We spent an astounding $5,278,588,000,000 on healthcare in 2024. Yes, that’s $5.3 trillion!
Retail outpatient prescription drugs accounted for less than 9% of that total. More than half of net outpatient drug spending was paid by federal, state, and local government programs. Below, we delve into the spending trends, which reveal the impact of the Inflation Reduction Act (IRA) on Medicare spending, the boom in healthcare marketplaces, and the post-pandemic bust in Medicaid.
Contrary to what you might read, the government’s data show that drug spending growth was not driven by purportedly “skyrocketing” drug prices. In reality, nearly all of the increase in drug spending reflected higher utilization—more people treated, more prescriptions dispensed, and shifts among drugs dispensed—rather than higher net prices.
Prices may grab headlines, but utilization—and taxpayers—are driving the spending story. When prices stop being signals, markets stop being markets.
I ♥ DATA
The Office of the Actuary at CMS publishes data on U.S. National Health Expenditures (NHE). These data include spending on prescription drugs sold through outpatient retail, mail, and specialty pharmacies.
Here are links to the 2024 data and the CMS analysis. As always, I encourage you to review these source materials.
- National Health Care Spending Increased 7.2 Percent In 2024 As Utilization Remained Elevated (open Access Health Affairs article)
- National Health Expenditures historical data files (Free to all! Enjoy.)
For crucial context about these data, see the Notes for Nerds section below.
ICYMI, we reviewed NHE’s recent projections in Who Will Pay for Prescription Drugs in 2033: DCI’s Takeaways from the Latest Government Forecasts. However, those forecasts were based on historical data through 2023 and did not account for the 2024 revisions described below.
WHO PAID?
According to the most recent available data from the National Health Expenditures (NHE) accounts, total U.S. spending on healthcare was nearly $5.3 trillion in 2024, up 7.2% from 2023.
In 2024, U.S. net spending on outpatient prescription drugs was $467 billion, equal to 8.8% of U.S. healthcare spending. These drug spending data are roughly comparable to net, post-rebate spending on patient-administered drugs paid under the pharmacy benefit. The share of spending on outpatient prescription drugs has remained a relatively small part of overall U.S. healthcare expenditures, consistent with its 9% to 10% share since 2000. (As we discuss below, inpatient prescription drug spending within hospitals and spending on nearly all provider-administered outpatient drugs accounted for an additional 4% to 5% of national health expenditures.).
The chart below shows DCI’s analysis of payment sources for outpatient prescription drugs (share of dollars) in 2024.
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As you can see, public funds account for more than half (51.2%) of net spending. What’s more, federal and state government employees account for more than 10% of employer-sponsored insurance spending, so total taxpayer spending on healthcare is even higher than the CMS-reported figures.
Prescription drugs’ share of spending varies by payer type. Outpatient prescription drugs accounted for nearly 15% of Medicare’s total spending, but less than 6% of Medicaid’s total spending.
WHO GREW?
The chart below shows the most recent data measuring year-over-year growth rates in outpatient prescription spending, by payer.
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These data reveal six key spending patterns:
- Spending on outpatient prescription drugs in 2024 grew more slowly than other major components of national health expenditures. For 2024, growth in drug spending was 7.9%. This was below the spending growth rate of professional services (+8.2%) and hospital care (+10.8%), but above the growth rate of overall national healthcare costs (+7.2%).
For 2024, prescription drug spending growth was slower than 2023’s 10.8% growth. CMS attributed the slowdown to slower growth in retail prescription drug prices, fewer prescriptions dispensed, and fewer new drug launches.
- Drug spending grew due to greater utilization and other non-price factors, not higher net prices. CMS data indicate that the acceleration in spending growth for 2024 was due to an increase in prescription drug use, greater utilization of higher-priced drugs, and higher average prescription prices.
For 2024, the NHE retail prescription price index grew by 1.4%, which accounted for only 18% of the total 7.9% growth in spending. CMS’s figures are generally consistent with PBM data that show drug spending growth driven more by utilization than by unit prices.
- Medicare spending growth remained high, while Medicaid growth slowed. Medicare and Medicaid—the two primary CMS programs—paid for more than 46% of total outpatient drug spending.
Medicare spending growth was about 4.0% from 2016 through 2018, but began accelerating in 2019. In 2024, Medicare spending grew at its highest rate in over 10 years. For 2024, the Inflation Reduction Act reduced beneficiary out-of-pocket spending due to the elimination of the 5% coinsurance component for catastrophic coverage. The cap on out-of-pocket spending didn’t take effect until 2025 and was therefore not reflected in these NHE data.
Expanding demand for GLP-1 drugs in Part D further contributed to this rapid growth.
Prior to the COVID-19 pandemic, growth in Medicaid drug spending had been decelerating, from a 22.9% increase in 2014 to growth below 2% for 2017 to 2019. (The 2014 growth was due partly to the program’s expansion under the ACA.) Due to enrollment increases linked to the COVID-19 pandemic, Medicaid drug spending growth grew to 8.4% for 2020, 15.2% in 2021, and 17.0% in 2022. The post-pandemic unwinding reduced the number of Medicaid beneficiaries, which contributed to a growth slowdown of only 4.0% for 2024.
