% of the nation’s entire healthcare spending, up from 31% in 2024.
The share borne by U.S. employers is expected to shrink from 18% in 2024 to 17% by 2034, while the share covered by households and state and local governments are projected to stay stable, at 28% and 16% respectively.
