7 Key Facts About Rising Healthcare Spending in the U.S.
Last Updated March 19, 2025
Healthcare spending in the United States is a key driver of the nation’s fiscal imbalance and has risen notably over the past few decades. Data from the National Health Expenditure Accounts released by the Centers for Medicare and Medicaid Services reveal important insights about why healthcare spending is rising, and what it means for our fiscal condition, budget, and economy. Below are seven key takeaways from the most recent data, which refers to 2023.
1. Healthcare spending increased by 7.5 percent in 2023, in part because of delayed care during the pandemic.
Overall spending on healthcare (both private and public) increased by 7.5 percent in 2023, up from 4.6 percent in 2022. That growth is due to factors other than price, such as utilization rates and mix of services used. The COVID-19 pandemic impacted some of that utilization as many outpatient visits and elective procedures were delayed, avoided, or cancelled. In 2023, when the declaration of the COVID-19 public health emergency was ended, people returned to receive care, therefore increasing overall healthcare spending. Average healthcare spending per person also increased 7.0 percent to $14,570 in 2023 due to the same reasons.
2. Spending on hospital care grew at its fastest rate since 1990.
Spending on hospital care totaled $1.5 trillion (in 2023 dollars) in that year and accounted for 31 percent of healthcare spending; the category includes all services such as room and board, ancillary charges, services of resident physicians, inpatient pharmacy, and any other services billed by hospitals. The increase in spending was driven by higher demand for medical procedures and higher-intensity care. Some people delayed care during the pandemic, which led many patients to present sicker and therefore need more complex treatment in 2023. In particular, Medicare spending on hospital services grew by 6.0 percent in 2023 compared to 1.5 percent growth the year prior, driven in part by increased outpatient hospital use.
3. Healthcare costs as a share of the economy are similar to pre-pandemic levels.
Relative to the size of the economy, healthcare spending in 2023 totaled 17.6 percent of gross domestic product (GDP) — up from 17.3 percent in 2022. Though there was a slight uptick in 2023 as healthcare spending outpaced growth in GDP, such spending represents a similar share of the economy as it did prior to the COVID-19 pandemic.
4. Federal healthcare programs accounted for almost half of healthcare spending.
Through Medicare, Medicaid, and other programs, the federal government accounted for $2.1 trillion, or 47 percent, of all national health expenditures in 2023. That total is an increase of 8.4 percent from the previous year, primarily driven by growth in Medicare and Medicaid. Accounting for the largest portion of federal spending, Medicare spending grew from $952 billion in 2022 to $1.0 trillion in 2023 — an 8.1 percent increase. Medicaid spending (both federal and state expenditures) increased by 7.9 percent, from $807 billion to $872 billion.
5. Spending through Medicare Advantage continued to grow.
Much of the increase in Medicare spending was due to a rise in spending under Medicare Advantage (MA), which allows Medicare participants to receive benefits from private plans rather than the traditional Medicare program. In 2023, spending under MA plans grew by 14.7 percent, partially due to a 6.3 percent increase in enrollment. Over half of Medicare beneficiaries are now enrolled in a MA plan, and MA now accounts for 52 percent of total Medicare expenditures, up from a share of 39 percent in 2019.
6. Expiration of pandemic-related provisions slowed Medicaid enrollment and spending.
Medicaid spending, which includes both federal and state spending, totaled $872 billion in 2023 and grew by 7.9 percent — a slowdown from a growth rate of over 9 percent for each of the three previous years. The slowdown can primarily be attributed to enrollment, which slowed to 0.8 percent in 2023, down from 7.5 percent in 2022. That slowdown stems from the expiration in April 2023 of the provision from the Families First Coronavirus Response Act that allowed continuous enrollment and states began removing individuals from the program. That decrease in enrollment growth led to a reduction in federal Medicaid spending.
7. Spending on retail prescription drugs continued to increase.
Spending on retail prescription drugs totaled $450 billion in 2023 and accounted for 9.2 percent of all healthcare spending. (Retail prescription drugs do not include those administered in a hospital or doctor’s office.) Such spending grew by 11.4 percent in 2023, making it the second fastest growing component of healthcare spending in 2023 (behind other professional services, which are services provided by health practitioners other than physicians and dentists). Private insurance pays the most for prescription drugs, accounting for 39.0 percent of prescription drug outlays, and grew by 13.8 percent from 2022 to 2023. Medicare and Medicaid spending on retail prescription drugs also grew at high rates — up 12.2 and 11.6 percent from 2022 to 2023, respectively. The faster growth in spending on retail prescription drugs in 2023 was influenced by higher numbers of the new GLP-1 drugs that were brought to market to treat diabetes and obesity.
Healthcare spending continued to grow in 2023 as more people returned to seek out healthcare services following the pandemic. Healthcare spending is projected to rise further, thereby putting more pressure on federal programs and everyday Americans. Understanding trends in healthcare spending can help policymakers find reform options that will reduce costs while still maintaining quality of care.
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