Booming Health-Care Spending Supports Industry ETFs

Health-care spending has grown at twice the rate of GDP over the past decade, and the trend is poised to continue as the population ages.

Reviewed by: Sean Allocca
Edited by: Mark Nacinovich

The health-care industry in the U.S. is massive. In 2021, spending on health care was $4.3 trillion, equal to 18.3% of the country’s gross domestic product, according to data from the American Medical Association. 

As the population ages, health care’s significance to the economy is expected to grow, offering investors who invest in health care-related ETFs an opportunity to profit. 

Rapid Growth  

ETF allocation

Health-care spending isn’t just big, it’s growing at a faster pace than the economy at large. In the 10 years through 2021, health-care expenditures grew at a 4.7% rate, more than twice as fast as GDP grew over that same period. 

Health-care spending is distributed across a number of subcategories, including hospital care (31% of spending), physician services (15%), prescription drugs (9%), clinical services (5%), nursing-care facilities (4%) and more. 

Spending on health care grew particularly fast in 2020, when it jumped 10.3% because of pandemic-related government expenditures. The implementation of the Affordable Care Act in 2014 and 2015 also led to a spike in health-care spending as millions more people became insured. 

But perhaps no factor has been more responsible for rising health-care spending than the aging of the population.  

The share of the U.S. population aged 65 or older increased from 13% to 16% between 2010 and 2021 and is expected to rise to 20% by 2030, according to the Peter G. Peterson Foundation.  

“Since people ages 65 and over, on average, spend more on healthcare than any other age group, growth in the number of older Americans is expected to increase total healthcare costs over time,” according to the foundation. 

Another factor driving higher health-care spending is new technology. While innovation often drives down prices in other industries, in health care, new treatments and procedures can lead to rising expenditures. 
“Health insurance removes financial barriers to consumers, thus raising demand for technology and inducing providers to offer a more expensive mix of services,” according to research by Peter Neumann and Milton Weinstein, two Boston-area professors. 

New innovations, including genome sequencing, mRNA vaccines and artificial intelligence, are playing an enormous role in improving health-care outcomes, while bolstering the profits for companies that either sell or capitalize on those technologies.  

Health-Care ETFs 

ETF Chart

Rising health-care expenditures and accelerating health-care innovation are supportive of exchange-traded funds focused on health care. 

There are now 60 U.S.-listed health care exchange-traded funds on the market, according to’s health-care topics page.  

The largest is the $39 billion Health Care Select Sector SPDR Fund (XLV). Over the 10 years through Sept. 29, 2023, XLV has delivered a total return of 155%, or a compound annual return of 9.8%. That compares with a 206% return, or an 11.8% CAGR, for the SPDR S&P 500 ETF Trust (SPY)

XLV offers broad coverage of the health-care industry by holding a market-cap-weighted basket of the health-care stocks that are in the S&P 500.  

The $16.6 billion Vanguard Health Care ETF (VHT) also offers comprehensive exposure to the sector by tracking the MSCI US Investable Market Health Care 25/50 Index, a market-cap-weighted benchmark of large-, mid-, and small-cap U.S. stocks in the health-care sector. 

Health-Care Subsectors  

ETF Sector

While XLV and VHT offer broad exposure to health-care stocks, a number of ETFs hone in on more specific parts of the sector, something that may appeal to investors who are seeking higher growth or who believe one part of the industry has better prospects than the others. 

The $7 billion iShares Biotechnology ETF (IBB) and the $5.5 billion SPDR S&P Biotech ETF (XBI) are the two most popular ETFs focused on biotech. 

The biggest difference between the funds is that IBB is market cap weighted, while XBI is equal weighted. 

The $5.1 billion iShares U.S. Medical Devices ETF (IHI) is another popular fund focused on a segment of the health-care industry. 

It’s a market-cap-weighted ETF that holds stocks of companies involved in the manufacturing and distribution of medical devices.  

Niche ETFs  

ETF niche

There are even more niche health-care funds than the ones mentioned so far. The ALPS Medical Breakthroughs ETF (SBIO), for instance, holds stocks of biotech companies with at least one drug currently in either Phase II or Phase III Food and Drug Administration clinical trials. 

Another is the Global X Telemedicine & Digital Health ETF (EDOC), which invests in stocks of companies involved in telemedicine and digital health.  

EDOC is one of several “thematic” health-care ETFs on the market. These ETFs attempt to capitalize on some type of health-care trend and they sometimes pull stocks from outside of the health-care sector into their portfolios. 

ETFs focused on “disruptive” companies within the health care sector have also been popular recently. These funds, such as the Goldman Sachs Future Health Care ETF (GDOC) and the Fidelity Disruptive Medicine ETF (FMED), primarily hold stocks of health-care technology companies.  

Topics Page 

The menu of health-care ETFs is expansive. Check out the health care topics page to find the right health care fund for you. 

Click through the tickers to learn more about each fund. You can also reach an ETF’s fund page by visiting   

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