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“The Medicare program helps pay for health care services for the aged, disabled, and individuals with end-stage renal disease (ESRD). It has two separate trust funds, the Hospital Insurance trust fund (HI) and the Supplementary Medical Insurance trust fund (SMI). HI, otherwise known as Medicare Part A, helps pay for inpatient hospital services, hospice care, and skilled nursing facility (SNF) and home health services following hospital stays. SMI consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for individuals who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private Medicare Advantage and certain other health insurance plans. Medicare Advantage and Program of All-Inclusive Care for the Elderly (PACE) plans receive prospective, capitated payments for such beneficiaries from the HI and SMI Part B trust fund accounts; the other plans are paid from the accounts on the basis of their costs.”

Source: The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2024 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, June 6, 2024.

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“Medicare is a federal insurance program that pays for covered health care services of most individuals aged 65 and older and certain disabled persons. In calendar year 2022, the program is expected to cover about 65 million persons at a total cost of $933 billion. Most individuals (or their spouses) aged 65 and older who have worked in covered employment and paid Medicare payroll taxes for 40 quarters receive premium-free Medicare Part A (Hospital Insurance). Those entitled to Medicare Part A (regardless of whether they are eligible for premium-free Part A) have the option of enrolling in Part B, which covers such things as physician and outpatient services and medical equipment.

“Beneficiaries have a seven-month initial enrollment period, and those who enroll in Part B after this initial enrollment period and/or reenroll after a termination of coverage may be subject to a late-enrollment penalty. This penalty is equal to a 10% surcharge for each 12 months of delay in enrollment and/or reenrollment. Under certain conditions, some beneficiaries are exempt from the late-enrollment penalty; these exempt beneficiaries include working individuals (and their spouses) with group coverage through their current employment, some international volunteers, and those granted “equitable relief.”

“Whereas Part A is financed primarily by payroll taxes paid by current workers, Part B is financed through a combination of beneficiary premiums and federal general revenues. The standard Part B premiums are set to cover 25% of projected average per capita Part B program costs for the aged, with federal general revenues accounting for the remaining amount. In general, if projected Part B costs increase or decrease, the premium rises or falls proportionately. However, some Part B enrollees are protected by a provision in the Social Security Act (the hold-harmless provision) that prevents their Medicare Part B premiums from increasing more than the annual increase in their Social Security benefit payments. This protection does not apply to four main groups of beneficiaries: low-income beneficiaries whose Part B premiums are paid by the Medicaid program; high-income beneficiaries who are subject to income-related Part B premiums; those whose Medicare premiums are not deducted from Social Security benefits; and new Medicare and Social Security enrollees.

“Most Part B participants must pay monthly premiums, which do not vary with a beneficiary’s age, health status, or place of residence. However, since 2007, higher-income enrollees pay higher premiums to cover a higher percentage of Part B costs (“income-related monthly adjustment amounts” (IRMAA)). Additionally, certain low-income beneficiaries may qualify for Medicare cost-sharing and/or premium assistance from Medicaid through a Medicare Savings Program. The premiums of those receiving benefits through Social Security are deducted from their monthly payments.”

Source: Patricia A. Davis, Medicare Part B: Enrollment and Premiums, R40082, Congressional Research Service, May 19, 2022.

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“Medicare spending (which accounted for 21 percent of total national health care expenditures) reached $1.0 trillion in 2023—an increase of 8.1 percent, following 6.4 percent growth in 2022 (exhibit 3). This faster growth was driven by a turnaround in traditional fee-for-service spending growth from a decline of 1.4 percent in 2022 to an increase of 1.7 percent in 2023 (data not shown). Medicare Advantage private plan spending continued to experience rapid growth (increasing 14.7 percent in 2023, after 15.7 percent growth in 2022) and accounted for 52 percent of total Medicare expenditures in 2023 (up from a 39 percent share in 2019) (data not shown).

“Total Medicare enrollment grew 2.1 percent in 2023, a slight acceleration from 2022, when enrollment increased 1.9 percent (exhibit 2). Fee-for-service enrollment (52 percent of total enrollment) declined for the fifth year in a row, falling 2.8 percent in 2023 after a decline of 3.0 percent in 2022 (data not shown). However, Medicare Advantage enrollment (a 48 percent share) continued to experience strong growth in 2023, but at a slightly slower rate, increasing 7.9 percent after growth of 8.5 percent in 2022 (data not shown). Total Medicare per enrollee spending grew 5.9 percent in 2023, a faster rate than the increase of 4.4 percent in 2022 (exhibit 2).

