Medicare, the federal health insurance program for 47 million elderly and disabled Americans, helps to pay for hospital and physician visits, prescription drugs, and other acute and postacute services. And all of that spending can add up quickly. In 2010, spending on Medicare accounts for 12 percent of the federal budget.
Medicare accounts for 23 percent of total national health care spending. Medicare represents nearly one-third (30 percent) of total national spending on hospital care and 20 percent of total spending on physician services.
Health reform and Medicare spending
Medicare spending is projected to increase from $523 billion in 2010 to $845 billion in 2019, taking into account changes to Medicare incorporated in the Patient Protection and Affordable Care Act of 2010. The law is projected to reduce annual growth in Medicare spending over the next decade and beyond, by reducing the growth in Medicare payments to health care providers and Medicare Advantage plans, establishing several new policies and programs designed to reduce costs and improve quality of patient care, and establishing a new Independent Payment Advisory Board to recommend Medicare spending reductions if projected spending exceeds target growth rates. The law also increases the Medicare Part A payroll tax rate for higher-income people, and increases Part B and Part D premiums for higher-income beneficiaries.
Altogether, the Medicare provisions of the health care reform law are estimated to result in a net Medicare spending reduction of $428 billion between 2010 and 2019, including $533 billion in savings and $105 billion in new Medicare spending, according to analysis of CBO estimates, reducing the projected average annual growth rate in Medicare spending between 2010 and 2019 from 6.8 percent to 5.5 percent. These projections do not take into account additional spending that would be needed to offset the physician payment reductions that are required under current law according to the Sustainable Growth Rate formula.
Medicare as a portion of total medical spending
In 2006, Medicare paid just under half (48 percent, or $8,344) of the $17,231 in average total medical and long term care expenses per beneficiary in fee-for-service (FFS) Medicare. Beneficiaries paid 25 percent of this total out-of-pocket, including premiums. Medicare spending per beneficiary is highly skewed, with the top 10 percent of beneficiaries in FFS Medicare accounting for 58 percent of total Medicare spending in 2006 – on a per capita basis, nearly six times greater than the average across all FFS beneficiaries ($48,210 versus $8,344).