Medicare benefits spending could reach $1 trillion this year

Medicare benefits spending could top $1 trillion this year and is expected to grow as a share of total federal spending.

The figures are part of the analysis “What to Know about Medicare Spending and Financing,” published by KFF. Researchers tallied historic spending and estimated future outlays based on the 2022 annual report of the Board of Medicare Trustees and the 2022 Medicare baseline and projections from the Congressional Budget Office.

“Over the longer term, the Medicare program faces financial pressures associated with higher health care costs, growing enrollment, and an aging population,” the KFF analysis said. “Growth in Medicare spending places pressure on the federal budget, contributes to the depletion of the Part A trust fund, and results in higher Medicare premiums, deductibles, and cost sharing paid by beneficiaries.”

Overall, Medicare accounts for 21% of the nation’s health spending of $4.25 trillion for 2021. It was 26% of spending on hospital care and physician and clinical services, and 32% of spending on retail prescription drug sales, the analysis said.

In the U.S. federal budget, Medicare spending in 2021 was $689 billion, or 10% of federal spending. The figure represents the net amount of income from premiums and other offsetting receipts. By comparison, Social Security accounts for 17% of the federal budget; defense is 11%, and Medicaid, the Affordable Care Act, and the Children’s Health Insurance Program account for 9% of the budget.

For benefits, spending on Parts A, B, and D totaled $829 billion for 2021, up from $541 billion a decade before. That figure reflects gross spending, not subtracting premiums or other offsetting receipts, and includes spending on beneficiaries in traditional Medicare and Medicare Advantage plans.

The benefits spending is the figure that is projected to reach $1.03 billion this year, and climb to $1.83 billion by 2031.

KFF noted spending on Medicare Parts A, B, and D increased generally from 2011 to 2021, but physician services is a growing sector within it while hospital inpatient services are decreasing due to a shift from inpatient to outpatient services. In the next eight years, spending on physician services and other services paid for by Part B is projected to grow to 52% of overall Medicare spending by 2031. Spending on hospital care covered by Part A, will decrease as a share of total spending.

As for funding Medicare, the program had $888 billion in 2021, with 46% of that from general revenues, 34% from payroll taxes, and 15% from premiums paid by beneficiaries.

For Medicare’s overall financial condition, its Hospital Insurance trust fund, which pays for Part A benefits, is forecasted to be depleted in 2028, according to the 2022 Medicare Trustees report. That is better than the 2021 report that predicted depletion in 2026, largely due to projected higher revenues from payroll taxes due to employment and wage growth, according to KFF.

The analysts noted the Hospital Insurance trust solvency fund depends on economic growth, health care spending trends, and demographic trends, not least the Baby Boom generation reaching Medicare eligibility age from 2010 to 2030. The COVID-19 pandemic is not expected to affect the financial status of Medicare beyond 2028, when deaths due to the disease are forecasted to end, the KFF report said.