A recent Congressional Budget Office (CBO) letter to congressional leaders, penned by CBO Director Phillip L. Swagel, shed light on the estimated budgetary and economic impacts of recent tariff increases.1 Although the letter addresses broad economic changes—particularly how the tariffs could impact the automobile and steel industries—understanding these shifts could be crucial for managed care, as they can directly influence health care costs, member affordability, and the overall financial health of health plans.1,2
Tariff Policies at Play
The CBO’s analysis covers significant tariff increases on a range of imports.1 These include substantial hikes on goods from China and Hong Kong (30%), most automobile parts (25%), most countries generally (10%), most automobiles (25%), steel and aluminum (25%), and certain goods from Canada and Mexico (25%). Additionally, the removal of de minimis eligibility for imports from China and Hong Kong means even low-value shipments are now subject to customs duties. While these specific tariffs may not directly relate to medical supplies in every instance, their broad economic impact could create downstream effects for the entire health care system.
Although CBO’s letter addresses broad economic changes, particularly how the tariffs could impact the automobile and steel industries, understanding these shifts could be crucial for managed care, as they can directly influence health care costs, member affordability, and the overall financial health of health plans | Image credit: alphaonetwo – stock.adobe.com
Economic Headwinds and Their Health Care Ripple Effects
The CBO’s analysis foreshadows that the recent tariff hikes could shrink the US economy. This economic contraction, driven in part by retaliatory tariffs from other countries, will likely lead to reduced overall economic output. For managed care, a smaller economy generally means fewer jobs, lower wages, and increased financial strain on households. This can translate to:
- Higher uninsured rates: As individuals lose jobs or see their income decline, they may lose employer-sponsored health coverage or find it difficult to afford individual plans, potentially increasing the demand for safety-net programs.3
- Increased member cost-sharing burden: With reduced purchasing power, members may struggle to meet deductibles, co-payments (co-pays), and co-insurance, potentially leading to delayed care or non-adherence to treatment plans.4
- Pressure on provider reimbursement: A struggling economy can intensify calls for cost containment, putting pressure on health plans to negotiate tighter reimbursement rates with providers.5
Adding to these concerns, the CBO anticipates a noticeable increase in inflation, projected to average 0.4 percentage points higher in 2025 and 2026.1 This means higher prices for goods and services across the board, including health care. For managed care organizations, this could mean:
- Rising claims costs: The cost of medical devices, pharmaceuticals, and other health care inputs could increase, directly impacting claims expenditures for health plans.4,6
- Increased administrative expenses: The cost of operational necessities, from facility maintenance to technology, could also rise.4,7
- Erosion of member purchasing power: Inflation further squeezes household budgets, making health care less affordable even for those with insurance.8
The Paradox of Deficit Reduction
Interestingly, despite the projected economic contraction, the CBO also anticipates a significant reduction in federal deficits due to the tariffs, initially projected at $3.0 trillion and settling at $2.8 trillion after accounting for economic changes.1 This deficit reduction will stem from increased government revenue from tariffs. While lower federal borrowing might theoretically free up some resources for private investment, the CBO’s overall assessment remains that the tariffs will, on balance, reduce real economic output.
As individuals lose jobs or see their income decline, they may lose employer-sponsored health coverage or find it difficult to afford individual plans, potentially increasing the demand for safety-net programs. | Image credit: KMPZZZ – stock.adobe.com
Uncertainty and Strategic Planning
The CBO acknowledged considerable uncertainty in its estimates.1 “CBO’s estimates are subject to significant uncertainty, in part because the Administration could change how the tariff policies are administered. The projections described here reflect the assumption that the tariffs will be collected on all affected imports, with no exemptions beyond those currently specified,” wrote Swagel.
For managed care organizations, this uncertainty underscores the importance of flexible strategic planning to navigate potential economic volatility.9
Understanding these CBO projections is essential for managed care leaders, as the anticipated economic slowdown and inflationary pressures driven by tariffs will likely present challenges related to affordability, member retention, and overall financial performance.2,9 Proactive planning and robust risk management strategies will be key to mitigating these impacts.
