Healthcare spending in the United States is a dominant force not only in federal expenditures but also in the business sector. Companies, large and small, must navigate the rising costs of providing healthcare benefits to employees while ensuring profitability and sustainability. With healthcare spending projected to reach one-fifth of the U.S. economy by 2032, businesses and policymakers alike must grapple with the financial burden and seek strategies to mitigate costs.
In fiscal year (FY) 2024, the federal government allocated $1.9 trillion to health programs and services, making up 27% of all federal spending—the largest category in the budget. As healthcare expenses continue to rise, businesses must consider how they will absorb these costs, pass them on to employees, or adjust compensation structures.
Where Does the Money Go?
Federal healthcare spending is divided among several major programs, each serving different segments of the population. These programs also play a critical role in the business landscape, influencing employer-sponsored insurance costs and corporate tax obligations:
- Medicare (36%): Covering nearly 68 million older adults and individuals with disabilities, Medicare accounted for $839 billion in federal spending in 2024. Businesses operating in healthcare, pharmaceuticals, and insurance closely monitor changes to Medicare policies, as they directly impact reimbursement rates and market demand.
- Medicaid and CHIP (25%): These programs, which provide healthcare coverage for low-income individuals and families, cost the federal government $584 billion in 2024. Proposed funding cuts could shift more financial burden onto hospitals and insurers, impacting businesses reliant on Medicaid payments.
- Employer-Sponsored Insurance (17%): The government subsidizes health coverage for millions of Americans through tax exclusions, reducing federal revenue by $384 billion. For businesses, this tax break has long been a key incentive to offer comprehensive health benefits, but rising costs are causing many employers to rethink their strategies.
- Affordable Care Act (ACA) Subsidies (5%): Financial assistance for ACA marketplace enrollees totaled $125 billion in 2024. Changes to these subsidies could affect employer healthcare strategies, especially for small businesses that rely on marketplace options for employee coverage.
The remaining healthcare budget includes discretionary spending, such as veterans’ medical care, public health programs, and medical research. Over half of discretionary health spending ($128 billion) funds care for military veterans, while institutions like the National Institutes of Health (NIH) and the Centers for Disease Control and Prevention (CDC) receive smaller portions.
The Role of Tax Subsidies
Beyond direct spending, the federal government supports healthcare through tax policies that reduce liabilities for individuals and businesses. In 2024, tax subsidies related to healthcare cost the government $398 billion. The largest portion (85%) came from the exclusion of employer contributions to health insurance premiums, which significantly reduces taxable income for millions of workers.
“Most of the foregone revenue to the federal government from health-related tax subsidies (85%) comes from the exclusion of employer contributions for health insurance, which totaled $384 billion in 2024,” according to budget analysis. This tax policy effectively incentivizes businesses to provide health insurance, but as costs rise, some companies are shifting to high-deductible health plans (HDHPs) or self-insurance models.
Rising Costs and the Future of Healthcare Spending
Several factors are driving healthcare costs upward, all of which have direct implications for businesses:
- An Aging Population: Older adults require more medical care, leading to increased spending on Medicare and long-term care services. This trend impacts industries providing elder care, pharmaceuticals, and medical devices, creating both challenges and opportunities.
- Rising Medical Prices: Inflation, technological advancements, and higher labor costs in healthcare contribute to overall spending growth. “Healthcare costs continue to rise due to a myriad of factors, but central reasons include the increased utilization of healthcare services, partially due to the aging population and the rising cost of health services,” the Centers for Medicare & Medicaid Services (CMS) projects.
- Increased Utilization: More Americans are using healthcare services, especially following the COVID-19 pandemic, which led to pent-up demand. Employers must consider how to manage costs while maintaining employee satisfaction and productivity.
Government projections indicate that healthcare spending will increase from $2.2 trillion in 2023 to $3.8 trillion in 2032. With these rising costs, the financial burden on both taxpayers and businesses will intensify, raising concerns about long-term sustainability.
The Debate Over Budget Cuts
As Congress looks for ways to balance the budget, healthcare programs are under scrutiny. Proposed spending cuts primarily target Medicaid, which covers 83 million people and accounts for one-fifth of total healthcare expenditures. Some lawmakers are pushing for changes such as:
- Imposing caps on Medicaid funding.
- Reducing subsidies for ACA marketplace enrollees.
- Reforming Medicare payments to hospitals and healthcare providers.
For businesses in the healthcare industry, these changes could mean significant shifts in revenue and reimbursement models. Hospitals, insurance companies, and pharmaceutical firms must prepare for potential reductions in government funding and adjust their strategies accordingly.
Healthcare’s Impact on Business and the Federal Budget
Healthcare is a major driver of government debt, with spending growing faster than revenue. If current trends continue, healthcare could consume an even larger share of the federal budget, putting pressure on other public services like education and infrastructure. For businesses, this could mean:
- Higher Employer Costs: As government support fluctuates, companies may have to shoulder more of the burden for employee healthcare.
- Regulatory Uncertainty: Changing healthcare laws and policies can disrupt business planning and require constant adaptation.
- Market Opportunities: Healthcare technology, telemedicine, and cost-saving innovations will be in high demand as businesses and consumers seek more affordable options.
To address these challenges, policymakers must find a balance between cost containment and ensuring access to quality care. Possible solutions include:
- Reforming payment models to incentivize efficiency.
- Expanding preventive care to reduce long-term costs.
- Negotiating drug prices to curb pharmaceutical expenses.
- Strengthening Medicaid and Medicare sustainability.
With U.S. healthcare spending projected to reach one-fifth of the economy within the next decade, the financial strain on businesses, taxpayers, and the government will only grow. Whether through budget cuts, policy reforms, or alternative funding models, addressing rising healthcare costs is a pressing issue that will shape the nation’s economic future.
Lawmakers face tough decisions about which programs to sustain and how to balance federal spending while ensuring millions of Americans retain access to affordable healthcare. Meanwhile, businesses must prepare for an evolving healthcare landscape that will impact everything from employee benefits to industry growth strategies. The path forward requires careful planning and bipartisan cooperation to create a system that is both financially viable and equitable for all.
We’re aboard a medical expense train that’s hurtling toward an abyss where the bridge is out. Medical already eats up nearly 20% of our GDP. We have by far the costliest health care system in the world, and yet we’re getting sicker and our average life span is dropping fast.
Three things need to happen to turn this around:
1. Fedgov must enforce the Sherman Antitrust Act to reduce excess charges.
2. Americans must avoid toxic fake food products and embrace healthy choices.
3. Americans must utilize alternative and integrative modalities of health care, which are more effective and less costly than Rockefeller allopathic medicine.