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What is the spending on Medicare?

In FY 2016 the federal government spent $595 billion on Medicare.

But that is not the whole story.

The $595 billion number is so-called “net” Medicare, net of premiums and collections. Gross spending on Medicare in FY 2016, before subtracting “premiums and collections,” was $696 billion.

Here is the math:
Gross Medicare at $696 billion
equals Net Medicare at $595 billion
plus Medicare premiums and collections at $101 billion

Medicare Spending Analysis

This page shows the current trends in Medicare spending, Part A thru Part D. There are also charts on Medicare spending history. See here for a general history of entitlement spending. See here for spending forecast from latest Medicare Trustees Report.

Recent Medicare Spending

Chart S.21f: Recent Medicare Spending

Chart S.22f: Recent Medicare Spend as Pct GDP

Medicare spending increased rapidly from 2005 to 2011, with the new Part C Medicare Advantage and the new Part D drug plan quickly taking up about one third of Medicare spending. But in the past five years Medicare spending has only increased modestly and Part A Hospital and Part B Supplementary Medical have held steady while Part C Medicare Advantage has continued to increase.

Viewed from a GDP perspective, Medicare spending increased from 2.3 percent GDP in 2005 to 3 percent of GDP in 2009. But since then Medicare spending has stayed steady at around 3 percent of GDP.

US Medicare Spending Since 1965

Medicare benefits cost about 3 percent of GDP each year.

Chart S.23f: Medicare Spending since 1965

Medicare, the federal health care program for senior citizens, was passed in 1965. Benefits began in 1966 and rapidly climbed to over 0.5 percent of GDP by 1968, before flattening out for a decade till the mid 1970s.

Starting in the mid 1970s Medicare began a rapid increase in cost, hitting 1.0 percent of GDP in 1978, 2.0 percent in 1994 and peaking at 2.3 percent of GDP in 1997.

In the late 1990s Medicare declined as a percent of GDP, down to 2.0 percent of GDP in 2000. But then Medicare costs began an increase, hitting 2.5 percent of GDP in 2006 and 3.1 percent of GDP in 2009. Medicare is projected to decrease as a percent of GDP for the 2010 decade.

US Medicare: Part A, Part B, Part C, Part D

Chart S.24f: Medicare Spend by Major Program

Medicare Part A, the Hospital Insurance program, went from nothing to 0.5 percent of GDP in its first deade, reaching 0.5 percent of GDP in 1974. Part B, the Supplementary Medical Insurance program, only cost 0.11 percent of GDP in 1974. Part A doubled to 1.0 percent of GDP by 1982 while Part B quadrupled in size to 0.4 percent of GDP by 1985.

In the early 1990s Medicare Part A Hospital Insurance spending expanded briskly, from 1 percent GDP to 1.5 percent GDP in the mid 1990s, while Part B Supplementary Medical Insurance increased from 0.4 to 0.6 percent GDP.

Starting in the mid-1990s we start showing spending for “Part C” Medicare. In fact, Part C, the Medicare Advantage program, did not start until 2006, but Medicare was still paying capitation fees to private health plans prior to the start of Part C. Part C spending data is taken from the annual Medicare Trustees Report and netted out of Part A and Part B benefits.

From the mid 1990s Medicare Part A Hospital Insurance spending (net of Part C spending) declined, from 1.5 percent GDP in 1995 to 1 percent GDP in 2000, and since then it has flatlined a little above 1 percent of GDP. Medicare Part B Supplementary Medical Insurance (net of Part C) also declined, from 0.6 percent GDP to 0.45 percent GDP before recovering to 0.7 percent GDP in 2003. Since then Part B Medicare spending has held fairly steady at 0.6 to 0.7 percent GDP.

Medicare has always made capitation payments to managed care organizations; in the period shown from 1996 to 2005 these payments stood at about 0.3 percent GDP. When Part C Medicare Advantage began formally in 2006 with the passage of the Medicare Modernization Act, spending for managed care rose sharply. Indeed all the growth in basic Medicare shows up in Part C spending, hitting 0.5 percent GDP in its first year 2006, and rising to 0.89 percent GDP by 2011.

Medicare Part D, the SMI Drug Plan, was passed by Congress in the Medicare Modernization Act of 2003 and took effect in 2006 costing 0.2 percent GDP in that year. Subsequently the Medicare Drug spending hit 0.3 percent GDP in 2009 and is expected to breach 0.38 percent GDP in 2016.

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Spending Data Sources

Spending data is from official government sources.

Gross Domestic Product data comes from US Bureau of Economic Analysis and

Detailed table of spending data sources here.

Federal spending data begins in 1792.

State and local spending data begins in 1820.

State and local spending data for individual states begins in 1957.

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Next Data Update


> data update schedule.

Data Sources for 2012_2021:

Sources for 2012:

GDP, GO: GDP, GO Sources
Federal: Fed. Budget: Hist. Tables 3.2, 5.1, 7.1
State and Local: State and Local Gov. Finances
'Guesstimated' by projecting the latest change in reported spending forward to future years

Sources for 2021:

GDP, GO: GDP, GO Sources
Federal: Fed. Budget: Hist. Tables 3.2, 5.1, 7.1
State and Local: State and Local Gov. Finances
'Guesstimated' by projecting the latest change in reported spending forward to future years

> data sources for other years
> data update schedule.

Federal Revenue by State for 2015

On April 7, 2017, we updated with the numbers from "SOI Tax Stats - Gross Collections, by Type of Tax and State, Fiscal Year - IRS Data Book Table 5" of the IRS Data Book for 2015.  The data can be viewed on the Federal Revenue by State page here.

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