Medicare spending has grown significantly over the last 20 years, driven in part by increasing enrollment and spiking health care costs, a KFF report shows.1
Total spending under the program has increased from a little less than $200 billion in 2000 to $744 billion in 2022, with an average annual growth rate of 6.3%.2 It is expected to reach $1.7 trillion by 2033.
Medicare currently has about 65 million beneficiaries and is projected to have about 93 million by 2060. The share of Medicare beneficiaries enrolled in Medicare Advantage plans has increased from 25% to 50% between 2010 and 2023.1 Due in part to this rising enrollment, MA spending made up half of total Medicare spending last year – up from 28% in 2012.2 And Medicare payments to MA plans for Parts A and B benefits almost tripled between 2012 and 2022, reaching $403 billion. These payments are expected to reach $1 trillion by 2032.1
Medicare spending per person also increased, from $5,800 in 2000 to $15,700 in 2022, at a 4.6% average annual growth rate. 2 Spending per beneficiary was lower for people in their 60s and 70s versus those in their 80s and 90s. Nearly 25% of senior Medicare beneficiaries were 80 or older in 2020, and this is expected to reach 35% by 2060.
The report also found that Medicare pays more to MA plans for beneficiaries than it would to cover the same costs for beneficiaries in traditional Medicare. Payments to MA plans were 106% of what traditional Medicare would have spent for the same beneficiary in 2023, according to MedPAC.2
Researchers note that action may be needed to help preserve the program, including changes to benefits and payment plans, and additional revenue streams. “Medicare faces spending pressures due to rising enrollment and rising health care costs, contributing to the challenge of providing affordable, quality care to an aging population,” the report says.1
Health plans can help lower costs to the program through innovative plan designs that include preventive care and address social determinants of health, and by embracing payment models like value-based care (VBC) that prioritize member health outcomes.
VBC has the potential to reduce health care spending and waste, and savings seen under accountable care organizations range from just under 1% to just over 6%.3 Studies have also shown links between SDOH and chronic disease, with a 2019 study showing that food insecurity costs the health system $53 billion per year.4 Organizations that address patients’ SDOH could reduce spending by about 10% within a year.5,6
MA plans that embrace innovative plan designs and payment models can help ensure the security of the Medicare program going forward while providing the best and most holistic care for current members.
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References
- The facts about Medicare spending. KFF. June 2023. https://www.kff.org/interactive/the-facts-about-medicare-spending/
- Bailey, V. Rising Enrollment, Higher Costs Spur Medicare Spending Growth. HealthPayerIntelligence. June 12, 2023. https://healthpayerintelligence.com/news/rising-enrollment-higher-costs-spur-medicare-spending-growth
- Value-Based Payment As A Tool To Address Excess US Health Spending. Health Affairs. Dec. 1, 2022. https://www.healthaffairs.org/do/10.1377/hpb20221014.526546/
- Quinn, T. How proactively addressing social determinants of health (SDOH) can drive better outcomes, lower healthcare costs. MedCityNews. July 11, 2022. https://medcitynews.com/2022/07/how-proactively-addressing-social-determinants-of-health-sdoh-can-drive-better-outcomes-lower-healthcare-costs/
- Kent, J. Costs Fell by 11% When Payer Addressed Social Determinants of Health. HealthITAnalytics. June 5, 2018. https://healthitanalytics.com/news/costs-fell-by-11-when-payer-addressed-social-determinants-of-health
- Lagasse, J. Social determinants shown to reduce healthcare spending. Healthcare Finance News. May 23, 2018. https://www.healthcarefinancenews.com/news/social-determinants-shown-reduce-healthcare-spending
