Tariffs could have an ugly impact on healthcare costs and access
I have gotten a number of inquiries from readers on the impact of new or potential tariffs on the healthcare system. To be honest, the picture is not terribly clear, but certainly new and future tariffs could demonstrably impact costs in healthcare.
America’s healthcare imports reliance
America is heavily reliant on imports for medical equipment, supplies, devices, finished pharmaceuticals, and active pharmaceutical ingredients (APIs) used to manufacture pharmaceuticals.
Here are some quick facts:
- In 2019, almost 40% of pharmaceutical and medical equipment imports came from Europe, while 20% originated in Asia.
- The U.S. imported over $300 billion of medical devices and pharmaceutical products in 2024.
- China, Mexico, Canada, and India all are important in terms of supporting U.S. healthcare’s supplies, devices, and drugs.
- About 70% of medical devices are manufactured exclusively outside the U.S.
- The U.S. currently imports 75% of its essential medicines.
- India produces about half of the generic drugs the U.S. imports.
- China supplies 80% of U.S. APIs.
- More than 500 generic drugs rely on one country’s APIs, including treatments for diabetes and heart conditions as well as antibiotics.
- The European Union (EU) supplied $127 billion worth of high-value branded medicines, making it America’s largest pharmaceutical importer – about 60% of total pharmaceutical imports.
What is in force now and what is proposed?
While a baseline tariff is in effect for most countries, the Trump administration did forestall for 90 days imposition of reciprocal tariffs. If those are eventually put in place, much greater tariffs would be in force. Heightened tariffs are in force for China and a few other countries.
So far, the tariffs from the Trump administration clearly impact medical supplies and devices. The vast majority of supplies and much of our devices are imported from various countries. Leading exporters of such supplies and devices include China, India, Canada, and Mexico.
Finished pharmaceuticals are so far exempt from tariffs, but the administration recently issued an investigation into the national security implications of our reliance on pharmaceutical imports. This is a precursor to levying tariffs.
As noted above, America also imports vast amounts of APIs. Some of these APIs were exempt from tariffs for now. But not all APIs are exempt, especially ingredients used in over-the-counter medications. Remaining APIs could be tariffed based on the announced national-security investigation.
So, in summary, supplies and devices are tariffed, some APIs are tariffed, and all drugs and APIs could eventually be tariffed.
The impacts
In short, tariffs on all these areas will impact healthcare costs, which are already rising about 8% or more this year in the employer sector and Medicare.
In general, there are some stockpiles of supplies and pharmaceutical ingredients. But these supplies will be exhausted over time. And to ensure ongoing supplies, drug makers, suppliers, hospitals, and other providers will need to immediately determine a path forward.
Long-term contracts tend to protect many healthcare providers in the short term, but over time supply chain entities will pass on tariff costs to providers.
Health plans and pharmacy benefit managers, too, have discussed existing protections in contracts related to price hikes. But as providers see cost hikes, so will plans and PBMs. Providers will demand increases due to these costs. It is only a matter of time.
Hospitals will especially see tariffs’ effects as they have a major dependence on supplies, devices, drugs, and bigger equipment. While most physicians are less dependent, independent practices are already financially strained and tariffs could yet drive more independents out of business.
Hospitals could see increases over time of as much as 15%. Drug costs nationwide could increase by as much as 15% as well. Costs for prescription drugs could rise by an average of around $600 per year per household in the United States.
It is hard to say exactly what the tariffs will do to overall healthcare costs. But consider that the increase in costs was already projected to be about 8% in 2025. With hospitals and drugs accounting for between 40% and half of all healthcare expenditures, you can see how overall costs will accelerate further with tariffss. Even if the current annual trends relax a bit, we could see healthcare percentage increases well into the double digits in 2026 or 2027.
The big fear for generics
Generic drugs represent 90% of all prescribed medications in the U.S. Generics are extremely narrow margin. Generic manufacturers simply cannot absorb tariff costs within their small margin business. This could send generic prices up dramatically and even jeopardize the viability of some manufacturers.
Overall, tariffs will likely pull dollars from overall research and development by brand manufacturers as well.
The threat of shortages
Not only could tariffs increase costs in the healthcare system but they could lead to additional shortages. We have seen supply and drug shortages already in America and tariffs could exacerbate this. Worldwide supply chains could contract due to the tariffs. China, too, could hold the U.S. healthcare system hostage as we are heavily reliant on importation of APIs from China.
Hospital groups have gone on record worrying that cancer, cardiovascular, immunosuppressive, and antibiotic medications could be in short supply.
Quality and access
Higher costs and supply chain disruptions can make it more difficult for hospitals and patients to access essential medical devices and supplies.
Another worry is the impact on quality as providers forego maintenance and replacement of large-scale manufactured components in critical devices and equipment.
Thus, access to care and qualiy could suffer.
The case for onshoring
The Trump administration is not wrong about the national security implications of being heavily reliant on imports for our healthcare system, especially from authoritarian regimes such as China. But the blunt force of tariffs to drive onshoring of medical supply, device, and drug manufacturing is likely not the best approach or at least it will not succeed alone. Supply chains for healthcare supplies, devices, and drugs are complex. Unraveling the supply chain and bringing most or all of it onshore would take time.
Showing just how difficult onshoring is, the COVID pandemic did lead to greater domestic manufacturing of medical supplies, perhaps the simplest of things to establish. But since the pandemic subsided, many of these entities have closed up shop given logistical and margin issues.
Conclusion
Healthcare costs are already spiraling out of control due to utilization coming out of the COVID pandemic, inflation and price hikes, and a surge in the use of weight-loss, specialty, and cancer drugs. In 2025, we are seeing at least an 8% increase in costs and these kind of trends will continue in future years. Tariffs threaten to further heighten the increases, which could undoubtedly erode the benefits and coverage Americans rely on. It would further complicate employer coverage’s viability.
Trump’s tariffs will be a disaster for the healthcare system and coverage. He should exclude healthcare imports and work to create domestic production in other ways.
#tariffs #healthcare #coverage #trump
— Marc S. Ryan
