The ever-increasing personal cost of Medicare benefits in the form of premiums and copayments is a point of contention among Medicare recipients across the country. Additionally, Medicare recipients have seen their share of payroll taxes for Medicare deducted from their paychecks throughout their working years. There is less awareness about how the cost of Medicare benefits is funded by the government.

Kaiser Family Foundation (KFF) examined the sources of Medicare funding in 2018. Medicare recipients may be surprised to learn that payroll taxes accounted for only 36%; the federal government’s general fund, 43%; and premiums, a mere 15%. The remaining revenue came from transfers from states, Social Security benefit taxes and earned interest.

Medicare spending statistics

To grasp the magnitude of the government expenditure for Medicare benefits, following are 2018 statistics from the Centers for Medicare & Medicaid Services (CMS), which is the agency that administers Medicare:

  • Medicare spending increased 6.4% to $750.2 billion, which is 21% of the total national health expenditure.
  • The rise in Medicaid spending was 3% to $597.4 billion, which equates to 16% of total national health expenditure.
  • The biggest share of total health spending was sponsored by the federal government (28.3%) and households (28.4%) while state and local governments accounted for 16.5%.
  • For 2018 to 2027, the average yearly spending growth in Medicare (7.4%) is projected to exceed that of Medicaid and private health insurance.

Original Medicare, Part C and Part D

Based on a federal annual report, KFF performed an analysis to reveal the proportion of expenditure for Original Medicare, Medicare Advantage (MA) and Part D (drug coverage) from 2008 to 2018. A graphic depiction on the KFF website illustrates the change in spending of Medicare options. Part D benefit payments, which include stand-alone and MA drug plans, grew from 11% to 13% of total expenditure. Payments to MA plans for parts A and B went from 21% to 32%. During the same time period, the percentage of traditional Medicare payments decreased from 68% to 55%.

Medicare spending breakdown by service

Another way to look at Medicare spending is by service. “National Health Care and Medicare Spending,” published on medpac.gov, shows that while the percentage of most services remained stable from 2009 to 2018, the variances are telling. Of the total expenditure during this window of time, managed care increased from 23% to 32%. Conversely, inpatient hospital spending decreased from 26% to 20%. There was an insignificant shift in the percentage of costs for Part D prescription drugs, outpatient hospital services, hospice, home health care and skilled nursing facilities.

With the aging population, there is concern about Medicare costs. Then again, the cost of healthcare for the uninsured is a prime topic for discussion as well.

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