February 2017 | Issue Brief
10 Essential Facts about Medicare’s Financial Outlook
Juliette Cubanski and Tricia Neuman
Medicare, the nation’s federal health insurance program for 57 million people age 65 and over and younger
people with disabilities, often plays a major role in federal health policy and budget discussions. This was the
case in discussions leading up to enactment of the Affordable Care Act (ACA), which, in addition to expanding
health insurance coverage, included changes to Medicare that reduced program spending. Medicare is likely to
be back on the federal policy agenda as Congress debates repealing and replacing the ACA, and also if
policymakers turn their attention to reducing entitlement spending as part of efforts to reduce the growing
federal budget deficit and debt.
By many measures, Medicare’s financial status has improved since the ACA passed in 2010, and repealing the
ACA’s provisions related to Medicare would increase program spending and worsen the financial outlook for
the program. But even if the Medicare savings and revenue provisions in the ACA are retained, Medicare faces
long-term financial pressures associated with higher health care costs and an aging population. To sustain
Medicare for the long run, policymakers may need to consider additional program changes to modify program
revenues, benefits, spending, and financing.
This brief presents 10 facts and figures about Medicare’s financial status today and the outlook for the future.
1. Medicare isn’t “going broke” even though it does face financial challenges.
When some policymakers talk about Medicare as being “bankrupt” or “going broke” they are referring to the
status (or “solvency”) of Medicare’s Hospital Insurance (Part A) trust fund, out of which beneficiaries’ hospital
bills are paid. When spending on
Figure 1
benefits exceeds revenues (primarily
The Medicare Hospital Insurance trust fund gained additional
payroll taxes), and assets in the trust
years of solvency with enactment of the ACA
fund account are fully depleted,
2005
2020
15
# years of solvency
Medicare will not have sufficient funds
2006
2018
12
2007
2018
11
to pay all Part A benefits. Currently,
2008
11
2019
Medicare’s actuaries estimate that
2009 Pre-ACA
2017
8
there will be sufficient funds available
2010 Post-ACA
2029
19
to pay for hospital insurance benefits
2011
2024
13
in full until 2028 (Figure 1). At that
2012
12
2024
point, Medicare will be able to cover
2013
2026
13
2014
2030
16
87% of costs covered under Part A
2015
2030
15
through payroll tax revenues—but the
2016
12
2028
Medicare program will not cease to
2005
2010
2015
2020
2025
2030
operate.
SOURCE: Intermediate projections from 2005-2016 Annual Reports of the Boards of Trustees of the Federal Hospital Insurance and
Federal Supplementary Medical Insurance Trust Funds.
2. The aging of the U.S. population, along with higher health care costs, are
contributing to the growth in Medicare spending over time.
Between 2010 and 2050, the
population ages 65 and older will
double, from about 40 million to 84
million people. The number of people
ages 80 and older will nearly triple
over these years from about 11 million
to about 31 million, while the number
of people in their 90s and 100s is
projected to quadruple from 2 million
to 8 million by 2050 (Figure 2).
Because Medicare per capita spending
rises with age and people age 80 and
over account for a disproportionate
share of Medicare spending, their
higher numbers will place upward
pressure on both total and per capita
Medicare spending.
Figure 2
The aging of the population and rising health care costs are
contributing to the growth in Medicare spending over time
U.S. population ages 65 and older, 2010-2050
79.7 million
Age 90+
Age 80-89
72.8 million
Age 70-79
3.3
Age 65-69
40.3 million
1.9
9.4
5.6
83.7 million
8.0
16.1
22.1
22.9
33.2
34.0
32.7
18.1
20.1
18.1
20.1
2020
2030
2040
2050
56.0 million
2.8
10.4
24.8
16.6
12.4
2010
SOURCE: Kaiser Family Foundation analysis of 2010 population estimates from U.S. Census Bureau. Population Division. Vintage 2011: National
Tables. Table 1. Annual Estimates of the Resident Population by Sex and Five-Year Age Group for the United States: April 1, 2010 to July 1, 2011
(NC-EST2011-01), May 2012; and 2020-2050 population projections from U.S. Census Bureau, Population Division. 2012 National Population
Projections: Summary Tables. Projections of the Population by Age and Sex for the United States: 2015 to 2060 (NP2012-T12); December 2012.
3. The ACA helped to reduce Medicare spending growth in the years following its
enactment.
