President Trump has vowed to impose tariffs on a wide variety of goods from multiple countries. While consumers may expect the price of some imported goods to go up, what may be surprising is that these tariffs are already driving health insurance premiums up.

That is because some health insurance companies expect tariffs to drive up their own costs for prescription drugs that are imported into the United States. Retail prescription drugs represent about 12% of all private health insurance spending.

Health insurance companies must submit their proposed premium changes for the coming year to state regulators in the spring and summer. Several individual insurance market carriers are raising 2026 premiums by more than they otherwise would, due to the expectation that tariffs will drive up their prescription drug costs, which may or may not come to pass.

“To account for uncertainty regarding tariffs and/or the onshoring of manufacturing and their impact on total medical costs, most notably on pharmaceuticals, a total price impact of 2.20% is built into the initially submitted rate filing.”

–UnitedHealthcare of Oregon (OR)

Optimum Choice of Maryland, Independent Health Benefits Corporation of New York, and UnitedHealthcare of New York are also raising premiums by 2.4%, 2.9%, and 3.6% more than they otherwise would because of tariffs’ impact on pharmaceuticals, respectively.

Not every insurer is explicitly mentioning tariffs or necessarily including an upward effect on their 2026 premiums. The extent to which tariffs increase the cost of healthcare and insurance premiums more broadly than these examples remains to be seen, but just the expectation of higher prescription prices is already causing premiums for some carriers to go up by more than they would otherwise.

This article has been updated.

In a little more than 100 days, the Trump administration has brought unprecedented changes to federal support of the U.S. health care system, sparking turmoil and confusion, medical experts say.The Trump administration calls its sweeping changes a “critical course correction” to the way the nation delivers health care.

“This is not just policy ‒ it’s a revolution in public health,” Department of Health and Human Services Secretary Robert F. Kennedy Jr. said in an April 29 statement touting the administration’s accomplishments.

On the administration’s list of accomplishments: a new commission to end childhood chronic diseases, a review of infant formula safety, an investigation into the causes of autism and an effort to reduce animal testing. HHS also plans to review whether fluoride is safe to add to drinking water, despite decades of evidence that it supports dental health and poses no substantial risks.

But some people on the front lines of the health care system – doctors and nurses, researchers, advocates and local officials – criticize the rapid-fire overhaul as “reckless” and say it will cost dollars and lives.

More than 70% of Americans said the health care system isn’t meeting their needs in some way, according to a 2023 poll.

Yet some in the medical community fear an array of policy changes may make matters worse. Expected cuts to Medicaid and other programs could mean the loss of of health care benefits and prevention programs for the neediest. Tariffs are expected to push up drug prices, some experts worry. Critical research trials have been canceled midstream, and Trump’s proposed fiscal year 2026 budget calls for a 37% cut to the National Institutes of Health.

Already announced cuts to the country’s research infrastructure will trigger roughly $16 billion in economic losses and 68,000 jobs nationwide, according to the Science & Community Impacts Mapping Project (SCIMaP), which has mapped the economic impact of the cuts on every county in America.

“These are reckless, thoughtless cuts that will only make American communities less healthy and less safe,” Dr. Richard Besser, president and CEO of the nonprofit Robert Wood Johnson Foundation, said in a statement. “They are systematically and cruelly dismantling our nation’s public health system and workforce, which threatens the health and wellbeing of everyone in America.”

Dr. Richard Besser on the podcast: RFK Jr.’s impact on HHS so far has some worried | The Excerpt

Drug prices may come down ‒ or may not

Trump has criticized former President Joe Biden’s plan for slowly lowering the price of select, popular medications. On April 15, he announced his own drug price reduction proposal in an executive order.

Some medical experts say it’s not yet clear how Trump’s plan will work in practice.

“Some of these proposed reforms could assist patients struggling with high drug prices; others would face significant legal and practical obstacles; and still others might even increase drug prices,” Rachel Sachs, a former senior adviser at the HHS, wrote in a recent article in Health Affairs.

While Trump’s initial round of tariffs left pharmaceuticals exempt, many of the raw materials that go into drugmaking are expected to increase in price, making it harder and more expensive to get these ingredients.

“There are clearly going to be tariffs that impact pharmaceutical supply chains,” Tom Kraus, of the American Society of Health-System Pharmacists, which represents hospital pharmacists, previously told USA TODAY. Generic drugs − which account for the vast majority of prescriptions − have small profit margins and are more likely to feel the financial squeeze from tariffs, he said.

But in a win for the administration, which aims to bring manufacturing back to the United States, drugmaker Roche announced on April 21 that it would invest $50 billion in building new manufacturing capacity, creating 12,000 jobs across five states.