“Medicare spending on goods and services experienced faster growth in 2023, increasing 8.6 percent after growth of 5.4 percent in 2022.¹² Faster growth in expenditures for hospital care and retail prescription drugs in 2023 contributed to this upward trend, as Medicare hospital spending grew 6.0 percent (compared with 1.5 percent in 2022) and retail prescription drug expenditures grew 12.2 percent (compared with 9.0 percent in 2022).¹² An increase in outpatient hospital use, along with increases in both inpatient and outpatient prices, drove the acceleration in Medicare hospital spending in 2023.¹⁶ For Medicare retail prescription drug expenditures, which consist mainly of spending for Part D prescription drugs, the acceleration was partially attributable to a rapid increase in the use of brand-name antidiabetic drugs. Furthermore, the initial impacts of the Inflation Reduction Act that increased the generosity of the benefit and expanded Medicare’s financial responsibility, such as cost-sharing limits on insulins and vaccines, contributed to the acceleration.¹⁶“

Source: Anne B. Martin, Micah Hartman, Benjamin Washington, Aaron Catlin, and The National Health Expenditure Accounts Team, National Health Expenditures In 2023: Faster Growth As Insurance Coverage And Utilization Increased, Health Affairs (2025), published ahead of print Dec. 18, 2024, doi.org/10.1377/hlthaff.2024.01375.

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“In this national study of the impact of favorable selection in MA on benchmark payments between 2017 and 2020, we report three main findings. First, favorable selection into MA led to underpayments for counties with lower MA penetration and overpayments to counties with higher MA penetration. Second, the distribution of MA beneficiaries shifted toward counties with greater MA penetration between the baseline and payment periods. Third, this dynamic led to large overpayments to MA plans, averaging $9.3 billion per year between 2017 and 2020.

“In recent years, numerous researchers and stakeholders have questioned whether the structure of MA leads to plan overpayment. This critique has tended to focus on risk upcoding, with estimates suggesting that upcoding erroneously increases plan payments by 6–20 percent, totaling more than $20 billion annually.^3,13

“Less work has explored how benchmark setting itself may lead to overpayment to plans. Research on benchmarks has found that limited plan competition in many markets allows plans to bid above their costs, resulting in higher costs to Medicare.^14,15 MedPAC recently discussed how increasing MA penetration may undermine benchmark setting, noting that “over the long term, using [traditional Medicare] spending as the basis for benchmarks will result in biased benchmarks if the share of [traditional Medicare] enrollees in a county becomes too small.”⁵ In a subsequent analysis, MedPAC estimated that favorable selection into MA inflated MA payments by approximately 11 percent for a specific cohort of beneficiaries in 2019.¹⁶ A similar white paper found that beneficiaries who switched from traditional Medicare into MA tended to have lower spending for the same level of risk, distorting benchmarks and leading to billions in annual overpayments to MA plans.¹⁷“

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According to the federal Center for Medicare & Medicaid Services:

“Medicare is a health insurance program for:

• “People age 65 or older.
• “People under age 65 with certain disabilities.
• “People of all ages with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a kidney transplant).

“Medicare has different parts that help cover specific services:

“Medicare Part A (Hospital Insurance) – Part A helps cover inpatient care in hospitals, including critical access hospitals, and skilled nursing facilities (not custodial or long-term care). It also helps cover hospice care and some home health care. Beneficiaries must meet certain conditions to get these benefits. Most people don’t pay a premium for Part A because they or a spouse already paid for it through their payroll taxes while working.

“Medicare Part B (Medical Insurance) – Part B helps cover doctors’ services and outpatient care. It also covers some other medical services that Part A doesn’t cover, such as some of the services of physical and occupational therapists, and some home health care. Part B helps pay for these covered services and supplies when they are medically necessary. Most people pay a monthly premium for Part B.

“Medicare Part D (Prescription Drug Coverage) – Medicare prescription drug coverage is available to everyone with Medicare. To get Medicare prescription drug coverage, people must join a plan approved by Medicare that offers Medicare drug coverage. Most people pay a monthly premium for Part D.”

Source: Medicare Program – General Information. Center for Medicare & Medicaid Services. Last accessed on Jan. 27, 2023.

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World Health Systems Facts is a project of the Real Reporting Foundation. We provide reliable statistics and other data from authoritative sources regarding health systems and policies in the US and sixteen other nations.

Page last updated March 17, 2025 by Doug McVay, Editor.