For more from the Morgan Stanley Institute, subscribe here.
Can AI Reduce the Costs of Healthcare and Aging?
Aug 14, 2026
Increasing life expectancy is placing growing pressure on healthcare systems and spending.
Michael Zezas
Co-Head, Morgan Stanley Institute
Jessica Alsford
Co-Head, Morgan Stanley Institute
Why It Matters
- An aging global population is putting pressure on healthcare costs. In the years and decades ahead, a greater proportion of the population will be older, leading to increased healthcare demand.
- Healthcare costs and drug research and development are two major areas of opportunity for artificial intelligence. AI can help to significantly reduce healthcare costs, particularly in hospitals, and also accelerate and improve drug development.
- Evidence of AI’s impact is a key next step. In the coming years, hospitals will need to show AI can drive measurable savings and more efficient processes, and biopharma companies will need to demonstrate that AI can enable better results.
The Big Picture: The aging global population is creating longer-term pressure on the costs of healthcare. AI offers the potential for reducing costs through greater efficiencies and for expediting and improving drug development. For investors and companies, the question is where AI adoption in healthcare can demonstrate economic and clinical value.
Rising life expectancy and falling birth rates are together resulting in an increase in the percentage of the older population worldwide. Nearly 1 in 6 people will be above the age of 60 by 2030, Morgan Stanley Investment Management recently noted.
These demographic changes are reshaping the economics of healthcare, and creating new investment opportunities. As people live longer and a larger proportion of the population ages, healthcare demand—and costs—grow.
Artificial intelligence offers a potential remedy. AI’s rapid growth presents significant opportunities for streamlining hospital operations and expenses, as well as shortening drug discovery timelines, reducing research and development costs and improving clinical trials.
1. Demographic shifts are increasing healthcare costs.
Population aging is a global phenomenon. The World Health Organization expects that 2.1 billion people will be over the age of 60 by 2050, accounting for 22% of the world’s population, compared to 12% in 2015.
This changing makeup of the population will impact healthcare spending as longevity and demand for healthcare grow. “The good news is that we’re living longer lives. The bad news is that means that we have more chronic healthcare conditions to deal with,” Mark Schmidt, Head of Municipal Strategy, said on a recent episode of Morgan Stanley’s Thoughts on the Market podcast.
In the U.S., healthcare spending is on an unsustainable trajectory. It’s approaching $6 trillion and has grown by 6% year over year, outpacing healthcare inflation, which is under 3%. Healthcare spending is projected by Morgan Stanley Research to equal some 20% of GDP by the early 2030s, and potentially 25% of GDP by 2050 based on current growth. This increase is also outpacing that of other developed economies around the world. Keeping healthcare costs at about 20% of GDP in 2050 would require savings of $2.3 trillion, based on projections for GDP by that date.
- The proportion of the U.S. population age 65-plus—the fastest-growing segment—is projected to rise from 18.8% in 2026 to 22.8% in 2050, the Congressional Budget Office (CBO) forecasts.
- Seniors’ per-capita personal healthcare spending is about 2.4 times as much as that of working-age adults, according to Morgan Stanley Research, and some 5 times as much as children.
- This shift in the age mix of the population alone could account for an increase of personal healthcare spending from 11.7% of GDP in 2026 to 13.1% by 2050.
Healthcare costs are also a salient U.S. political issue: “Healthcare remains a top concern for voters through an affordability lens,” as Ariana Salvatore, Head of U.S. Public Policy Research, has noted. Almost two-thirds (64%) of adults are worried about affording healthcare costs, while 9 in 10 voters said healthcare costs will influence their votes in the upcoming 2026 midterm elections.
2. AI presents opportunities to reduce healthcare costs.
Leveraging AI could help to create significant efficiencies and savings in healthcare delivery. For hospitals—the largest category in U.S. healthcare spending—AI could reduce costs by 10-20%, leading to estimated cost savings between $300 billion and $900 billion by 2050.
- AI can be utilized to help make hospital operations more efficient, including scheduling, supply chains, record-keeping, adherence and staffing.
- The largest component of costs for hospitals is labor, accounting for about half of hospital spend, as U.S. Healthcare Services Analyst Erin Wright explained on Thoughts on the Market at Morgan Stanley’s 23rd annual Global Healthcare Conference.
- AI can also help streamline administrative costs, which make up some 15-20% of spend.
And when considering potential AI applications for drug discovery, hospitals, value-based care and elsewhere, savings could range from $400 billion to $1.5 trillion.
3. AI may expedite drug research and development to help support the needs of the aging population.
For the biopharma industry, AI is particularly promising in its opportunities for increasing efficiency, cost savings and success rates. One example is for exploring treatments for diseases occurring later in life, such as Alzheimer’s, that also contribute to healthcare spending. Developing a new drug is time- and capital-intensive, typically taking 10-15 years and more than $1 billion-$2.8 billion in capitalized cost. Furthermore, success rates are low: only about 10% of clinical candidates end up being approved.
