4.4 Cost of Care

Figure 4-6

A Growing Population of Older Adults

(U.S. Census Bureau, 2018)

II. Increased Costs of Medical Technology

Highly visible medical technologies, such as organ transplantation, diagnostic imaging systems, and biotechnology products, attract both praise and blame. Advances in medical technology have improved the ability to diagnose, treat, and manage disease but have also contributed to the growth of healthcare spending. Recent research estimates that medical technology accounted for approximately 35% of the growth in U.S. healthcare spending between 1970 and 2019, making it one of the major long-term drivers of healthcare costs (Smith & Newhouse, 2026). New technologies can increase spending by introducing new treatments, diagnostic tools, devices, and procedures and by expanding the number of patients who can benefit from treatment. At the same time, technological advances can improve health outcomes and, in some cases, reduce the need for more costly services. As new technologies are introduced, healthcare organizations and policymakers must therefore consider not only their clinical effectiveness but also their costs, benefits, and overall value relative to existing alternatives. These decisions become increasingly important as healthcare organizations seek to provide high-quality care while allocating limited financial resources.

III. Increased Prescription Medication Costs

Prescription medications remain an important driver of healthcare costs in the United States (Figure 4-7). In 2024, spending on retail prescription drugs reached $467 billion, an increase of 7.9% from the previous year and approximately 9% of total national health expenditures (CMS, 2026b). Between 2020 and 2024, retail prescription drug expenditures grew at an average annual rate of 7.8%, exceeding the growth in spending for hospital care and physician and clinical services during the same period (Rakshit et al., 2026). Prescription drug spending is influenced not only by changes in prices but also by the amount and types of medications being used. In 2024, for example, retail prescription drug prices increased 1.4%, considerably less than the overall 7.9% increase in prescription drug expenditures (CMS, 2026b).

Higher prescription drug spending affects patients as well as private insurers and government programs such as Medicare and Medicaid. For patients, insurance coverage can reduce prescription costs, but deductibles, copayments, coinsurance, and formulary requirements may still affect affordability and access to medications. Recent federal policy has also changed how prices are established for certain medications covered by Medicare. Under the Medicare Drug Price Negotiation Program, Medicare negotiated prices for an initial group of 10 high-cost drugs, with the new prices taking effect in 2026 (CMS, 2024). The program represents one federal strategy for addressing prescription drug spending and affordability. Here is an infographic that further explains this program: Medicare Drug Price Negotiation Program (CMS, 2024).

Figure 4-7

Spending on Prescription Drugs

(Source: Peterson-KFF Health Systems Tracker)

IV. Affordable Care Act

The Patient Protection and Affordable Care Act, commonly known as the Affordable Care Act (ACA), was signed into law in 2010. The legislation expanded access to health insurance and established consumer protections intended to make coverage more accessible and comprehensive. Among its major changes, the ACA created Health Insurance Marketplaces where individuals and families can compare and purchase private health insurance plans, provided financial assistance for eligible consumers purchasing Marketplace coverage, expanded Medicaid eligibility in participating states, and established requirements for certain employers to offer affordable health insurance coverage to their employees.

Health plans offered through the ACA Marketplaces are generally organized into four metal categories—Bronze, Silver, Gold, and Platinum—based on how healthcare costs are shared between the consumer and the insurance plan. The ACA originally included a federal individual mandate requiring most people to maintain health insurance or pay a penalty. Congress reduced the federal penalty to $0 beginning in 2019, effectively eliminating the federal financial penalty for remaining uninsured.

The ACA has substantially expanded health insurance coverage through both the Marketplaces and Medicaid. Marketplace participation grew considerably in recent years, reaching a record level in 2025. For the 2026 plan year, approximately 23.1 million consumers selected or were automatically re-enrolled in Marketplace plans (CMS, 2026a). Medicaid expansion has also extended coverage to millions of lower-income adults. As of May 2026, 41 states, including the District of Columbia, had adopted the ACA Medicaid expansion, while 10 states had not (KFF, 2026).

