Healthcare: The Quiet Giant

When Americans argue about government spending, they argue about defense. About foreign aid. About welfare. They almost never argue about the single largest driver of federal expenditure outside of debt service: the Department of Health and Human Services.

HHS spent $2.6 trillion in FY2025 — more than the entire Department of Defense and Department of Veterans Affairs combined. Yet it operates largely below the political radar, processing Medicare claims, funding Medicaid, and administering hundreds of health programs with remarkably little public scrutiny.

Medicare and Medicaid: The Two Giants Within the Giant

The vast majority of HHS spending flows through two programs:

Together, Medicare and Medicaid account for roughly $1.5 trillion — about 58% of all HHS spending. The remaining $1.1 trillion covers the NIH ($48B), CDC ($18B), the ACA marketplace subsidies, children's health programs (CHIP), substance abuse funding, and hundreds of smaller programs.

These programs are mandatory spending — they pay out automatically based on eligibility. If more people qualify for Medicare (because the population is aging), spending goes up. No vote required.

“Medicare and Medicaid together cover 155 million Americans and spend $1.5 trillion per year. That's nearly $10,000 per enrollee — and the number grows every year.”

Optum: The $22 Billion Healthcare Contractor You've Never Heard Of

When people think of government contractors, they think of Lockheed Martin building fighter jets. They rarely think of Optum — a subsidiary of UnitedHealth Group — which receives $22 billion per year in federal contracts, making it the second-largest government contractor in America.

What does Optum do for $22 billion? It administers portions of Medicare and Medicaid, processes claims, manages healthcare data, runs IT systems, and provides analytics for federal health programs. It's the back office of American government healthcare.

The concentration here is striking: UnitedHealth Group — Optum's parent — is simultaneously the nation's largest health insurer, the largest employer of physicians, and the largest government healthcare contractor. That vertical integration gives it extraordinary insight into healthcare spending flows and extraordinary influence over how those flows are managed.

See all top federal contractors →

$100+ Billion in Improper Payments

Every year, the federal government reports “improper payments” — money sent to the wrong person, in the wrong amount, or without proper documentation. Healthcare programs are by far the largest source.

Medicare alone reports improper payment rates of 7-8% — roughly $60-70 billion per year. Medicaid adds another $40-50 billion. “Improper” doesn't always mean fraud — it includes billing errors, insufficient documentation, and payments for services that didn't meet program requirements. But some portion is outright fraud: fake clinics billing for phantom patients, kickback schemes, and upcoding (billing for more expensive procedures than performed).

To put this in perspective: $100 billion in improper payments exceeds the entire budget of the Department of Education. We lose more to healthcare billing errors and fraud than we spend educating the nation's children.

Read our full analysis of government waste →

COVID: $290 Billion Through HHS

The COVID-19 pandemic turned HHS into a spending firehose. The department channeled approximately $290 billion in pandemic-related spending — vaccine procurement, hospital surge payments, testing, therapeutics, and the Provider Relief Fund that sent money directly to healthcare facilities.

The speed was necessary — but it came at a cost. Oversight was minimal. The Provider Relief Fund distributed $178 billion with limited verification. Billions went to hospitals that didn't need it. Fraud in pandemic healthcare programs is still being uncovered years later.

Perhaps most importantly, the pandemic spending created new baseline expectations. Programs expanded, staffing increased, and many of those costs haven't fully receded. HHS's budget is permanently higher as a result.

See our full COVID spending analysis →

The Outcomes Paradox

The United States spends more on healthcare — both publicly and privately — than any other country on Earth. Federal healthcare spending alone exceeds the total healthcare spending of most developed nations. And what do we get for it?

We spend 2.5x the OECD average per person and rank near the bottom on nearly every health outcome metric. More money has not produced better health. It has produced a massive healthcare industrial complex — insurers, hospital systems, pharmaceutical companies, IT vendors — that extracts extraordinary value from the system.

“We spend more than any nation on Earth on healthcare and rank 46th in life expectancy. Money in does not equal health out.”

Money In ≠ Health Out

The core problem with HHS spending isn't the total amount — it's what we get for it. $2.6 trillion should buy world-class health outcomes. Instead, it buys a system optimized for billing, not healing.

Every dollar that goes to claims processing, administrative overhead, improper payments, and fraud is a dollar that doesn't go to patient care. And the administrative burden is enormous: estimates suggest 15-30% of healthcare spending goes to administration — higher than any other developed country.

This isn't a left-right issue. Progressives want universal coverage; conservatives want market competition. Both sides agree the current system is dysfunctional. Neither has been able to fix it, because the beneficiaries of dysfunction — the Optums, the hospital chains, the pharmacy benefit managers — are powerful enough to block meaningful reform.

The $2.6 trillion will keep growing. Medicare enrollment increases every year as baby boomers age. Medicaid expands in more states. Drug costs rise. The question isn't whether we'll spend more — it's whether we'll ever demand results proportional to the investment.

See full HHS budget data →