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Growth in Medicare Spending: What Will Beneficiaries Pay?

In the absence of changes to the current Medicare program, both government outlays and beneficiary out-of-pocket costs will climb markedly over the next 25 years. In Growth in Medicare Spending: What Will Beneficiaries Pay?, Marilyn Moon of the Urban Institute explains that no easy alternatives exist that would both limit costs to taxpayers and protect Medicare beneficiaries from the burdens of health care costs. Using projections from the 1998 Medicare and Social Security Trustees' reports, Moon examines how growth in health care spending will affect beneficiaries and taxpayers.

The retirement of baby boomers means that more Americans will be covered by Medicare in the future. By 2025, 69 million elderly and disabled persons-20.6 percent of the population-are expected to be eligible for Medicare, compared with 39 million, or 13.8 percent, today. Further-more, the cost of health care for all Americans will continue to increase faster than the economy as a whole. About two-fifths of all health spending will go to provide health care to elderly and disabled Medicare beneficiaries in 2025.

The greater numbers covered by Medicare combined with rising health care costs also means that a higher percentage of the nation's economic resources will go for Medicare. Medicare as a percent of the gross domestic product (GDP) is projected to rise from 2.7 percent in 1998 to 5.3 percent in 2025.

The impact on the economy and the federal budget, while striking, tells only part of the story: the average spending for which individuals will be responsible will also rise. Moon projects that under the Trustees' baseline for Medicare spending, premiums for Part B of Medicare would more than double in 2025 to $1,399 in inflation-adjusted dollars. The average per capita cost-sharing for covered services for those in traditional Medicare would increase from an estimated $909 in 1998 to $1,675 in 2025. The share of all Medicare-related expenses for which beneficiaries would be responsible would rise from 21.4 percent today to 25.8 percent in 2025.

Under current Medicare policies, Moon projects that out-of-pocket expenses in 2025 would average 29 percent of beneficiary income. Low-income and seriously ill beneficiaries would face even greater financial burdens than the typical beneficiary-both because of their lower incomes and their higher health care expenses.

Facts and Figures

  • Today, 13.6 percent of the GDP is spent on health care; by 2025, this amount will increase to 19.2 percent.

  • Total Medicare spending will rise from $226 billion in 1998 to $679 billion in 2025 (in 1998 dollars).

  • By 2025, spending for the non-institutionalized elderly will reach $4,855 per person-almost double the 1998 level of $2,508.

Publication Details



Growth in Medicare Spending: What Will Beneficiaries Pay?, Marilyn Moon, The Urban Institute., The Commonwealth Fund, May 1999