The health care and life sciences (HCLS) sector faces mounting financial pressures driven by demographic shifts, rising costs, and evolving policy landscapes. National health expenditures are projected to grow at an average annual rate of 5.8%, outpacing GDP growth of 4.3%, pushing health spending from 17.6% to over 20% of GDP by 2033. Key cost drivers include increased utilization among older adults, chronic disease prevalence, expensive medical innovations, labor expenses, and administrative complexity. Macroeconomic factors such as tariffs and geopolitical instability may accelerate a shift toward domestic or nearshore production of medical supplies and pharmaceuticals. Federal debt service costs reached $355 billion in 2025, consuming 19% of the budget. Projections indicate that Medicare, Medicaid, Social Security, and debt payments could soon exceed total federal revenue. Medicare Part A, primarily funded by payroll taxes, faces insolvency by 2033 due to declining contributors and rising outlays. However, opportunities exist in value-based care models, preventive health, AI integration, and operational efficiency. The OBBBA legislation is expected to reduce federal health funding by $1.2 trillion by 2034, with $900 billion cut from state Medicaid budgets, though it also allocates $50 billion via the Rural Health Transformation Fund. Technological advances, particularly in AI and diagnostics, offer pathways to improve outcomes and productivity, but require robust data governance and workforce adaptation. Strategic planning, digital transformation, and partnerships will be essential for long-term sustainability.
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HCLS Navigate Demographic, Economic, and Tech Shifts
The focus on wellness and aging in place will intensify and embed into aging services and living options for seniors. Significant demand for senior living and care services will likely remain elevated, portending a decade of growth opportunities. n n2. Economics of HCLS, rising expenditures n nThe economics of HCLS will likely continue to deteriorate without intervention. Demographics, the economy, and medical advances will compound the cost of health care over the decade. n
National health care expenditures across all payers are projected to rise in the coming decade at an average annual rate of 5.8%. This outpaces the projected average Gross Domestic Product (GDP) growth of 4.3%, resulting in an increasing share of GDP spent on health care, rising from 17.6% of GDP to more than 20% (20.3%) for the first time in 2033 (Office of the Actuary). n
Key drivers of rising expenditures include: n
Higher use among older adults n
Chronic conditions n
Advances in high-cost therapies and drugs n
Labor and technology costs n
Administrative complexity n
Macroeconomic trends, including tariff policies and geopolitical conditions, for example, also impact the cost of goods and supplies. As a result, key areas like medical devices and surgical instruments as well as pharmaceutical manufacturing and supplies, largely imported today, may see more onshore or nearshore production and new supply chains evolve as economic policies shift. n
The federal debt level compounds the problem. In 2025, it cost the federal government $355 billion to maintain the debt, which is 19% of annual federal spending. n
Within two decades, federal spending on four items — Medicare, Medicaid, Social Security, and federal debt payments — is projected to exceed all federal revenues coming in. As debt and federal health care expenditures increase, policymakers and industry will likely face mounting pressures for reforms. n
The largest federal health care expenditure is Medicare. An aging population stresses its financing in the coming decade on two fronts: n
Increased expenditures n
Fewer employees paying Medicare payroll taxes n
Spending is expected to double over the next 10 years (see Chart 1-4) while the number of workers paying into Medicare (via payroll taxes) will likely continue to decline (see Chart 1-6). This inverse relationship is troubling, as employee Medicare payroll taxes account for 99% of Medicare Part A financing — funding inpatient hospital, skilled nursing facility, home health, hospice, and inpatient psych benefits. Projections are that Medicare Part A will be insolvent by 2033, meaning payroll taxes coming in will be less than the amount of Medicare expenditures needed. n
However, this landscape also presents tremendous opportunities for new models and innovations accelerating preventive, lower-cost, and outcomes-based approaches. A few examples include: n
Heightened activity in value-based payments, including mandatory models n
Medicare Advantage enrollment rises, including Special Needs Plans n
Increased interest in PACE programs n
New services offered in new settings (outpatient, home), facilitated by technology n
Upstream prevention efforts, intensive chronic care management work n