- Prescription drug spending in the individual insurance market accelerated. Over the past few years, growth in prescription spending in this category has reflected faster enrollment growth in individually purchased private insurance plans.
For 2024, 21.4 million people had coverage purchased through a health insurance marketplace, an increase of 5 million people (+30%) compared with the 2023 enrollment. Marketplace plans’ total healthcare expenditures (not just outpatient prescription drugs) was $149.5 billion in 2024, compared with $115 billion in 2023.
Enrollment growth has been driven by the controversial enhanced premium subsidies. The American Rescue Plan Act of 2021 (ARPA) increased and expanded subsidies for 2021 and 2022, while the IRA extended those subsidies through 2025.
For 2025, 22.4 million people had coverage purchased through a marketplace, so NHE growth in next year’s report will be more moderate. Enrollment will likely decline for 2026, although the degree of decline is linked to Congressional funding of the enhanced subsidies.
- Employers’ drug spending growth slowed down. CMS data suggest that drug spending by employers has grown relatively slowly over the past decade. Annual growth averaged less than 3% from 2017 through 2022. For 2023, however, employers’ spending accelerated to a 12.9% rate, driven by growing use of GLP-1 agonists and overall demand. This growth corresponded to growth in the number of people with employer-sponsored insurance.
For 2024, however, CMS data indicate that employers’ net spending on prescription drugs slowed, to 5.7%.
- Consumers’ share of outpatient drug spending decreased, but it remained disproportionately higher than that of other healthcare services. In 2024, consumers’ out-of-pocket expenses—cash-pay prescriptions plus copayments and coinsurance—were $55 billion. That is –0.9% lower than the revised 2023 figure of $55.5 billion. We attribute the decrease in out-of-pocket spending to higher copayment support from manufacturers, reduced cost-sharing obligations introduced by the IRA, and greater utilization of patient-paid prescriptions.
An unusual aspect of U.S. healthcare is the relative share of costs that patients bear for different services. For 2024, total U.S. spending on hospital care was $1.2 billion higher than outpatient prescription drug spending.
However, consumers’ out-of-pocket spending for hospital care ($40.6 billion) was $14.4 billion lower than their out-of-pocket spending for outpatient prescriptions ($55.0 billion). Consequently, consumers’ out-of-pocket expenses accounted for 11.8% of net drug spending, but only 2.5% of hospital spending. This benefit design discrepancy partly explains why consumers are more critical of prescription drug spending than they are of hospital spending.
WHAT’S AHEAD?
The 2024 NHE data reinforce several key themes in U.S. prescription drug spending. Outpatient drugs continue to represent a modest share of total healthcare expenditures, even as total spending grows. Recent increases in drug spending reflect higher utilization, shifts toward higher-cost therapies, and benefit design changes—not broad-based increases in net drug prices. These data are consistent with broader trends for brand-name drug prices.
The 2024 data confirm that taxpayers—primarily through Medicare and Medicaid—now finance a dominant share of outpatient drug spending. Expect continued government intervention in the drug market—with growing risks for pricing, access, and U.S. biomedical innovation.
Notes for Nerds
- U.S. drug spending in the NHE is roughly equivalent to net revenues from retail, mail, long-term care, and specialty pharmacies after manufacturer rebates and discounts to third-party payers (including the government). It therefore differs from pharmacies’ prescription revenues, manufacturers’ revenues, and the “non-discounted invoice price spending” data reported by IQVIA.
- We define “Professional Care” to include these NHE categories: Physician and Clinical Services; Dental Services; and Other Professional Services.
- The NHE’s outpatient drug spending does not measure total U.S. spending on prescription drugs. That’s because inpatient prescription drug spending within hospitals and spending on nearly all provider-administered outpatient drugs are reported within the hospital and professional services categories. CMS does not break out these figures, but Altarum estimates that provider-administered drugs account for additional 4% to 5% NHE drug spending.
- The NHE’s Medicare figures combine Part D drug expenditures with a small amount of Part B spending in traditional Medicare fee-for-service programs. Its private health insurance figures include employer-sponsored insurance, Medicare supplemental coverage, and all individually purchased private insurance plans, including coverage purchased through the marketplaces.
- CMS does not provide data for drug spending within the two sub-categories of private health insurance. Therefore, we disaggregated total private health insurance spending using CMS’s enrollment data. We assume that total private insurance drug spending will be proportional to overall healthcare spending by those with (1) employer-sponsored private insurance and (2) individually-purchased private insurance. If exchange enrollees’ pharmacy benefit spending ends up being higher than traditional private insurance, then the estimates for exchange spending will prove low.
- The CMS data behind our estimates for employer-sponsored insurance have been substantially revised from previous editions of this report. CMS identified three reasons behind the revisions:
- The 2024 data are benchmarked to the 2022 Census of Retail Trade, resulting in revisions for 2018 through 2022.
- Retail prescription drug out-of-pocket spending figures were revised for 2013 to 2023 as a result of updated methods for estimating copayments for cash payers, Medicare, Medicaid, and private health insurance.
- Private pharmacy rebate estimates for 2017 to 2023 were revised based on updated assumptions regarding the relationship of these rebates for private health insurers relative to Medicare.
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