Rising Enrollment, Higher Costs Spur Medicare Spending Growth

June 12, 2023 - Rising Medicare enrollment and higher healthcare costs have contributed to significant growth in Medicare spending over the last two decades, according to data from KFF.

Medicare provides health insurance coverage for around 65 million people in the United States. Primarily due to the aging population, this figure is expected to increase to 93 million by 2060. The share of the US population aged 65 and older is projected to grow from 17 percent in 2020 to 23 percent by 2060.

Medicare spending per person is lower for beneficiaries in their 60s and 70s compared to those in their 80s and 90s. In 2020, almost a quarter of senior Medicare beneficiaries were 80 or older. This share is expected to grow to 35 percent by 2060, increasing per-beneficiary spending along the way.

Higher healthcare spending per Medicare beneficiary has contributed to overall Medicare spending growth.

From 2000 to 2022, total Medicare benefit payments increased from just under $200 billion to $744 billion, indicating an average annual growth rate of 6.3 percent. Medicare spending per person grew from $5,800 in 2000 to $15,700 in 2022 for a 4.6 percent average annual growth rate.

Net Medicare spending is projected to increase from $744 billion to nearly $1.7 trillion in 2033.

Between 2000 and 2010, the average annual growth rate in Medicare spending per person grew faster than private health insurance spending per person (7.4 percent versus 7.0 percent). This was likely due to the introduction of the Part D prescription drug benefit in 2006. From 2010 to 2021, the growth in per-person spending was lower for Medicare (2.2 percent) than private health insurance (3.0 percent).

In recent years, spending on physician and outpatient services by Medicare Part B and spending on Medicare Advantage have accounted for a significant share of Medicare expenditures.

Spending on Part B benefits rose from 42 percent of Medicare spending in 2012 ($236 billion) to 48 percent in 2022 ($445 billion). At the same time, spending on Medicare Part A benefits, including hospital inpatient services, declined as a share of total Medicare spending.

Medicare spending on Part B benefits is projected to grow to over half of total Medicare spending by 2032. Meanwhile, Part A spending as a share of total expenditures is expected to decrease further.

As of 2022, spending on Medicare Advantage accounted for 50 percent of total Medicare spending, up from 28 percent in 2012. Over the ten years, Medicare payments to Medicare Advantage plans for benefits covered under Part A and B benefits rose from $137 billion to $403 billion. This figure is projected to grow to $1 trillion by 2032.

The significant growth in Medicare Advantage spending is partly attributed to rising enrollment. From 2010 to 2023, the share of Medicare beneficiaries enrolled in Medicare Advantage plans jumped from 25 percent to 50 percent.

Medicare also pays more to Medicare Advantage plans than costs would be beneficiaries in traditional Medicare. MedPAC estimated that payments to Medicare Advantage plans are 106 percent of what traditional Medicare would have spent on the same beneficiary in 2023.

Not only has spending increased for the Medicare program, but beneficiaries are also facing higher expenses.

Over the last ten years, Medicare Part B premiums rose from 6 percent to 10 percent of the average Social Security benefit. Combined with Part A and Part B deductibles, Part B premiums have grown from 15 percent to 19 percent of the average Social Security benefit.

Medicare beneficiaries may also be subject to prescription drug coverage premiums, cost-sharing for medications and physician visits, and costs for care not covered by Medicare, including dental care and long-term services and supports.