U.S. healthcare spending reaches $5.3T as utilization rebounds

Healthcare spending in the U.S. hit a whopping $5.3 trillion in 2024, marking the second consecutive year of spending growth over 7%, according to new data from CMS.

National healthcare spending increased by 7.2% in 2024, CMS said in a study published in Health Affairs on Wednesday. It is a slight improvement from 2023, when spending grew by 7.4%. However, spending growth hit lows following the COVID-19 pandemic in 2020, with rates of 4.1% in 2021 and 4.8% in 2022.

U.S. healthcare spending is rising rapidly once again as consumers demand more healthcare goods and services, CMS officials said in a media briefing. They cited nonprice factors for the accelerated spending growth, including demand for care and changes in the mix of goods and services consumed.

"The increase follows an overall downturn in demand during the most significant impacts of the COVID-19 pandemic. The strong demand was evident in most goods and services such as hospital care, physician and clinical services and retail prescription drugs," explained Micah Hartman, a statistician with the CMS Office of the Actuary.

The data aligns with provider financial performance reports that show a rebound in patient volumes since the pandemic. Hospital operating margins have been improving since the pandemic despite continued financial headwinds, such as high expenses and uncompensated care.

CMS reported in the study that hospital care represented nearly a third of all national healthcare spending, reaching $1.6 trillion in 2024. Spending on hospital care increased by 8.9%, marking another year of strong growth, the agency said.

Meanwhile, physician and clinical services represented 21% of national healthcare spending, increasing 8.1% to $1.1 trillion in 2024. Retail prescription drugs accounted for 9% of national healthcare spending, rising 7.9% to $467.0 billion in 2024.

Together, these three services accounted for 61% of U.S. healthcare spending.

But other types of healthcare services and goods also experienced significant spending growth. According to the report, these include residential and personal care services (9.1%), nursing care facilities and continuing care retirement communities (7.3% and home healthcare (10.2%). These services can be attributed to a growing aging population.

CMS actuaries also emphasized that accelerated spending on healthcare is largely due to the growing demand for services, driven by personal healthcare spending in 2024, which increased by an average of 8.9%. This was the fastest pace of growth since the 1991-1992 period, when the average of 9.1%.

While utilization is driving U.S. healthcare spending, Hartman said prices are still a factor.

Hospital care prices increased by 3.4% in 2024, representing the largest rate of increase since 2007 and significantly faster than the 2.7% growth seen in 2023, the study showed. Prices also increased for physician and clinical services by 1.8%, while retail prescription drug price growth slowed to 1.4% from 2.3% in 2023.

Medical price growth is tied to faster gross domestic product (GDP), which increased faster relative to recent periods, the study added.

In general, healthcare's share of GDP reached 18.0% in 2024, rising from 17.7% in 2023 and 17.6% in 2022.

CMS actuaries concluded the study, saying the "future of health care spending is uncertain."

"Although some of the recent factors affecting utilization and insurance coverage might not persist, health spending trends are certain to be affected by future economic and demographic changes, as well as by new technologies and innovations," they wrote.

A key innovation in the retail prescription drug space is GLP-1s, which carry a hefty price tag for insurers and high demand from consumers. Advancements in AI also promise to make healthcare delivery more efficient, and payers and providers are rapidly adopting the technology to reap the clinical and financial benefits.

However, policy changes over the next couple of years could have the biggest impact on healthcare spending. Providers are bracing for a significant shift in payer mix as policies from President Donald Trump's One Big Beautiful Bill Act go into effect, including a massive drop in people insured by Medicaid.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016