That was certainly unexpected. The January payroll report was effectively twice as robust for jobs added to the U.S. economy than was forecasted just several days ago. This was powered by more than 82k and 42k new healthcare and social assistance jobs, respectively, accounting for virtually all of the 130k increase. This strength masks the overall weakness in employment across the other sectors of the economy. It also highlights one of the paradoxes of healthcare technology, which is how quickly automation and AI will lower administrative and clinical costs by reducing labor needs.
Change In Nonfarm Payrolls
Source: U.S. Department of Labor
It is estimated that there are 17 million (and as high as 22 million) healthcare workers in the U.S., according to the National Center for Health Workforce Analysis, accounting for more than 14% of all employees. Foreign born healthcare workers tend to be clustered at both the high- and low-ends of the skill and income distribution, with the lower skilled workers in the home health segment particularly vulnerable to the current Administration’s deportation program.
Foreign workers now account for approximately 15% of the U.S. population but are 39% of all home health aides, according to IPUMS, which tracks census data. In addition to the 230k deportees in 2025, there were another 270k people arrested at the border and another 40k people who “self-deported” in 2025, placing extraordinary pressure on all labor-intensive sectors of the economy.
Estimated Number of Deportees
Source: New York Times
The Centers for Medicare and Medicaid Services recently reported that the national healthcare spending reached $5.3 trillion in 2024, which is an increase of 7.2% over 2023 and is now comfortably above 18% of GDP. On a per capita basis, this is nearly $15,500. There were over 214 million enrollees in private health insurance in 2024, notably seven million more people due to the extension of enhanced Affordable Care Act tax credits. Without these credits, the average ACA enrollee will see monthly health insurance premiums spike from $888 to $1,904, according to KFF.
Against this backdrop there has been a profound shift in the economic composition of the U.S. population with the Middle Class being a smaller percent of the overall population as the affluent class has grown. Across all strata, household income increased significantly over the past half century, although the median income for the lowest income households increased only 55% as compared to 78% for the highest income household, according to the Pew Research Center. In 2022, the ratio of highest to lowest median income was 7.3x (it was 6.3x in 1970). While there may be proportionally fewer poor households, the ability to pay for healthcare has been severely impaired, putting significant strain on public resources and safety nets.
Distribution of U.S. Population
Source: American Enterprise Institute
The importance and magnitude of these social safety net programs is highlighted by an analysis by the American Enterprise Institute that concluded that a family of five with no earnings receives benefits totaling $55k annually. Furthermore, the powerful “leveling effect” of these programs is made more apparent when looking at a comparison of that same family earning $20k versus $80k annually. The higher income family effectively takes home only $11k more than the lower income family in after tax earnings given the substantial government subsidies. Interestingly, Goodwill Industries had its best year ever in 2025 with revenues in excess of $7 billion across its 3,400 stores.
These benefits may contribute to some of the hostility directed at these programs today. For example, Medicaid, which accounts for approximately 19% of all healthcare spending ($919 billion in 2024), is expected to decrease by over $900 billion over the next decade given announced cuts to the federal budget. In so doing, the number of uninsured Americans will increase by more than 7.5 million people.
Furthermore, more than 41.7 million people participated in the Supplemental Nutrition Assistance Program (SNAP) in 2024, according to USDA data. In aggregate, the SNAP outlays totaled $99.8 billion (~$187 per person) and while a federal program, the benefits are administered at the state level which has now introduced a chaotic patchwork system of guidelines and criteria. In certain states, these benefits have become much harder to access.
Hopefully, all these investments in public health are paying off. According to the National Center for Health Statistics, life expectancy in the U.S. hit a high-water mark in 2024 as the opioid crisis started to recede somewhat, dropping by 26%. Those born in 2024 could expect a life expectancy of 81.4 years and 76.5 years for women and men, respectively. The mortality rate in 2024 was 722.1 deaths per 100k.
While 1.2 million people died from cancer from 1990 to 2023 according to American Cancer Society data, the survival rates have improved notably with 70% of cancer patients living for at least five additional years after initial diagnosis. This underscores the criticality of continued robust investment in scientific discovery, and the lunacy of current officials’ attacks on research. Gavi, the Vaccine Alliance, estimated that 19.8 million lives were saved in the first year of the Covid vaccines being available.
