New tariffs threaten to break health systems while health plans skate by untouched

Healthcare in America is about to become even more expensive…if that is even possible. This is noteworthy, considering it has been rising at two to three times the nominal inflation rate, which is targeted at 2% by the US Federal Reserve. Over the last 25 years (see Exhibit 1), healthcare premiums have risen by approximately 146%, while US median incomes have increased by less than 15%. The impact of the suite of tariffs—basic, reciprocal, and sanctions—on inflation driven by higher cost of supplies will increase the cost of care by a number yet to be determined. However, more than cost, what is significantly at risk are health systems and hospitals shutting down. Perhaps that is how we manage the cost of care…by not having healthcare!

Exhibit 1: This chart is about to look uglier as healthcare costs escalate

Source: KFF, BLS, St. Louis FED, HFS Research, 2025

Health plans can rest easy…for a bit

Health plans are typical financial services enterprises that underwrite risk and orchestrate services on assets they mostly lease or rent. This approach, along with their business needs, has allowed them to remain light on their feet regarding overseas supplies. Consequently, the impact of the Trump tariffs will be almost negligible (see Exhibit 2).

Exhibit 2: Health plan supplies from overseas are minimal and non-tariffed

Source: HFS Research, 2025

Health systems are about to face an existential crisis

A business that routinely operates at break-even to less than 3% margin has very little tolerance for any increase in the cost of its supplies. Health systems were just about getting back some level of financial health after the end of the pandemic, and their federal stimulus funds have dried up. Much of the improvement in financials was driven by increased patient volumes and overall inflation coming under some control. However, imposing the Trump tariffs will force health systems to backslide (see Exhibit 3). Additionally, given the administration’s position of not bailing out any business, it is very likely that several health systems, particularly those in rural settings or economically depressed urban communities, will face difficult decisions about whether to stay open or reduce services to the detriment of the communities they serve.

Exhibit 3: Health systems have a high dependency on imported goods that could have a crippling effect on their financial health

Source: HFS Research, 2025

The Bottom Line: Health systems must move beyond crisis-mode tactics and embrace radical innovation in sourcing, operations, and care delivery models.

In a generally well-functioning global supply chain, there is a reason why some industries decided to source supplies from faraway lands: to keep the cost of their products and services relatively affordable. While healthcare in America is undoubtedly not considered affordable, over the last several decades, the government (Medicare and Medicaid) and employers have made healthcare financially accessible.

If the Trump tariffs remain, the current equation may not be viable, especially further exacerbated by Congress’s intention to slash Medicare and Medicaid benefits. Health systems will have no place to hide…so is this the opportunity to innovate like our lives depend on it with a new paradigm?