Planned cuts to Medicaid

Across the country, local officials and low-income Americans are preparing for dramatic cuts to Medicaid, which serves 78 million low-income and disabled Americans and is funded with a combination of federal and state dollars.

Any cuts will have a ripple effect across the country, public health experts and health care advocates said, and even conservatives like Laura Loomer have advised against chopping Medicaid because of the expected political fallout from Trump supporters.

Trump has repeatedly promised he wouldn’t touch Social Security or Medicare, but cutting Medicaid will harm the same people who receive those programs, Amber Christ, a managing director at the advocacy group Justice in Aging, said in a recent webinar. Roughly 30% of Medicaid spending supports Medicare enrollees, she said.

“Without Medicaid financial assistance, seniors could not afford Medicare,” she said.

In Omaha, Nebraska, more than one-third of all children and nearly 1 in 5 of all residents receive Medicaid funding, according to the advocacy group FamiliesUSA. Medicaid also covers 5 in 9 nursing home residents in Nebraska.

Families in the Omaha metro area are already struggling to pay for their health care bills, FamiliesUSA found, with 18% saying they have trouble paying medical bills.

In a little-noticed move, the federal workers who determine eligibility limits for Medicaid have all been laid off, said Manat Singh, executive director of the Colorado Consumer Health Initiative, an advocacy group.

“Everything that makes all of the work we do function is getting cut, dismantled, gutted, defunded, moved around, and it’s hard enough for those of us who work on this every day to figure out what’s going on,” she said in a recent webinar.

Cutting back on lead testing

All of the Centers for Disease Control and Prevention’s staff involved in testing for lead poisoning in children have been eliminated, as have many grants for that purpose.

The city of Milwaukee, for example, was relying on expertise from the federal CDC to help it address a growing problem of older elementary school students with lead poisoning, said Dr. Michael Totoraitis, the city’s health commissioner.

Milwaukee has lost $5 million in federal health care funding so far, including a grant to reduce health care disparities, wastewater testing for infectious diseases and support in addressing childhood lead poisoning.

Totoraitis’ staff was working with CDC officials to develop a long-term plan for helping older children with lead poisoning. But the entire childhood lead team at the CDC was cut on April 3, and his city’s request for help addressing lead poisoning was denied, he said in a Big Cities Health Coalition webinar.

“Children are getting hurt, life expectancy is declining,” he said. “We are handcuffed in our ability to help our own residents because the federal government had been helping us for decades with all these fights and currently is unresponsive to our needs.”

Emphasizing chronic diseases

Kennedy has said he wants to put more public emphasis on addressing chronic diseases, particularly those in childhood.

Marlene Schwartz, who directs the Rudd Center for Food Policy & Health at the University of Connecticut, said she’s thrilled the administration is interested in trying to prevent diet-related chronic diseases.

Kennedy has promised a complete overhaul of the school lunch program, but so far, she’s worried the only concrete change has been to cut a $1 billion Biden plan to buy local fresh foods for schools, child care centers and food banks.

Kids typically eat healthier at school than at home, Schwartz said. Research has shown school meals are helping to reduce childhood obesity, and the plan also would have benefited local farmers, she said.

“I hope that the administration reconsiders and puts that program back into place,” Schwartz said, “because I do think that it’s very consistent with the goals of the administration to really improve children’s diets.”

Cutting back on vaccinations and infectious disease spending

Government support for vaccines and disease prevention has seen a major reversal under Kennedy. The Trump administration has ended financial support for wastewater screening, which allowed communities like Milwaukee to track the spread of COVID-19, along with flu and RSV. It also has delayed approval for updated and improved COVID-19 vaccines, cut research funding for other dangerous coronaviruses that might appear in the future and ended spending on long COVID.

As the largest and deadliest measles outbreak in years rages in western Texas, Dallas County had to cancel more than 50 free measles vaccine clinics. Dr. Philip Huang, the health director in the county that includes the city of Dallas, said his department has had to lay off 21 staff members who conduct those clinics.

No one in Dallas County has so far come down with measles in the outbreak, though two adjacent counties have had cases. “If we get more people opting out and not vaccinated, this is what we start seeing,” Huang said.

The federal cutbacks have cost his department four out of its 30 epidemiologists, making it harder to investigate possible cases of measles, which are happening more often because of the state’s outbreak, he said.

Eliminating prevention programs “is very short-sighted and crazy,” Huang said. “If you’re trying to be efficient, it makes absolutely no sense.”