With provisions in the ACA to reduce
Medicare payments to providers and
Medicare Advantage plans and bring in
additional revenues, Medicare total
and per capita spending growth rate
has been lower in recent years than in
the decade prior to ACA. The overall
program spending growth rate fell
from 9.0% between 2000 and 2010 to
4.4% between 2010 and 2015, even as
the baby boom generation started
aging onto Medicare beginning in 2011.
Average annual growth in spending per
beneficiary averaged 1.4% between
2010 and 2015, down from 7.4%
between 2000 and 2010 (Figure 3).
Figure 3
The Affordable Care Act helped to reduce Medicare spending
growth in the years following its enactment
Total Medicare spending
Medicare per capita spending
9.0%
7.4%
4.4%
1.4%
2000-2010
2010-2015
2000-2010
2010-2015
SOURCE: Kaiser Family Foundation analysis of Medicare spending data from Boards of Trustees.
10 Essential Facts about Medicare’s Financial Outlook
2
4. Repealing the ACA, including all Medicare provisions, would increase Medicare
spending.
According to CBO, repealing the ACA
in its entirely would add $802 billion
to Medicare spending over 10 years
(Figure 4). Medicare spending would
rise primarily as a result of repealing
the ACA’s reductions to payments to
providers and Medicare Advantage
plans. An increase in Medicare
spending would likely lead to higher
premiums, deductibles, and cost
sharing for beneficiaries, and would
accelerate the projected insolvency
date of the Medicare Hospital
Insurance trust fund.
Figure 4
Repealing the ACA would increase Medicare spending by more
than $800 billion over 10 years
Net Medicare outlays
without ACA repeal
Amounts in $ billions:
Net Medicare spending
with ACA repeal
$1,400
$1,148
$1,200
$1,000
$800
$712
$634
$611
$626
$588
$592
$590
2016
2017
2018
$600
$654
$770
$701
$949
$987
$1,023
$849
$874
$897
2022
2023
2024
$837
$995
$755
$400
$200
$0
2019
2020
2021
2025
SOURCE: Congressional Budget Office, Budget and Economic Outlook: 2017 to 2027 (January 2016), Table 1-2; Budgetary and
Economic Effects of Repealing the Affordable Care Act (June 2015), Table 4.
5. Medicare spending was 15 percent of the federal budget in 2016.
Net Medicare spending in 2016 (that is,
spending on benefits minus premiums
from beneficiaries and other receipts)
was $588 billion. This represents 15%
of the $3.9 trillion federal budget that
year, or $1 out of every $7 in federal
spending (Figure 5).
Figure 5
Medicare spending was 15 percent of the federal budget in
2016
Social Security
24%
Defense
15%
Medicare1
Nondefense
Discretionary
15%
15%
Other2
13%
Medicaid,
CHIP, and ACA
Net Subsidies
Interest
11%
6%
Total Federal Outlays, 2016: $3.9 trillion
Net Federal Medicare Outlays, 2016: $588 billion
NOTE: All amounts are for federal fiscal year 2016. 1Consists of mandatory Medicare spending minus income from premiums and
other offsetting receipts. 2Includes spending on other mandatory outlays minus income from offsetting receipts.
SOURCE: Congressional Budget Office, Budget and Economic Outlook: 2017 to 2027 (January 2017).
10 Essential Facts about Medicare’s Financial Outlook
3
6. Medicare spending is projected to increase gradually as a share of the federal
budget and the nation’s economy over the next 10 years.
In 2027, Medicare spending will
account for 18% of the federal budget—
or $1 out of every $6 in federal
spending—and 4.2% of the economy
(Figure 6). Between 2017 and 2027,
net Medicare spending will nearly
double, from $592 billion to $1.2
trillion.
Figure 6
Medicare spending is projected to increase gradually as a share
of the federal budget and economy over the next 10 years
Net Medicare outlays as a share of the federal budget:
15.2% 14.9%
14.4%
Net
Medicare
outlays in
billions
Percent
of GDP
15.1% 15.4% 15.7%
17.3% 17.8%
16.5% 16.3% 16.1% 16.9%
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
$588
$592
$590
$654
$701
$755
$849
$874
$897
$995 $1,080 $1,165
3.2
3.1
3.0
3.2
3.3
3.4
3.7
3.6
3.6
3.8
2026
4.0
2027
4.2
NOTE: All amounts are for federal fiscal years; amounts are in billions and consist of mandatory Medicare spending minus income
from premiums and other offsetting receipts.
SOURCE: Congressional Budget Office, Budget and Economic Outlook: 2017 to 2027 (January 2017).