Increased interest in alternative insurance coverage options (outcomes-based models, direct contracting, individual health reimbursement arrangements, association health plans) n
Alternative employer-sponsored offerings (onsite clinics, musculoskeletal, mental health, drugs, ortho options) n
Rapid technology and AI-enabled development, uptake n
Robust mergers and acquisitions to reflect market growth, ongoing economics n
Unique collaborations, alliances, partnerships to maintain viability, compete, grow n
3. Coming decade of OBBBA impacts n
OBBBA is poised to play a pivotal — though somewhat controversial — role in the coming decade, particularly for certain parts of HCLS. n
OBBBA will catalyze changes in Medicaid financing nationally felt especially at the state level. By 2034, the Congressional Budget Office estimates OBBBA health care policies will remove roughly $1.2 trillion in federal health care financing from the system with $900 billion removed from state Medicaid programs. n
A wild card: Elections n
There are always wild cards. Who could have imagined the beginning of this decade would turn into a multi-year pandemic? From 2026–2035, a known wild card will be the 2026 and 2028 elections. n
The 2026 mid-term election is the first potential pivot. A majority-party control shift in Congress could create a more difficult legislative environment through 2028. If control shifts further in the 2028 presidential elections, economic and health care policy would likely be heavily impacted through 2032. n
The extent of OBBBA’s impact over the decade is heavily dependent on state-level budget decisions. These could lead to reduced reimbursements, loss of coverage and impact on non-health care budget priorities. n
On the flip side, OBBBA provides $50 billion to states over five years via the Rural Health Transformation Fund (RHTF). All states applied for and received approval on December 29, 2025. Annual funding begins 2026 and runs through 2030. n
HCLS may also be able to take advantage of OBBBA’s tax policies, such as the research and experiential expenditure change, particularly impactful for life sciences, and the business interest expense deduction relevant for many HCLS entities. n
4. Promise of AI, technology advances n
Technology and AI will be central to the HCLS’s reinvention in the coming decade, offering new discoveries, products, and software across the care continuum. n
Rapidly increasing use of technology and AI-powered tools will fuel productivity improvements for providers and businesses. Offloading non-productive work enables clinicians to work at top-of-scope. Tools will also be increasingly used to analyze all areas of operations, and heavily leveraged in chronic care management, preventive medicine and wellness offerings. n
Bluestem Health’s month-end closes, patient refunds, patient payments, and bank reconciliations are all far easier and significantly quicker. Read how CLA helped make it happen. n
Medical technology firms will innovate in diagnostics, minimally invasive procedures, and robotics while biotech companies will use AI and technology to accelerate targeted therapies and personalized medicine. While these “bespoke” therapies could create new opportunities, they crash head-first into health care economics due to their high costs. In these instances, new types of coverage options or outcomes-based payments will need to take shape. n
Smart technologies in hospitals, assisted living, nursing homes and more will become a foundational need when building or renovating existing facilities. n
Collectively, these transformations will define the HCLS ecosystem by 2035. The opportunities here are boundless but successful implementation must be rooted in a strong enterprise-wide strategy, robust data governance, cybersecurity, clinical appropriateness, and workforce upskilling. n
How CLA can help HCLS prepare for the coming decade n
The call for HCLS is to understand these sweeping changs, create plans now, execute, and iterate. Here are a few recommendations for how to begin preparing today for the years ahead: n
Use strategic advisors to stay abreast of disruptions, anticipate risks, and capitalize on emerging opportunities. n
Recalibrate your strategic plan to reflect evolving realities. Align your plan to both short-term pressures and long-term growth goals. n
Drive decisions with data, using financial modeling, scenario, and facilities planning for better-informed decision making. n
Accelerate digital transformation to enhance operation efficiency and create new value streams as the industry evolves. n
Fortify data governance and cybersecurity. n
Analyze opportunities for new partnerships, mergers, acquisitions, or affiliations to expand capabilities, drive scale and position for sustained competitiveness. n
Plan for leadership and ownership transitions now. n
For each of these options and many others, CLA’s deep industry knowledge and services can help. Reach out today to have a complimentary discussion on where you and your organization want to go. n
Contact us n
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