The Facts About Medicare Spending

Medicare, the federal health insurance program for people ages 65 and over and younger people with long-term disabilities, plays a major role in the U.S. health care system.

Medicare provides health insurance coverage for 65 million people, nearly 20% of the U.S population – a share which will grow larger in the coming decades. In 2020, Medicare spending comprised 12% of the federal budget and 20% of national health care spending. Given Medicare’s essential role as a source of coverage for an aging population and the importance of sustaining the program for future generations, Medicare is often part of discussions about total federal government spending, health care spending in the U.S., and the affordability of health care costs.

This interactive provides key data about Medicare spending to help frame these discussions.

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An aging population leads to higher enrollment in Medicare

With the aging of the U.S. population, the number of people covered by Medicare has increased over time and will continue to increase in the coming decades. At the same time, the Medicare population will include a growing number of people ages 80 and older.

The population of the United States ages 65 and older is projected to grow from 17% in 2020 (56 million people) to nearly a quarter of the nation’s total population in 2060 (95 million people).

The share of older adults who are in their 80s, 90s, and older will also grow. People ages 80 and older will account for more than one-third of people 65 and older in 2060, up from one-quarter in 2020. People ages 90 and older will account for 10% of people 65 and older in 2060, up from 5% in 2020.

An aging population means more people will be enrolled in the Medicare program. The number of Medicare beneficiaries is projected to grow from around 65 million people in 2020 to nearly 93 million people in 2060. These totals include younger adults who qualify for Medicare because of a long-term disability.

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An aging U.S. population, rising enrollment, and higher costs per person have contributed to the growth in total Medicare spending

Growth in total Medicare spending has been driven in part by an increase in the number of people enrolled in Medicare. Growth in health care spending per Medicare beneficiary has also contributed to higher total spending. The growth in health care spending is influenced by increasing volume and use of services, new technologies, and rising prices. Looking to the future, these factors will continue to play a role in Medicare spending growth.

In 2020, Medicare benefit payments totaled $769 billion, up from just under $200 billion in 2000 (these amounts net out premiums and other offsetting receipts). In percentage terms, this translates to an average annual growth rate of 7.1% over these years.

Medicare spending per person has also grown, increasing from $5,800 to $14,400 between 2000 and 2020 – or 4.6% average annual growth over the 20-year period. The influx of the Baby Boomer generation added many relatively younger, healthier people to the Medicare population beginning in 2011.

Looking to the future, net Medicare outlays are projected to increase from $769 billion in 2020 to nearly $1.5 trillion in 2031, due to growth in the Medicare population and increases in health care costs.

The growth in health care spending, which affects Medicare and other public and private payers of health care, including employers and individuals, is influenced by increasing volume and use of services, new technologies, and rising prices.

The aging of the population has important implications for future Medicare spending. On a per person basis, Medicare spending is lower for beneficiaries in their 60s and 70s and then rises with age, peaking among beneficiaries in their mid-to-late 90s.

With more and more adults living into their 80s and beyond, the aging of the population will contribute to higher per beneficiary and total Medicare spending.

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Growth in Medicare spending per person over time has been on par with or lower than spending per person with private insurance

Between 2000 and 2010, Medicare spending per person grew at a slightly higher average annual rate than total private health insurance spending per person. One factor that contributed to the growth in Medicare spending per person over these years was the addition of the Part D prescription drug benefit in 2006. This led to a significant one-year increase in Medicare spending per person between 2005 and 2006. Before 2006, Medicare did not cover retail prescription drugs, unlike private health insurance.

In contrast to private insurers, Medicare typically sets payment rates in advance for covered services, including hospitals, physicians, and other services (except prescription drugs). As a result, Medicare payments for these services are generally lower than rates paid by private insurers for these services. For example, private payment rates for all hospital services are about double Medicare rates, on average.

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Spending on physician and other outpatient services and on Medicare Advantage accounts for a growing share of Medicare spending

Medicare now spends more on physician and outpatient services covered under Medicare Part B, including drugs administered by physicians, than hospital services covered under Medicare Part A, or retail prescription drugs covered under Part D. This gap is expected to grow. Spending on Medicare Advantage, the private plan alternative to traditional Medicare, has also grown in recent years and is projected to continue to increase.

Between 2011 and 2021, spending on Medicare Part A benefits (mainly hospital inpatient services) decreased as a share of total Medicare spending, while spending on Part B benefits (mainly physician services and hospital outpatient services) increased.

Moving forward, Medicare spending on physician services and other services covered under Part B is expected to grow to just over half of total Medicare spending by 2030, while spending on hospital services covered under Part A is projected to decrease further as a share of the total.

Spending on Part D prescription drug benefits has been a roughly constant share of total Medicare spending since it began in 2006 and is expected to account for a similar share in the coming decade.

Another important trend in Medicare spending is the increase in spending on Medicare Advantage, the private plan alternative to traditional Medicare. In 2021, nearly half of all Medicare program spending was for Medicare Advantage plans, up from just over one fourth in 2011.

In overall dollar terms, Medicare payments to Medicare Advantage plans for benefits covered under Parts A and B benefits nearly tripled between 2011 and 2021, from $124 billion to $370 billion. That number is expected to rise to $801 billion by 2030.

This increase in spending for Medicare Advantage in part reflects a rise in Medicare Advantage enrollment over these years. Between 2010 and 2022, the share of Medicare beneficiaries enrolled in Medicare Advantage plans nearly doubled, from 24% to 45%.

Additionally, Medicare pays more to private Medicare Advantage plans for enrollees than their costs would be in traditional Medicare and these higher payments have contributed to growth in spending on Medicare Advantage and overall Medicare spending.

In 2022, payments to Medicare Advantage plans are estimated to be 104% of what traditional Medicare would have spent on the same beneficiary, on average. This is lower than in 2010, when Congress made changes to how Medicare Advantage plans are paid — but this amount has been trending higher since 2017.

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