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Overview of Annual Medicare Spending


Every year, the Board of Trustees for Medicare and Social Security releases their annual report. This important document outlines Medicare’s spending trends, future projections, the current financial status of the program, and more.

Specifically, the Trustees Report provides insight into Medicare’s Hospital Insurance (HI) trust fund and the Supplementary Medical Insurance (SMI) trust fund. The former funds Medicare Part A and the latter is funding for Medicare Parts B and D. Medicare Advantage receives money from both the HI and SMI trust funds.

We’ve reviewed the 267-page report, so you don’t have to. We have the highlights – summarizing the past year of Medicare, the effects of the COVID-19 pandemic, and the uncertain future of funding.

Overview of Medicare Spending

Medicare is currently the nation’s second-largest social insurance program. Last year, Medicare insured 62.6 million Americans, including 54.1 million seniors and 8.5 million disabled beneficiaries under 65. Annual expenditures totaled $926 billion.

According to the Trustees Report, the Hospital Insurance (HI) trust fund expenditures surpassed $60.4 billion as a result of accelerated and advance payments.

What Are the Trends in Medicare Spending?

The long-awaited report states that spending for all parts of Medicare will grow significantly in the next decade. Specifically, Trustees predict that spending will increase 4.1% to 5.3% from 2021 to 2031.

Trustees expect the Supplementary Medical Insurance (SMI) trust fund to remain sufficiently funded for the next decade due to premium income and general revenue income resetting each year. So, Trustees expect the demands placed on both taxpayers and beneficiaries to steadily increase.

The report revealed that the Part A Hospital Insurance trust fund is expected to run out of money in about five years. Further, the report shows that the number of Medicare enrollees jumps 3% every year. This number of enrollees will continue to soar as more Baby Boomers near Medicare’s eligibility age.

Payments to Medicare Advantage

Medicare Advantage plans have seen a substantial shift in payments compared to previous Medicare Advantage plans. Currently, 43% of Medicare beneficiaries have an Advantage plan; that number is expected to increase again, from 1.6% to 2.4% by 2030.

Growth projections are lower compared to last year, due in part to high numbers of people switching from Part D prescription drug plans to Medicare Advantage Prescription Drug Plans.

Projections for Medicare Spending

Trustees estimate that spending for Medicare Part A could climb from 1.7% to 2.2% by 2045. On the other hand, Trustees predict that Part B and Part D will grow at an even faster rate. According to the report, over the next seven years, spending for Part B will grow from 2.0% to 3.6%.

Consequently, Part D’s spending could rise from 0.5% to 0.9% Overall, Trustees attribute the cost growth to the rising enrollment numbers and cost of Medicare Advantage.

What is the Future of Medicare Spending Per Beneficiary?

As the next group of Baby Boomers reach Medicare eligibility, Medicare Trustees report that the number of beneficiaries is growing. Consequently, this will lead to rising costs per beneficiary.

The average annual income for half of all Medicare beneficiaries is $29,650 or less. With rising health-related costs lawmakers must improve the program to make sure it’s affordable.

How Does the Pandemic Affect Medicare Spending?

Medicare spending suffered significantly at the beginning of the COVID-19 pandemic. Consequently, the pandemic affected spending as funds shifted to pay for testing and treatment for the virus.

In addition, Congress declared a public health emergency, leading to new policies and provisions that further increased Medicare spending. The following are some ways the report shows the impact COVID-19 had on Medicare:

  • An increase in the use of telehealth services
  • Increase in payments for COVID-19 related inpatient hospital admissions
  • Waiver of a three-day requirement for patients receiving skilled nursing facility services
  • Decline in payroll taxes for the HI trust fund due to the pandemic’s effect on the labor market
  • Drop in spending for non-COVID treatment care

What is the Future of Government Spending on Medicare?

The debate over the $3.5 trillion infrastructure bill continues. It’s unknown how Congress plans to control Medicare spending in the future. However, Democrats want toexpand Medicare coverage in the near future to include dental, vision, and hearing benefits.

Additionally, Democratic lawmakers are seeking to lower prescription drug prices to help fund the expansion. The Medicare Payment Advisory Commission (MedPAC),  which notifies Congress on Medicare policies and changes, suggests adjusting how Medicare Advantage payments are calculated. Furthermore, lawmakers should consider raising revenues and reducing costs to save the Medicare HI trust fund from depleting in by 2026, according to the Committee for a Responsible Federal Budget.

An analysis by the Kaiser Family Foundation of information from the Centers for Medicare & Medicaid Services (CMS) and MedPAC estimates that just a 2% reduction in Medicare Advantage spending per enrollee, it would save $82 billion throughout the remainder of the decade.

If you’d like additional information, read the full Medicare Trustees Report.

Lindsay Malzone

Lindsay Malzone is the Medicare expert for MedicareFAQ. She has been working in the Medicare industry since 2017. She is featured in many publications as well as writes regularly for other expert columns regarding Medicare. You can also find her over on our Medicare Channel on YouTube as well as contributing to our Medicare Community on Facebook.

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