The Facts About Medicare Spending

Medicare, the federal health insurance program for people ages 65 and over and younger people with long-term disabilities, plays a major role in the U.S. health care system.

Medicare provides health insurance coverage for 70 million people, 20% of the U.S. population – a share which will grow larger in the coming decades. Medicare spending comprised 14% of the federal budget in 2025 and 21% of national health care spending in 2024. Given Medicare’s essential role as a source of coverage for an aging population and the importance of sustaining the program for future generations, Medicare is often part of discussions about total federal government spending, health care spending in the U.S., and the affordability of health care costs.

This brief provides key data about Medicare spending to help frame these discussions.

An aging population leads to higher enrollment in Medicare. With the aging of the U.S. population, the number of people covered by Medicare has increased over time and will increase further in the coming decades. At the same time, the Medicare population will include a growing number of people ages 80 and older.

Growth in total Medicare spending has been driven in part by an increase in the number of people enrolled in Medicare. Higher total Medicare spending has also been driven by growth in health care spending per Medicare beneficiary, which is influenced by increasing volume and use of services, new technologies, and rising prices. Rising spending on Medicare Advantage has also contributed to growth in total Medicare spending (discussed more below). Looking to the future, these factors will continue to play a role in Medicare spending growth.

Growth in Medicare spending per person over time has historically been on par with or lower than spending per person with private insurance, but may increase in the coming decade. Between 2010 and 2025, growth in spending per person was lower in Medicare than in private health insurance (3.1% vs. 4.3%). In contrast to private insurers, Medicare typically sets payment rates in advance for covered services, including hospitals, physicians, and other services (except prescription drugs). As a result, Medicare payments for these services are generally lower than rates paid by private insurers. For example, private payment rates for all hospital services are about double Medicare rates, on average.

Between 2025 and 2034, growth in spending per person is projected to be higher in Medicare than in private health insurance (6.0% vs. 4.9%), reflecting the aging of the population during this period, among other factors.

Spending on physician services and on Medicare Advantage accounts for a growing share of Medicare spending. Medicare now spends more on physician and outpatient services covered under Medicare Part B, including drugs administered by physicians, than hospital services covered under Medicare Part A, or retail prescription drugs covered under Part D. This gap is expected to grow. Spending on Medicare Advantage, the private plan alternative to traditional Medicare, has also grown in recent years and is projected to continue to increase.

This increase in spending on Medicare Advantage in part reflects a rise in Medicare Advantage enrollment over these years. Between 2010 and 2025, the share of Medicare beneficiaries enrolled in Medicare Advantage plans more than doubled, from 25% to 54%.

Additionally, Medicare pays more to private Medicare Advantage plans for enrollees than their costs would be in traditional Medicare due to factors such as higher coding intensity and favorable selection into Medicare Advantage. These higher payments have contributed to growth in spending on Medicare Advantage and overall Medicare spending.

In 2026, payments to Medicare Advantage plans are estimated to be 114% of what traditional Medicare would have spent on the same beneficiary, on average. This amount had been decreasing after Congress made changes to how Medicare Advantage plans are paid in 2010—but it has been trending higher since 2017.

Medicare pays firms offering Medicare Advantage plans a set monthly amount per enrollee. The payment is determined through an annual process in which plans submit “bids” for how much they estimate it will cost to provide benefits covered under Medicare Parts A and B for an average beneficiary. Medicare also adjusts payment to Medicare Advantage plans based on certain factors, such as the health status of enrollees. Read KFF’s explainer to understand the details of how Medicare pays private plans.

The Medicare Hospital Insurance (Part A) Trust Fund faces solvency challenges in the near future. Higher Medicare Part A spending, driven by enrollment growth and an increase in spending per beneficiary, coupled with a shortfall in revenues needed to pay for all Part A covered benefits, is projected to deplete the reserves in the Part A Trust Fund within 7 years.

Increases in Medicare spending have led to higher Medicare premiums and deductibles for beneficiaries. Taken together the cost of Medicare Part A and B premiums and cost sharing represents roughly 18% of the average Social Security benefit in 2026, up from 14% in 2000. (Most beneficiaries do not pay a Part A premium. However, beneficiaries ages 65 and older who have paid fewer than 10 years of Medicare payroll taxes and some younger beneficiaries with disabilities are required to pay a premium for Part A coverage.) While most beneficiaries have other sources of income in addition to Social Security to help cover these expenses, there are also other out-of-pocket health care costs that beneficiaries could incur, such as premiums for prescription drug coverage and cost sharing for medications and physician visits, as well as costs for services not covered by Medicare, such as dental care and long-term services and supports.

Medicare faces spending pressures due to rising enrollment and rising health care costs. Consideration of possible changes to Medicare to sustain the program for the long run—such as changes in payments to providers and Medicare Advantage plans, changes in benefits, or additional revenues—will involve careful deliberation about the effects on federal spending, total health care spending, health care providers, and access to quality care and the affordability of health care for Medicare’s growing number of beneficiaries.

This resource, originally published on April 26, 2022, was most recently updated with new data in July 2026.

The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2026 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, June 2026.

Centers for Medicare & Medicaid Services, Chronic Conditions Data Warehouse.

Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Expenditure Data, Table 21 Expenditures, Enrollment and Per Enrollee Estimates of Health Insurance, United States, Calendar Years 1987-2024.

Congressional Budget Office, Analysis of the President’s Budgetary Proposals for Fiscal Year 2001, April 2000.

Congressional Budget Office, Baseline Projections for Medicare, various years.

Congressional Budget Office, The Budget and Economic Outlook: 2026 to 2036, February 2026.

KFF, How Medicare Pays Medicare Advantage Plans: Issues and Policy Options, November 2025.

KFF, Medicare 101: How Does Medicare Pay Hospitals, Physicians, and Other Providers in Traditional Medicare? October, 2025.

Medicare Payment Advisory Commission, March 2026 Report to the Congress: Medicare Payment Policy, March 2026.

Social Security Administration, Office of Retirement and Disability Policy, Annual Statistical Supplement, 2025, March 2026.

Social Security Administration, Office of Retirement and Disability Policy, Monthly Statistical Snapshot, January 2026, February 2025.

U.S. Census Bureau, Population Division, Projected Population by Five-Year Age Group and Sex for the United States, Main Series: 2022-2100.

U.S. Census Bureau, Laura Blakeslee, Zoe Caplan, Julie A. Meyer, Megan A. Rabe, and Andrew W. Roberts, Age and Sex Composition: 2020, C2020BR-06, May 2023.