Cuts to basic research and future treatments

Between the end of February and the end of April, 700 federal research grants were cut, totaling $1.8 billion, according to a new study in the Journal of the American Medical Association.

Those cuts affected 210 institutions, both public and private, all across the country ‒ not just the elite schools that have been the focus of political and media attention, said co-author Kushal Kadakia.

One in five of those grants had been awarded to early career researchers, said Kadakai, who graduates from Harvard Medical School in a few weeks and is heading into a medical residency program.

“We’re hopeful that any health research priority or policy for the United States is always seeking to advance the next generation of researchers,” he said. “It’ll remain to be seen whether these cuts are a temporary blip or it becomes the new policy, or what it looks like for long-term sustainability for career researchers in the United States.”

Contributed: Ken Alltucker, Adrianna Rodriguez

(This story was updated to add new information.)

Introduction

America’s hospitals and health systems are the cornerstone of the nation’s health care system, providing life-saving care to millions of patients each year. However, hospitals face a perfect storm of financial pressures: persistent cost growth, inadequate reimbursement, and shifting care patterns driven by both policy changes and an older, sicker population with more complex, chronic conditions. Hospitals are struggling to maintain access to essential services amid workforce shortages, supply chain disruptions, tariffs and policy decisions that often fail to reflect on-the-ground realities.

This report outlines the key trends impacting hospital financial stability in 2025.

Hospital Expenses Have Surged and Remain Elevated

Labor Costs Dominate Hospital Expenses

Hospitals are among the few sectors that consistently employ a highly educated, highly paid workforce — anchoring local economies with middle- and high-skill jobs that cannot be outsourced or automated. Consequently — and despite growth in drug spending and other fast-rising non-labor costs — labor remains the single largest category of hospital spending. Total compensation and related expenses now account for 56% of total hospital costs (see Figure 1). Amid ongoing workforce shortages, hospitals offer competitive wages to retain and recruit staff. According to AHA analysis of Lightcast data, advertised salaries for registered nurses have grown 26.6% faster than the rate of inflation over the past four years. These increases are essential to maintain staffing levels but also contribute to the overall financial challenges hospitals face.

Medicare and Medicaid Reimbursements Are Not Keeping Up With the Cost of Caring

Despite escalating expenses, Medicare reimbursement continues to lag behind inflation — covering just 83 cents for every dollar spent by hospitals in 2023, resulting in over $100 billion in underpayments, according to AHA analysis of AHA Annual Survey data. From 2022 to 2024, general inflation rose by 14.1%, while Medicare net inpatient payment rates increased by only 5.1% — amounting to an effective payment cut over the past three years (see Figure 2).

The AHA estimates that this erosion in payment value due to inflation resulted in $8.4 billion in lost hospital revenue during that period, further straining hospitals’ ability to care for Medicare beneficiaries, who make up a large share of most hospitals’ patients. In total, hospitals absorbed $130 billion in underpayments from Medicare and Medicaid in 2023 alone. These shortfalls are worsening — growing on average 14% annually between 2019 and 2023.

Hospital Expenses are Growing Faster Than Inflation

Specifically, in 2024 alone, total hospital expense grew 5.1%, significantly outpacing the overall inflation rate of 2.9%. Though expense growth has started to slow in 2025, it remains elevated — particularly in areas driven by labor and supply chain pressures. Persistent expense growth threatens hospitals’ solvency and their ability to sustain comprehensive services in the communities they serve. A telling indicator of this strain is the average age of plant — a measure of the age of hospital infrastructure — which has risen by more than 10% over the last two years, according to industry benchmark data from Strata Decision Technology, LLC. This trend suggests that hospitals are increasingly unable to reinvest in critical physical assets, such as medical equipment, operating rooms and facility upgrades. Delayed capital improvements not only jeopardize care quality but also hinder hospitals’ ability to keep pace with evolving health care standards and technology.

Impact of Chronic Disease Burden Costs Driven by Increased Utilization

Rising hospital costs are increasingly driven by higher utilization and acuity, especially among patients with chronic conditions. According to the Centers for Medicare & Medicaid Services (CMS), recent growth in spending on hospitals reflects increased service intensity and use.1 For example, emergency department (ED) visits related to heart failure increased 126.7% per capita between 2010 and 2019 (see Figure 3), with associated spending growing 177.2%. Similar patterns are observed for type 2 diabetes and acute renal failure — some of the costliest conditions in terms of patient health and resource use. These trends underscore the demand-side pressures fueling cost growth.