States have considered several factors when deciding whether to expand Medicaid, including the cost of adding a larger population to the program, the state’s share of expansion costs, and concerns about the long-term availability of federal funding. Some policymakers have also questioned whether expanding the existing Medicaid program is the best approach for providing coverage to low-income adults and have favored alternative approaches that place greater emphasis on private insurance or work requirements (Congressional Research Service, 2021). Although the federal government currently finances 90% of the cost of the ACA expansion population, states are responsible for the remaining 10%, making Medicaid expansion both a coverage decision and a long-term state budget commitment (KFF, 2026).

Key Provisions of the ACA

The ACA established numerous protections and coverage requirements that continue to affect private health insurance. Key provisions include (HealthCare.gov, n.d.):

• Health insurers generally cannot deny coverage or charge higher premiums because an individual has a preexisting health condition.
• Young adults may remain covered under a parent’s health insurance plan until age 26.
• Health plans generally cannot impose lifetime or annual dollar limits on essential health benefits.
• Most health plans must cover specified preventive services without requiring patients to pay deductibles, copayments, or coinsurance.
• Individual and small-group plans must cover categories of essential health benefits, including services such as hospitalization, prescription drugs, maternity care, mental health and substance use disorder services, and preventive care.
• Consumers have the right to appeal certain health plan decisions, including denials of coverage or payment.

Continuing Challenges to the ACA

More than 15 years after its enactment, the ACA continues to evolve in response to legislative, regulatory, judicial, and economic changes. One continuing challenge is the uneven adoption of Medicaid expansion across states. Adults with low incomes in states that have not expanded Medicaid may have fewer options for obtaining affordable coverage, and some remain in a coverage gap because their incomes do not qualify them for Medicaid under their state’s eligibility rules but are too low to qualify for Marketplace premium tax credits (KFF, 2026).

Affordability also remains an important concern. Temporary enhancements to the ACA’s premium tax credits contributed to substantial growth in Marketplace enrollment between 2021 and 2025 but expired at the end of 2025. Marketplace enrollment subsequently declined in 2026. Approximately 19.2 million people had successfully obtained Marketplace coverage in February 2026, compared with 21.8 million in February 2025, a decrease of about 12% (Lo et al., 2026). The decline varied considerably among states, with smaller reductions generally occurring in states operating their own Marketplaces and in states that provided additional financial assistance.

Recent federal legislation is also changing Medicaid coverage associated with the ACA. A 2025 federal reconciliation law requires many adults covered through the ACA Medicaid expansion to meet work or other qualifying-activity requirements to maintain eligibility beginning January 1, 2027, although states may implement the requirements earlier. The law also requires eligibility redeterminations every six months for certain enrollees, creating new administrative responsibilities for states and potential coverage challenges for beneficiaries (Mudumala & Tolbert, 2026).

The ACA has also continued to face legal challenges. In 2025, the U.S. Supreme Court considered a challenge involving the ACA requirement that most private health plans cover certain recommended preventive services without patient cost sharing. In Kennedy v. Braidwood Management, Inc., the Court upheld the structure used to appoint members of the U.S. Preventive Services Task Force, leaving the challenged preventive-services coverage requirement in place (Kennedy v. Braidwood Management, Inc., 2025). The decision illustrates how individual provisions of the ACA continue to be shaped through litigation even though earlier challenges to the constitutionality of the broader law were unsuccessful.

V. Social Determinants of Health

Social determinants of health (SDOH) are the conditions in the environments where people are born, live, learn, work, play, worship, and age that affect health, functioning, quality of life, and health outcomes (ODPHP, n.d.-b). SDOH directly impact individuals’ health behaviors, access to routine healthcare, and the development of chronic diseases. Yet, the U.S. spends a significantly lower percentage of its gross domestic product (GDP) on social services than similar countries with better health outcomes (Bush, 2018). Healthy People 2030, established by the U.S. Department of Health and Human Services, identifies public health priorities to help individuals, organizations, and communities across the U.S. improve health and well-being over the next decade by addressing SDOH. Healthy People 2030 emphasizes creating social, physical, and economic environments that support health and well-being for all people (ODPHP, n.d.-b). Healthy People 2030 groups SDOH into five domains (Figure 4-8): Economic Stability, Education Access and Quality, Health Care Access and Quality, Neighborhood and Built Environment, and Social and Community Context (ODPHP, n.d.-b). These conditions have a major impact on people’s health and well-being, ultimately affecting national healthcare costs (ODPHP, n.d.-b).