Medicare: Spending and Financing
Spending on Medicare is estimated to account for 13 percent of federal spending in 2009. Inpatient hospital services comprise the largest share of Medicare benefit payments, followed by payments to Medicare Advantage plans, physician visits, and prescription drug benefits. Medicare spending is highly concentrated among a small share of beneficiaries, and varies by eligibility category. Funding for Medicare comes primarily from payroll tax revenues, general revenues, and premiums paid by beneficiaries. Looking to the future, Medicare is expected to face significant financing challenges due to the aging of the U.S. population, the declining ratio of workers to beneficiaries, increasing health care costs, and various economic factors. How to ensure the program’s financial stability over the long term without shifting excessive costs onto beneficiaries, while meeting the health care needs of an aging population, is a pressing challenge for the nation.