21-07-2025
Care About General Inflation? Why Healthcare Inflation Matters, Too
Virgil Bretz is co-founder and CEO of MacroHealth, a healthcare fintech platform.
As a technology CEO operating in the healthcare sector, I've seen firsthand how inflation plays out—not just in interest rates or commodity prices but in the escalating cost of care that quietly impacts every employer, policymaker and household in America.
If we're serious about tackling general inflation, we need to stop treating healthcare as a policy silo and start seeing it for what it truly is: the largest and most durable source of inflation in the U.S. economy.
Healthcare Is The Largest Line Item In The Economy
In 2023, total U.S. healthcare spending was $4.9 trillion, equivalent to 17.6% of the GDP. That's more than we spent on real estate or manufacturing, and more than double the estimated total U.S. investment in energy in 2022.
Let's contrast the pricing pressures from two headline sectors of our economy:
• Energy inflation is a fast-moving, volatile force that can create inflation spikes and shape consumer perceptions, despite being a smaller share of total spending than healthcare.
• Healthcare inflation is a slow-burning, long-term pressure, embedded in structural costs and benefits.
However, healthcare often receives little attention in discussions of inflation. Part of the problem is measurement: In the Consumer Price Index (CPI), medical care is weighted at around 8% because this index only reflects consumer out-of-pocket costs. However, for 92% of Americans, most healthcare costs are paid indirectly through employer or government-sponsored health insurance (i.e., Medicare and Medicaid). Because the CPI reflects prices paid directly by consumers, not by employers, insurers or the government, it excludes most of the $4.9 trillion spent annually on healthcare.
Healthcare spending is deeply embedded in our economy, and it's a substantial amount. Worse, healthcare costs have been rising steadily for decades, consuming a growing share of wages and tax revenue, yet this impact is muted in CPI-based inflation narratives.
Policymakers or analysts relying solely on the CPI underestimate the economic drag of healthcare. To account for this, the PCE index, preferred by the Federal Reserve for policy decisions, weights healthcare at approximately 20%, including employer and government spending. It's the steady, relentless inflation of healthcare costs that's led to healthcare being such a large component driver of general inflation.
Health Benefits Are An Inflation Engine For Employers
In 2024, the average annual family premium for employer-sponsored health insurance reached $25,572. In industries such as manufacturing, health insurance can account for nearly as much or more of a product's cost as the components. In the auto industry, for example, General Motors reported in 2007 that healthcare added $1,500 to the cost of every car.
Nearly every mid-sized and large company must directly pay for employee healthcare benefits. As a result, these input costs act like a value-added tax, or VAT. At every stage of a product's creation, for example, from extracting raw materials to assembly and from distribution to retail, direct healthcare input costs (and profit markups on each stage of these input costs) accumulate.
If these accumulated input costs are higher and are inflating faster in America than in other competing countries, and they are, then our global competitiveness decreases.
Health Benefits Are An Inflation Engine For Employees
Most Americans receive health insurance through an employer plan. These employer-paid premiums are a part of total compensation. Health insurance costs that rise rapidly reduce what employers can allocate to cash wages. Between 2012 and 2022, average employer health insurance premiums increased by 43%, while wages increased by only 35%. As healthcare costs rise, employers may contain total compensation costs by suppressing nominal wage growth.
Take-home pay is reduced for employees in other ways as well. As healthcare costs inflate at rates higher than wages or general inflation, employees are also faced with higher premium shares, deductibles, co-pays and out-of-pocket maximums. Between 2013 and 2023, the average deductible for single coverage increased by 53%. Together, employees' real disposable income, after accounting for cost-sharing, has effectively declined even as nominal wages grew.
Inflation Without Healthcare Reform Is Incomplete
We can't talk about controlling inflation without addressing the structural cost drivers embedded in our healthcare system. Policymakers have tools like rate setting, transparency mandates and payment reform. But the private sector also has levers—especially in tech-enabled solutions to complexity, misaligned incentives and opaque pricing. Until we confront healthcare inflation head-on, gains made elsewhere—be it from energy, housing or supply chain improvements—will be undermined by this one sector's relentless cost creep.
As business leaders, we often think of inflation as a risk to be managed. But in healthcare, inflation is an outcome we've tolerated for too long.
If you're a founder, policy advisor or investor thinking about long-term productivity, remember: Healthcare costs aren't adjacent to the inflation story—it is an inflation story. And fixing it isn't just a moral imperative. It's an economic one.
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