In addition to scientific R&D investment, the pace of investment in new healthcare technologies improved in 2025 to $14.2 billion across, an increase of 35% over the $10.5 billion invested in 2024, according to Rock Health. The $4.2 billion invested just in 4Q25, the largest quarterly results for the past ten quarters, suggests a further strengthening of the sector into 2026.
While there were slightly fewer companies that raised capital in 2025 over the prior five years, the average deal size was significantly larger pointing to the impact of large AI financings. One word of caution: there are more than 600 companies which raised capital in 2021 – 2022 that have yet to raise another round. It is unclear what is to become of those companies as many undoubtedly are sub-scale.
Healthcare Technology Investment Activity
Source: Rock Health
There was a marked shift to AI-centric companies by investors in 2025, which now account for more than half of all healthcare technology financings. These companies are focused on solutions to automate many labor-intensive tasks in healthcare. Additionally, healthcare was 22% of all AI financings as compared to just 13% in 2024, pointing to an increased level of investor awareness and acceptance of the potential AI has in healthcare. This also likely reflects companies recasting themselves as AI-forward or AI-native now.
Source: Bessemer Venture Partners
The knock-on effect of AI euphoria has been profound on valuations and round sizes across all stages in the healthcare technology sector. One trend that is clearly evident is the significant “pull forward” of capital to the earliest rounds of financing. Seed investments in healthcare technology AI companies were on average $15.3 million in size at $41.6 million pre-money for an average post-money valuation of nearly $57 million. The pre-money valuation of the following Series A was only a 1.7x step-up, which compares unfavorably to the 3.4x step-up from the Series A to Series B rounds. Even more surprising was the absence of a step-up from the Series B to Series C rounds, perhaps suggesting that many Series B companies struggled to show meaningful commercial progress.
Healthcare Technology AI Investment Activity (through 1H25)
Source: Rock Health
The promise of healthcare AI is to materially lessen the reliance on labor in clinical and administrative workflows. In spite of essentially flat Medicare rate increases announced for 2027, there are several promising federal initiatives to facilitate greater efficiencies such as the ACCESS Model (AI-supported care models for chronic disease) or the WISeR Model (AI-enhanced prior authorization) or the MAHA ELEVATE Model (evidence-based functional lifestyle medicine interventions). Quite clearly, the current Administration is pushing to remove many of the AI guardrails in place to encourage business model transformation.
One interesting development has been the extraordinary level of chatbot engagement for health-related matters. OpenAI recently rolled out a health tab in ChatGPT that now has 40 million daily visitors. Patients are uploading medical records and test results, desperately looking for guidance and insights while circumventing already capacity constrained providers. This phenomenon underscores the opacity and frustration of engaging with the healthcare system today that operates like a gated community as patients scurry into corners of the internet looking for answers. It also highlights the need for greater “data liquidity” so that fringe commentators do not receive media attention in the absence of authoritative clinical voices.
Interestingly, it is not just patients looking for online assistance. Physicians are now readily embracing AI tools at the point-of-care. Given the pressure on healthcare labor, such advances, if reliable, will provide significant leverage for the provider workforce.
Most Popular AI Tools for Physicians
Source: 2025 Physicians AI Report
Notwithstanding the precipitous drop in consumer confidence this past month from 94.2 to 84.5, the lowest monthly reading in a dozen years and lower than at the depths of the Covid pandemic, public market investors seem to be returning to the healthcare sector. Ironically, general consumer sentiment appears to have soured on the state of the jobs market, although jobs remain relatively plentiful in the healthcare sector even with rapid AI adoption. According to national net buy/sell trading data, an analysis by Morgan Stanley concluded that of the eleven tracked sectors, healthcare experienced the greatest month-over-month improvement in overall investor sentiment to start the year.
Monthly Sector Rotation
Source: E*Trade, Morgan Stanley
We hope you will join us for our next quarterly Expert Roundtable Series on March 3, 2026 at 12:00pm ET (register here). To stay connected, subscribe here for the latest updates, news, and insights from Flare Capital Partners.