The Growing Impact of Medicare Advantage on Hospital Finances

Observation Stays Are Increasing in Duration

Medicare Advantage (MA) plans have long relied on extended observation stays to avoid admitting patients as inpatients — a strategy that helps plans reduce costs but shifts financial burden onto hospitals. Recent data show that this practice is worsening. In 2019, MA patients had observation stays 28.6% longer than those in Traditional Medicare; by 2024, the gap widened to 36.9% (see Figure 4). These prolonged observation stays drive up hospital costs without a corresponding increase in reimbursement, further straining hospital finances. Compared to inpatient admissions, observation stays are reimbursed at lower rates — or in some cases, not at all — leaving hospitals to absorb much of the cost. In 2024, MA plans reimbursed just 49% of the actual cost for patients held in observation status, according to industry benchmark data from Strata Decision Technology, LLC.

Longer Stays, Lower Payments

The inpatient setting reveals a similar pattern: longer stays for MA patients but with lower reimbursement. From 2019 to 2024, the average length of stay for MA patients grew substantially compared to Traditional Medicare — more than doubling the gap over this period, according to industry benchmark data from Strata Decision Technology, LLC. Yet during the same timeframe, hospital reimbursement from MA plans fell by 8.8% on a cost basis. In other words, hospitals are being asked to do more with less.

Discharge Delays Are Compounding the Problem

Delays in discharging patients to post-acute care facilities are a growing contributor to longer inpatient stays. These delays are often driven by prior authorization requirements or insufficient post-acute provider networks within MA plans. Among MA patients, the average length of stay prior to discharge to post-acute care has doubled relative to Traditional Medicare between 2019 and 2024 (see Figure 5). These delays lead to higher costs, increased hospital crowding — including in the emergency department — and longer lengths of stay. In some cases, plans may use these delays to steer patients toward lower-cost care settings — or avoid post-acute care altogether — while the hospital continues to absorb the cost of care. A Senate Permanent Subcommittee report recently found that some MA plans disproportionately imposed prior authorization and claim denials on post-acute care, exacerbating delays and shifting costs to hospitals.2 Post-acute care providers also have faced lagging reimbursement rates from Medicare, which has exacerbated staffing challenges and made it difficult to accommodate discharge requests from acute-care hospitals.

Lower Reimbursement and Increasing Administrative Burden

Hospitals are increasingly reporting lower negotiated MA rates than Traditional Medicare for many common inpatient services (see Figure 6). These discrepancies continue to create significant financial challenges for hospitals, especially for those in rural areas that have seen relatively fast growth in the volume of MA beneficiaries in recent years.3

At the same time, administrative complexity continues to increase. MA plans issued nearly 50 million prior authorizations in 2023 — up more than 40% since 2020, according to KFF.4 A Premier study found that hospitals spent $26 billion in 2023 managing insurance claims — a 23% increase over the previous year.5

Notably, 70% of denied claims were eventually paid, but only after multiple costly reviews. These burdens not only strain hospitals financially but also delay care and divert clinical staff from patient care. A Morning Consult survey commissioned by the AHA found that 85% of clinicians report that prior authorization and other requirements delay necessary care.

Impact of Tariffs on Hospital Costs

Hospitals and health systems rely on the right medicines, devices and other supplies used at the right time to support the delivery of safe and effective care. The supply chain for these essential medical goods is complex, weaving together both domestic and international sourcing, and is prone to significant disruption. For example, as of March 2025, there were 270 active drug shortages in the U.S., including shortages of life-saving intravenous (IV) fluids stemming from Hurricane Helene in 2024.6 Recent changes in U.S. trade policy are creating additional uncertainty, with the Administration implementing new tariffs that affect medical devices and supplies, and considering new tariffs on pharmaceuticals. Tariffs on these critical goods could exacerbate shortages, disrupt patient care and raise costs for hospitals.

Despite efforts to bolster the domestic supply chain, a significant proportion of essential medical goods come from international sources. For example, nearly 70% of medical devices marketed in the U.S. are manufactured exclusively overseas.7 In 2024 alone, the U.S. imported over $75 billion in medical devices and supplies, according to AHA analysis of Census Bureau data. These imports include many lowmargin, high-use essentials in hospital settings — such as syringes, needles, blood pressure cuffs, and IV saline bags. Hospitals rely on imports for advanced surgical tools and other critical technologies as well.