7. Medicare spending is projected to increase at a faster rate in the coming years than
in the five years following enactment of the ACA.
Average annual growth in total
Medicare spending is projected to be
7.1% between 2015 and 2025, faster
than the 4.4% average annual growth
rate between 2010 and 2015 (Figure
7). On a per capita basis, Medicare
spending is expected to grow at an
average annual rate of 4.3% between
2015 and 2025, faster than the 1.4%
growth rate between 2010 and 2015.
Figure 7
Medicare spending is expected to increase at a faster rate
between 2015 and 2025 than it did between 2010 and 2015
Total Medicare spending
Medicare per capita spending
7.1%
4.4%
4.3%
1.4%
2010-2015
2015-2025
2010-2015
2015-2025
SOURCE: Kaiser Family Foundation analysis of Medicare spending data from Boards of Trustees.
10 Essential Facts about Medicare’s Financial Outlook
4
8. Spending on Part D prescription drug coverage is expected to grow faster than
spending on other Medicare-covered benefits over the next 10 years.
Rising spending on prescription drugs
poses a challenge for Medicare.
Medicare’s actuaries project a
comparatively higher per capita growth
rate in the coming years for Part D
than for the other parts of the program.
Between 2015 and 2025, per capita
spending growth is projected to be
5.8% for Part D, compared to 3.2% for
Part A, which covers hospital benefits,
and 4.6% for Part B, which covers
physician and outpatient services
(Figure 8). The faster growth rate
expected for Part D spending is
primarily due to higher costs
associated with expensive specialty
drugs.
Figure 8
Spending on Part D prescription drug coverage is projected to
grow faster than on other Medicare-covered benefits
5.8%
4.6%
4.3%
3.2%
Total
Part A
Part B
Part D
Per beneficiary spending:
2015
$12,744
$5,019
$5,522
$2,203
2025
$19,405
$6,901
$8,642
$3,861
SOURCE: Kaiser Family Foundation analysis of Medicare spending data from the 2016 Annual Report of the Boards of Trustees of
the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Table V.D1)
9. Medicare spending is projected to increase as a share of the economy over the long
run, but the ACA helped to moderate the long-range projections.
According to CBO’s most recent longterm projections, net Medicare
spending will grow from 3.2% of GDP
in 2016 to 5.7% in 2046 (Figure 9).
Prior to the ACA, Medicare spending
was projected to grow more rapidly as
a share of the nation’s economy,
reaching 8.5% by 2046.
Figure 9
Medicare spending is increasing as a share of the economy, but
the ACA helped to moderate long-run projections
Medicare spending as a share of gross domestic product, 2016 projections
Medicare spending as a share of gross domestic product, 2009 projections
8.5%
9.0%
8.0%
7.0%
7.0%
6.0%
5.2%
5.7%
5.0%
5.0%
4.0% 3.6%
3.0%
3.9%
3.2%
2.0%
1.0%
0.0%
SOURCE: Congressional Budget Office, The Long-Term Budget Outlook, June 2009 and July 2016.
10 Essential Facts about Medicare’s Financial Outlook
5
10. Medicare benefits are funded mainly by a combination of general revenues, payroll
taxes, and premiums paid by beneficiaries.
The Hospital Insurance (Part A) trust fund is only one part of Medicare, and therefore only one part of
Medicare’s financial picture. While Part A is funded primarily by payroll taxes, benefits for Part B physician
services and Part D prescription drugs
Figure 10
are paid for separately through a
Medicare benefits are funded mainly by a combination of general
combination of general revenues and
revenues, payroll taxes, and premiums paid by beneficiaries
beneficiary premiums (Figure 10).
Sources of Medicare revenue in 2015
General revenue
Because the revenues needed to fund
<1%
Part B and Part D program costs are set
Payroll taxes
42%
each year in advance, the trust fund for
Premiums
73%
these parts of Medicare does not face a
76%
Transfers from states
88%
funding shortfall at any point in the
Taxation of Social
future. But higher projected spending
37%
Security benefits
Interest
for benefits covered under Part B and
1%
14%
Other
Part D will increase the amount of
25%
13%
1%
1%
2%
7%
10%
1%
3%
general revenue funding and
1%
3%
1%
TOTAL
Part
A
Part
B
Part
D
beneficiary premiums required to cover
$644.4 billion
$275.4 billion
$279.0 billion
$90.0 billion
NOTE: Data are for the calendar year.
costs for these parts of the program in
SOURCE: 2016 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds, Table II.B1.
the future.
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