The U.S. Federal Government expects to spend $1,120,000,000,000.00 on Medicare in 2025. This represents 16% of all Federal spending in 2025.
Medicare is a federal health insurance program established in 1965 to provide healthcare coverage primarily to individuals aged 65 and older, as well as to younger individuals with certain disabilities or end-stage renal disease. It is administered by the Centers for Medicare & Medicaid Services (CMS) and operates through four parts. Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Part B focuses on outpatient care, doctor visits, preventive services, and medical supplies. Part C, also known as Medicare Advantage, offers an alternative to Original Medicare through private insurance plans that often include additional benefits such as vision and dental care. Part D provides prescription drug coverage to beneficiaries.
Medicare is funded through a combination of sources. Payroll taxes collected under the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA) are the primary funding source for Part A, with workers and employers each contributing 1.45 percent of wages and higher earners paying an additional surtax. Parts B and D are funded through a mix of premiums paid by beneficiaries, general federal revenue, and state payments for certain low-income enrollees. Medicare Advantage (Part C) is financed through a combination of the funding sources for Parts A and B, along with federal subsidies to private insurance providers.
Medicare spending is classified as mandatory federal spending, which means it is not subject to annual appropriations but is instead automatically funded based on eligibility and utilization rates. In fiscal year 2023, Medicare expenditures totaled approximately $1 trillion, making it one of the largest components of the federal budget. Each year, spending is determined by factors such as the number of beneficiaries, healthcare costs, and economic trends. Medicare’s rising costs, driven by an aging population and increasing healthcare expenses, are a significant focus of federal budget planning and sustainability discussions. Efforts to manage Medicare’s financial future include policy proposals such as increasing premiums, raising payroll taxes, or adjusting coverage structures.