Moreover, hospitals rely on international sources for a significant proportion of the protective equipment for their caregivers. In 2023, Chinese manufacturers supplied the majority of N95 and other respirators used in health care. Additionally, China was the source for one-third of disposable face masks, two-thirds of non-disposable face masks, and 94% of the plastic gloves used in health care settings.8

Many pharmaceuticals — and especially the key starter ingredients that go into them — also are sourced from overseas. The U.S. gets nearly 30% of its active pharmaceutical ingredients (APIs) from China.9 According to a 2023 Department of Health and Human Services estimate, over 90% of generic sterile injectable drugs — such as certain chemotherapy treatments and antibiotics — depend on key starter materials from either India or China.10 Even temporary disruptions in access to medication and supplies can impact care and increase the risk of patient harm.

Tariffs on medical imports could significantly raise costs for hospitals. A recent survey found that 82% of health care experts expect tariff-related expenses to raise hospital costs by at least 15% over the next six months, and 94% of health care administrators expected to delay equipment upgrades to manage financial strain.11 Tariffs also may force hospitals to seek new vendors — often at higher cost or with lower reliability. In fact, 90% of supply chain professionals are expecting procurement disruptions.12

Conclusion: Supporting Hospitals Means Supporting Patients

Hospitals are not only centers of care but also vital economic engines in their communities. Rising costs, inadequate reimbursement, and policy-driven inefficiencies jeopardize the ability of hospitals to deliver high-quality, timely care. To ensure that hospitals can continue to serve patients and communities, policymakers should:

Recognize that rising expenses reflect real pressures, such as labor shortages and increasing demand — not inefficiency.

Acknowledge Medicare and MA payment policies must be updated to reflect the actual cost of care.

Address structural drivers of cost, such as care delays and excessive administrative burdens, instead of simply cutting payments.

As we look to the future, preserving access to hospital care should be a national priority. Supporting hospitals means supporting patients, communities and the entire health care system.

Notes

Although a medical procedure itself isn’t something that could be imported, much of what happens in the clinic could nonetheless be affected by trade policy and tariffs.

From medical equipment to personal protective equipment, and even pharmaceuticals, much of the health care supply chain has its origins outside the United States. That means that if those costs were to go up, that increase could ripple throughout the entire health-care ecosystem.

Pharmaceuticals have long enjoyed large exemptions from tariffs ever since the 1994 World Trade Organization Pharma Agreement was widely adopted. But that doesn’t mean they will necessarily remain immune from international trade politics.

For now, President Donald Trump left prescription drugs out of his April 2 “Liberation Day” tariff announcements, but he has repeatedly said since then that he has plans to implement tariffs on pharmaceuticals soon. For example, during a fundraising dinner, he said an announcement was coming “very shortly.”

If finished pharmaceuticals were to be taxed at the border, many in the industry worry that generics might be the first to suffer. That is because generics are largely produced in places such as India, and most operate on extremely tight margins. Industry insiders warn that cutting into that already stretched cost structure could drive some of the producers out of the market, or out of business altogether, decreasing options, endangering supply and potentially increasing prices across the board.

Even if tariffs on finished drugs end up being exempt, the raw materials used for domestically produced prescriptions could take a hit. Those raw materials, known as active pharmaceutical ingredients, largely come from China, meaning that the triple-digit tax placed on them could trickle even into the domestic drug supply chain.

Drugs aren’t the only area in which tariffs stand to raise medical costs. Medical devices also could take a huge bump in costs. Many of the medical devices used in the United States are imported, largely from China, Mexico and India. And about two-thirds of those imported medical devices are expected to face pricing pressure through tariffs

And even domestically produced medical devices could face cost pressures. That is because, like domestically produced pharmaceuticals which could face higher raw ingredient costs from tariffs, even domestically produced medical devices could stand to face higher materials costs in the form of plastics or steel, impacting costs for the devices they make in the United States.

The areas most likely to see an impact among medical equipment include medical imaging devices, diagnostic equipment, surgical instruments and implantable electronic medical devices. Personal protective equipment and other disposables could also face steep pricing pressure, including things like gloves, gowns, syringes and sterile drapes.

Although higher costs could increase many of the underlying costs of the medical industry, tariff advocates argue that Trump’s trade policy is addressing a pressing national security issue and an imbalanced system of trade that needs to be brought back into check. The argument is that relying on imports for critical medical components creates not only an economic problem, but a national security problem, as was seen with the lack of availability of personal protective equipment in the early days of the COVID-19 pandemic.

To that end, some of the few remaining domestic suppliers of gloves and masks are cheering the tariffs. But it is unclear if tariffs alone are enough to prop up the domestic supply, because even with 100% tariffs, a Chinese mask selling for a penny is still going to be less expensive than an American made one selling for many times that.

But coupled with domestic purchasing policies, tariff advocates hope that in the long term the taxes might be enough to incentivize more domestic production and more secure supply chains.

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