Out-of-Pocket Medical Costs in 2025: What’s Deductible?

How Much Americans Spend on Medical Care Annually

While full 2025 data isn’t available yet, current medical expense statistics rely on recent historical trends and federal projections to estimate healthcare spending.

Projections for 2025 indicate an average NHE growth rate of 7.1%, outpacing overall GDP growth and continuing to strain household healthcare budgets.

According to CMS, national health expenditures grew 7.2% in 2024 and accounted for 18% of GDP, with out-of-pocket spending totaling approximately $556.6 billion. Prescription drug spending increased by 7.9%, and physician and clinical services costs grew 8.1%.

Medical expenses data show that about 28% of total health spending was paid by households, 31% by the federal government, 18% by private businesses, and 18% by state and local governments.

According to KFF, a tax and budget reconciliation law signed in July 2025 (known as the ‘One Big Beautiful Bill Act’) includes provisions reducing federal spending on Medicaid and ACA Marketplace coverage. While these changes may affect insurance coverage levels, they do not directly change IRS rules for medical expense deductions.

Sources:

• CMS, NHE Fact Sheet
• CMS, 2024 NHE Highlights

Out-of-Pocket Costs by Income Level

As household income increases, average out-of-pocket medical spending rises—but the share that’s deductible drops.

IRS Statistics of Income (SOI) data highlights how income level affects both medical spending and deductibility.

Out-of-Pocket Costs by Income Bracket (2025)

Key takeaway:
As income rises, taxpayers typically spend more out of pocket on healthcare, but deduct less of it. That’s because the IRS medical expense deduction applies only to costs exceeding 7.5% of adjusted gross income (AGI), creating a higher hurdle for higher-earning households.

Most Common Deductible Medical Expenses

According to IRS Publication 502, deductible medical expenses include unreimbursed, after-tax costs related to diagnosing, treating, mitigating, or preventing disease. Based on recent statistics, the most common deductible medical expenses include:

• 1. Prescription drugs
• 2. Doctor and hospital spending
• 3. Dental Care
• 4. Certain health insurance premiums may be deductible, such as Medicare Part B, Part D, and qualified long-term care premiums.
• 5. Travel and lodging for treatment

Premiums paid with pre-tax dollars or through an employer plan generally aren’t deductible.

While less common, taxpayers can also deduct the costs of LASIK surgery, long-term care, or other significant medical expenses. These types of deductions aren’t as common, but they do offer very high-value benefits.

Source: IRS Pub. 502, Insurance Premiums

State-by-State Medical Deduction Trends

CMS state-level data illustrates how rising healthcare costs are distributed unevenly across the U.S., with significantly higher spending in certain regions. However, the agency's latest data is from 2020. The medical trend that appears year after year is a higher overall average medical expenditure rate in the Southeast and Mideast. The lowest average expenditures tend to be in states that are in the Rocky Mountains and New England. Here’s a breakdown of some of the more notable state deduction trends:

Personal Healthcare Costs by State (2020)

These figures reflect average per-capita personal healthcare spending, not individual deductions. However, they help illustrate where medical costs are highest.

Source: CMS, Health Expenditures by State of Residence

How Inflation Impacts Deductibility

According to the most recent KFF data, total health spending in the U.S. has risen sharply over the past several decades. Between 2000 and 2023, healthcare spending tripled to $4.9 trillion. In 2019-2020 alone, healthcare spending rose 10.4%.

Healthcare inflation increases out-of-pocket medical costs—but it can also improve deductibility. As expenses rise, more taxpayers exceed the IRS’s 7.5% AGI threshold, making it easier to qualify for a medical expense deduction despite higher overall costs.

In 2022, the total out-of-pocket spending per capita was approximately $1,474; in 2023, it rose to $1,514.

With inflationary cost pressures, the overall standard deduction rate has also increased slightly over the years. This increase does offset some of the benefits of itemizing and deducting your medical expenses, but it might still be worth it, given that medical expense costs are rising as well.

How Much of Your Medical Spending Is Tax-Deductible?

Typically, qualifying medical expenses that are paid for with after-tax dollars, exceed the 7.5% threshold, and are itemized out on your return are considered deductible. To determine what portion of your medical spending is considered deductible, you should take the following steps:

• 1. Add up all of your qualifying medical expenses.
• 2. Calculate your threshold by multiplying your AGI by 7.5%
• 3. Subtract your threshold from your total qualifying medical expenses to determine your deductible amount
• 4. Use Schedule A to report the deductible amount

Here’s a numeric example to highlight how to calculate your medical expense deduction, including your out-of-pocket costs, prescription drug expenses, and the costs of all other qualifying health care services. Let’s say the taxpayer has an adjusted gross income of $80,000. To determine their personal threshold, they’d need to multiply $80,000 x 7.5% to reach $6,000. In this example, the taxpayer has incurred $9,000 in qualifying medical and hospital expenses. To calculate the deductible amount, the taxpayer should use the following formula: $9,000 - $6,000 = $3,000. In this scenario, itemizing medical expenses would be beneficial only if the taxpayer’s total itemized deductions exceed the standard deduction for their filing status.

Medical Expense Statistics 2025

Medical costs continue to rise, but understanding IRS deduction rules can help offset part of that burden. Even if you don’t itemize every year, tracking your healthcare spending provides insight into your future tax savings potential.

Visit our Medical Expenses & Health Tax Deductions Guide to learn more about the topic.