“AI directly targets these inefficiencies through better target selection, more efficient molecule design, and smarter clinical trial execution, transforming development from a trial-and-error process into a more data-driven system that prioritizes higher-probability candidates,” Sean Laaman, Head of U.S. SMID Cap Biotech Research, recently noted. Estimated improvements include reductions in discovery timelines by ~3 years, early-stage R&D costs by ~25-60% and preclinical timelines by ~30-50%, as well as “early evidence of improved Phase 1-2 success rates.” While AI offers the potential for faster and cheaper drug development, it remains to be seen over the next several years whether it can also translate into success in Phase 2 and beyond, with implications for both biotech companies and investors.
If AI is able to improve timelines and the likelihood of success for a drug, it “has the potential to increase drug approvals by 10 to 40%,” U.S. Biopharma Analyst Terence Flynn said on Thoughts on the Market.
The industry is also facing changes as some $160 billion in revenue across U.S. large-cap biopharma companies is slated to go off patent prior to 2030, according to Morgan Stanley Research estimates, presenting new considerations for companies’ R&D, investor and growth strategies.
Across multiple sectors, including healthcare, “artificial intelligence investment continues to be a central theme shaping M&A activity,” John Collins and Tom Miles, Global Heads of M&A at Morgan Stanley, recently noted in a 1H2026 M&A report. “Acquirers are actively targeting AI-enabled capabilities to enhance productivity, accelerate innovation and build competitive advantage.” Healthcare M&A activity has featured biotech acquisitions by pharmaceutical companies as they aim to refill their drug pipelines. Healthcare transactions made up 11% of M&A volume in 1H2026, according to the report.
Takeaways
-
For Investors:“Longevity is evolving from a vague narrative into a credible investment theme. The near-term opportunity likely sits in diagnostics, biomarkers, metabolic health and tech that identify and manage disease during aging. The longer-term upside comes from drugs or care delivery that extends healthspan by slowing or reversing the underlying biology of aging. Investors need to distinguish between those generating measurable revenue today versus platforms where scientific and commercial validation could take years.”
Dan Bone, Healthcare Sector Equity Specialist, Institutional Equity Division
“The healthcare sector is ripe for new technologies stemming from AI to unlock efficiencies and operating leverage in the sector. It stands to be ultimately the main beneficiary of AI. But the key for investors is to find an investible strategy to express this view. It’s important to establish a screen for healthcare companies that are integrating AI into their business that is unlocking operating leverage and increasing profit margins. The beneficiaries of AI in the sector will not be evenly distributed.”
Jim Caron, Chief Investment Officer, Portfolio Solutions Group, Morgan Stanley Investment Management
“Longer lives will inevitably increase demand for healthcare, but they don’t have to mean proportionally higher costs. AI offers the potential to bend that curve by streamlining care, accelerating drug discovery and extending healthy, productive years—making longevity not just a healthcare story, but a growth story. For investors, the opportunity lies with companies that can show the measurable impact of AI.”
Ellen Zentner, Chief Economic Strategist and Global Head of Thematic and Macro Investing, Morgan Stanley Wealth Management
-
For Companies:“The healthcare sector is being reshaped by increased longevity and AI-driven technological change. Corporate leaders need to understand where AI is already boosting productivity, where evidence is still developing, and the implications for talent, operations, capital and competitive positioning as technology and the market continue to evolve.”
Siddhart Nahata, Managing Director, Global Head of Healthcare Investment Banking
This material is solely for informational purposes, and is not a Research Report as defined under FINRA regulations. Morgan Stanley does not undertake to update this material and the conclusions discussed may change without notice. Morgan Stanley shall not in any way be liable for claims relating to this material and makes no express or implied representations or warranties as to its accuracy or completeness or for statements or errors contained in, or omissions from, them. Certain information contained in this material may constitute “forward-looking statements”, and there is no guarantee that such results will be achieved. Past performance is not necessarily a guide to future performance. This material is not an offer nor a solicitation to purchase or sell any security, commodity, or other financial instrument, or to participate in any investment or trading strategy. The opinions and views expressed within this material may not necessarily reflect the institutional views of Morgan Stanley or its affiliates. Morgan Stanley does not provide legal, accounting or tax advice. Individuals should consult their tax advisor for matters involving taxation and tax planning, and their attorney for legal matters. For the purposes hereof, Morgan Stanley includes Morgan Stanley (NYSE: MS) and its affiliates.
For an index of additional disclosures that may be applicable to Morgan Stanley businesses referenced in this material, please click here.
Copyright © Morgan Stanley 2026. All rights reserved.
