Tariffs have been all over the news in recent weeks. Consumers are reframing when they intend to purchase cars or cell phones, and companies are debating whether to change their investment strategies. Tariffs could also have a big impact on the cost of employer-sponsored health insurance plans. However, there’s a lot of uncertainty about what tariffs will be in place and when.
The Trump administration announced global tariffs on April 2, imposing a baseline 10% tariff on all imports, with higher tariffs ranging from 11% to 50% for select countries. These measures were projected to increase the average cost of imported products by about 26%. The administration paused the higher tariffs a week later, although imposed 10% tariffs on imports from most countries, while increasing the tariff rate for Chinese products to 145%. Tariffs on products ranging from electronics to medicine have been proposed and then withdrawn, and therefore many companies have deferred business decisions to see what tariffs will eventually be implemented over the longer term.
Tariffs are collected on goods when they enter the U.S., and in most cases the seller will add this extra expense to prices. Tariffs are more likely to increase the costs of low-margin commodities, where there’s little margin to cover incremental costs. Tariffs are less likely to lead to increased costs at the point of sale for high-margin products, especially if their price is already optimized to maximize volume and margin. Tariffs increase the cost of products made in the U.S. to the extent that they incorporate any imported parts, and tariffs ease competitive pressure and allow U.S. manufacturers to raise their prices even if they don’t use imported parts.
Many imported goods are used in medical care, so tariffs increase the pressure of medical inflation. This is especially painful as employers have faced the highest rate of cost increases in two decades over the last two years. The ultimate impact of tariffs will depend on the details of how these are imposed over the coming weeks and months and how businesses and markets react.
The U.S. imports $41 billion of medical devices annually from countries including Mexico, Germany, Ireland and Costa Rica. In most cases, this equipment isn’t available from U.S. manufacturers, so health systems will be faced with higher costs. Some suppliers might initially escape cost increases due to stockpiling and previously imported parts. Increased provider costs might not be transmitted immediately to employer-sponsored health plans, since carriers often have multiyear contracts with providers. However, tariff-related price increases will increase costs at renewals, and could fuel healthcare inflation for several years.
Medical supplies represent about 13% of total hospital costs, and most medical supplies are imported. Increases in the cost of supplies might not increase prices paid by employer-sponsored health plans at first. But they will increase pressure to raise allowed prices in the next contractual cycle.
Many pharmaceutical products are produced overseas, and even drugs formulated in the U.S. are often made of active pharmaceutical ingredients made in India and China. Brand-name drugs represent just 10% of all prescriptions, but over 85% of total costs. The cost of brand-name drugs won’t likely go up a lot from tariffs because the cost of the ingredients in these drugs is a very small part of the total sales price.
Tariffs could have a huge impact on generic medications, which are usually very inexpensive with low margins. Importers may not be able to absorb tariff costs and are often unable to increase prices due to existing agreements with drug wholesalers and pharmacy benefit managers. Therefore, many generic drugs may be in short supply, leaving clinicians to prescribe more expensive alternatives if they are available. This has happened before. A 2019 shortage of vincristine, an older generic chemotherapy medication, made many pediatric oncologists substitute more expensive and less effective newer medications. A shortage of doxycycline led to a 60-fold increase in prices in 2013, and tariffs on Chinese imports could cause a shortage of heparin, a commonly used blood thinner.
In some cases, tariffs could paradoxically lower medical claims costs. For example, supply disruptions or cost increases may reduce demand. If certain drugs aren’t available, some people won’t fill new prescriptions, while others may be unable to afford a higher out-of-pocket cost brand alternative. Decreased use of recommended medicines or medical services could worsen overall health.
Tariffs could increase the cost of healthcare in other less direct ways, too. Construction costs are expected to increase, making healthcare facilities more expensive to build. If tariffs cause an economic downturn, the rate of uninsured will increase. This will lead to worse health and more pressure to increase prices on patients insured by employer-sponsored plans. Higher overall inflation also drives an increase in labor and other medical costs.
Tariffs could eventually increase production of medical products and medications in the U.S. This could improve the resiliency of the supply chain and prevent shortages. This transition, if it happens, will take place over years, and costs of manufacturing domestically may be higher than costs of manufacturing in other countries.
Employers should think about possible effects and financial uncertainty from tariffs when they project their medical budgets and make healthcare plan decisions for 2026. Actions employers can take to prepare now include:
Newly imposed tariffs are likely to increase already-high medical trends. Increasing health insurance costs could drive more employers to shift either premium or out-of-pocket costs to employees and could decrease uptake of employer-sponsored health insurance. Some employers could use this time to consider how and why they offer health benefits and if they are delivering appropriate value.
Some employers may decide to stop offering employer-sponsored health insurance and offer Individual Coverage Health Reimbursement Accounts (ICHRAs). These accounts provide tax-advantaged funds for employees to seek insurance on the individual or exchange markets. The cost of plans on these markets is likely to be similarly impacted by tariffs.
Employer health plan sponsors face complex situations and decisions, including regulatory and tax changes that might unfold. Tariffs bring uncertainty and are likely to influence the actions of employer health plan sponsors in 2026 and beyond.
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