How Tariffs Could Impact Health Care Costs
The CBO’s economic projections, amplified by expert analyses, could paint a concerning picture for managed care organizations. Early reports have shown that anticipated tariff increases will directly elevate health care costs.2,3,10-12 According to Mercer, a survey of health care industry experts from January 2025 indicated that 82% expect tariff-related import expenses to drive up hospital and health system costs by 15%, with nearly 70% anticipating a 10% spike in pharmaceutical costs due to reliance on imports.10 A report from Certifi further warned that these increased costs for medical devices, supplies, and pharmaceuticals will likely be passed on to patients through higher premiums, co-pays, and deductibles, directly impacting member affordability.11
Increased costs for medical devices, supplies, and pharmaceuticals will likely be passed on to patients through higher premiums, co-pays, and deductibles, directly impacting member affordability. | Image credit: 9dreamstudio – stock.adobe.com
Beyond direct cost increases, the broader economic slowdown and inflationary pressures forecast by the CBO pose additional threats.1 As the US economy shrinks and inflation rises, household purchasing power diminishes, potentially leading to increased financial strain for members. The Baker Institute’s analysis of past recessions highlights how job losses often translate to a decline in employer-sponsored health insurance, forcing individuals to seek coverage through public programs like Medicaid or the Affordable Care Act marketplaces, potentially straining these systems.3 Furthermore, when facing financial hardship, individuals may delay or forgo necessary medical care and prescriptions, as evidenced by a report from The Commonwealth Fund, ultimately impacting population health and potentially leading to higher costs in the long run.12
“While our survey’s findings show that it’s much better to have insurance than to go without, they also indicate that insurance frequently fails to provide affordable access to care for large segments of the U.S. population. It’s understandable that even people with insurance avoid getting needed care, since so many leave their provider’s office with bills they could be paying off for years — hampering their ability to get further care, afford basic living expenses, and save for the future,” authors of The Commonwealth Fund report wrote.
The CBO’s recent analysis offers an interesting perspective for managed care leaders. While new tariffs offer some federal deficit reduction, their economic ripple, including the potential for a contracting economy, rising inflation, and eroded household purchasing power, will present clear challenges.1 Health plans should anticipate higher costs, potential increases in uninsured rates, and greater member financial strain, requiring proactive strategies to preserve affordable, quality care.12
References
1. Swagel PL. Re: budgetary and economic effects of increases in tariffs implemented between January 6 and May 13, 2025. Congressional Budget Office. June 4, 2025. Accessed June 5, 2025. https://www.cbo.gov/system/files/2025-06/61389-Tariff-Effects.pdf
2. Munz K. Trump’s new tariffs could drive up health care costs, experts warn. AJMC®. April 8, 2025. Accessed June 5, 2025. https://www.ajmc.com/view/trump-s-new-tariffs-could-drive-up-health-care-costs-experts-warn
3. Pasumarthi R, Marks EM. Lessons from past recessions for health coverage today. The Baker Institute. May 29, 2025. Accessed June 5, 2025. https://www.bakerinstitute.org/research/lessons-past-recessions-health-coverage-today
4. Navigating healthcare costs in a recession: strategies for patients and providers. Accessone. March 25, 2025. Accessed June 5, 2025. https://accessonepay.com/articles/navigating-healthcare-costs-in-a-recession-strategies-for-patients-and-providers/
5. Lewis J. What a recession would mean for Medicare. Newsweek. March 18, 2025. Accessed June 5, 2025. https://www.newsweek.com/what-recession-would-mean-medicare-2044706
6. Rakshit S, Wager E, Hughes-Cromwick P, Cox C, Amin K. How does medical inflation compare to inflation in the rest of the economy? Peterson-KFF. August 2, 2024. Accessed June 5, 2025. https://www.healthsystemtracker.org/brief/how-does-medical-inflation-compare-to-inflation-in-the-rest-of-the-economy/
7. The cost of caring: challenges facing America’s hospitals in 2025. American Hospital Association. April 2025. Accessed June 5, 2025. https://www.aha.org/costsofcaring
8. Moss J. Navigating inflation’s impact on health care affordability. Medical Economics®. September 28, 2023. Accessed June 5, 2025. https://www.medicaleconomics.com/view/navigating-inflation-s-impact-on-health-care-affordability
9. Jeremias S. The Trump Administration’s drug price actions and why US prices are already sky-high. The Center for Biosimilars®. May 17, 2025. Accessed June 5, 2025. https://www.centerforbiosimilars.com/view/the-trump-administration-s-drug-price-actions-and-why-us-prices-are-already-sky-high
10. Patel S, Watson R. The impact of tariffs on healthcare costs. Mercer. April 10, 2025. Accessed June 5, 2025. https://www.mercer.com/en-us/insights/us-health-news/the-impact-of-tariffs-on-healthcare-costs/
11. Tariffs and health plans: 10 potential impacts. Certifi. May 5, 2025. Accessed June 5, 2025. https://www.certifi.com/blog/tariffs-and-health-plans-10-potential-impacts/
12. Paying for it: how health care costs and medical debt are making Americans sicker and poorer. The Commonwealth Fund. October 26, 2023. Accessed June 5, 2025. https://www.commonwealthfund.org/publications/surveys/2023/oct/paying-for-it-costs-debt-americans-sicker-poorer-2023-affordability-survey