Health Care Industry Shows Resilience in 2025—What’s Ahead for 2026

Challenges remain, as U.S. health systems are facing a ‘financial trifecta,’ according to Kaufman Hall’s 2025 Health System Performance Outlook.

An older couple reviews information with a health care practitioner in this file photo. Shutterstock

The U.S. health care industry closed 2025 with strong growth, even as mounting challenges continued to pressure profit margins across the sector, particularly for providers.

National health expenditures are projected to increase by 7.1 percent in 2025, slightly below the estimated 8.2 percent growth rate in 2024, according to a report by the Centers for Medicare and Medicaid Services. Spending growth is expected to moderate further to 5.6 percent in 2026, still well above the nation’s long-term gross domestic product growth rate.

Spending and Cost

Health care spending, which now accounts for nearly 20 percent of the U.S. gross domestic product, has shown notable resilience, reflecting sustained growth in health care goods and services, driven by a combination of demand- and supply-side factors.

On the demand side, demographic shifts remain a central driver. An aging baby boomer population continues to increase utilization of health care services, with much of that care financed through government programs and private insurance premiums.

According to the Census Bureau, the share of older Americans rose between 2010 and 2020 to its highest level since 1880–1890, with roughly one in six people now aged 65 or older.

The agency also projects that by 2030, all baby boomers will be 65 or older, reinforcing long-term demand for medical services.

At the same time, health insurance premiums have risen sharply. A Rice University study reports that from 1999 to 2024, the average worker’s contribution to family health insurance premiums grew by 308 percent, while total premiums rose by 342 percent. Those increases far outpaced growth in worker earnings and were nearly five times the rate of inflation over the same period.

On the supply side, innovation continues to reshape care delivery, particularly through the adoption of precision medicine. This personalized approach customizes treatments based on a patient’s genetic, environmental, and lifestyle characteristics.

Some hospitals are already integrating these technologies into their operations, turning into “smart hospitals.”

Take the Minnesota-based Mayo Clinic, for example. Its advanced disease diagnosis and treatment systems include artificial intelligence-powered diagnostic tools that predict disease outcomes and identify treatment pathways with unprecedented accuracy, a precision medicine platform that tailors treatments based on individual patients’ genetic profiles, advanced robotics for minimally invasive surgeries, and digital health integrations that enable continuous care beyond hospital walls.

The Ohio-based Cleveland Clinic is another example of a smart hospital, exemplified by its groundbreaking quantum computing initiatives and comprehensive artificial intelligence (AI) implementation strategy.

However, these advances are contributing to higher costs. The medical care component of the consumer price index rose from roughly 571 at the end of January 2025 to about 585 at the end of November 2025.

Labor shortages have added further strain to the industry, exacerbating cost pressures and squeezing provider margins.

A McKinsey survey found that since 2019, industry earnings before interest, taxes, depreciation, and amortization as a share of national health expenditures have declined by an estimated 150 basis points.

Additional margin pressure is coming from constrained reimbursement growth amid a shifting payer mix. Enrollment in Medicare and Medicaid rose from 43 percent of total coverage in 2019 to 45 percent in 2023.

These challenges are particularly evident among hospitals. Kaufman Hall’s 2025 Health System Performance Outlook describes a “financial trifecta” facing health systems: rising non-labor expenses, workforce instability, and aggressive payer reimbursement pressures. Nearly 60 percent of health systems reported non-labor cost increases of up to 10 percent, driven by inflation and tariffs, while 44 percent experienced elevated claim denial rates.

What Is Ahead in 2026

Cost pressures are expected to persist in 2026. WTW’s 2026 Global Medical Trends report projects that health care costs will rise by 9.6 percent in 2026, only slightly below the estimated 9.7 percent increase in 2025.

Ernst & Young identified several trends likely to shape the industry in 2026, including broader adoption of AI beyond pilot programs, heightened cybersecurity concerns, increased mergers and acquisitions in lower-acuity care, greater emphasis on financial discipline and waste reduction, expanded offshoring, renewed focus on talent development, and growing reliance on third-party partnerships to improve efficiency and patient outcomes.

“Payers, providers, and consumers are finding themselves at the intersection of change in healthcare like no other time in history,” Kim Dalla Torre, leader of the global and Americas health sector at Ernst & Young, said in a statement.

“Leaning into solutions now could drive value and care models that are sustainable for everyone’s future.”

Industry experts offered additional perspectives on where health care may be headed.

Jerry Beinhauer, CEO and founder of Apaly Health, expects continued growth in value-based care models as traditional fee-for-service approaches lose appeal.

“When providers are compensated based on the quantity of services they deliver versus the quality of care, incentives are not aligned,” he told The Epoch Times.

He noted that value-based payment models have grown by more than 50 percent since 2015, with the federal government aiming to have all Medicare payments flow through such models by 2030.

Beinhauer also emphasized the role of patient experience and patient-centered care in driving transformation. He pointed to technological innovation, policy changes such as prior authorization reform, and rapid growth in subscription-based and advanced primary care models as evidence of a shift toward a more accessible and personalized system.

Lisa Pion-Berlin, president and CEO of Parents Anonymous, highlighted a growing emphasis on prevention rather than treatment alone.

“The health care system must double down on prevention—physical, mental, emotional,” she told The Epoch Times, citing low-cost lifestyle interventions as having outsized long-term benefits.

She also stressed that although technology will play a larger role, it should complement, not replace, human connection.

Neal K. Shah, author of “Insured to Death: How Health Insurance Screws Over Americans—And How We Take It Back,” told The Epoch Times that the second half of the decade could bring greater efficiency and lower costs for consumers. He pointed to permanent telehealth provisions for Health Savings Account (HSA) holders as a step toward removing barriers to affordable care.

Shah said expanded HSA flexibility could empower consumers by giving them greater control over health care spending, forcing providers to compete on price and quality.

Fred Ferguson, assistant director of pediatric dentistry at One Brooklyn Health and distinguished teaching professor emeritus at Stony Brook University, expressed skepticism that the expanded HSA measures will resolve systemic issues.

He told The Epoch Times that current strategies focus too heavily on short-term “care” rather than building durable partnerships between patients and providers that support accountability, population health, and sustained improvement.