Medicare Chart Book, 3rd Edition, Summer 2005 - Section 6

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Abstract:

In FY2004, Medicare benefit payments totaled $295 billion, Medicare spending accounted for 17 percent of national health expenditures and 12 percent of the federal budget. Medicare is responsible for almost one-fifth of the $1.4 trillion in national personal health care expenditures, but Medicare’s share of spending varies by type of service, reflecting benefits covered and services used by the Medicare population. For example, in 2003, Medicare paid for 30 percent of the nation’s total hospital spending and 20 percent of spending on physician services, but less than 2 percent of prescription drug costs.
Currently, inpatient hospital services are the largest category of Medicare benefit payments (39 percent), followed by payments for physicians and suppliers (26 percent). Home health care and skilled nursing facility services account for less than 10 percent of total benefit spending. The composition of Medicare benefit payments will shift with the addition of prescription drug coverage in 2006. By 2010, prescription drugs are projected to account for 20 percent of Medicare benefit payments. The distribution of Medicare payments has shifted over time, reflecting changes in health care delivery and how Medicare pays for services. For example, hospitalizations accounted for 87 percent of program spending in 1966, but 38 percent in 2004, while spending on physician and other outpatient services more than tripled from 12 percent to 37 percent.
Medicare payments for each beneficiary enrolled in the traditional fee-for-service program averaged $6,110 in 2002. Per capita payments for the elderly ($6,002) were nearly $1,500 higher than they were for the nonelderly disabled ($4,547). As expected, Medicare per capita spending increases as health status declines. Per capita spending is more than twice the amount for beneficiaries residing in longterm care facilities than for beneficiaries living in the community. Medicare spending is also significantly higher for beneficiaries in their last year of life: $24,856 for beneficiaries who died in 1999 compared to $3,669 for those who were alive at the end of that year.
Medicare spending is highly concentrated among a minority of beneficiaries. In 2002, 7 percent of beneficiaries incurred expenditures of $25,000 or more, accounting for just over half of program spending. Twelve percent of beneficiaries accounted for more than two-thirds of program spending. At the lower end, 12 percent of beneficiaries in the fee-for-service program incurred no Medicare expenditures in 2002.
On a per capita basis, Medicare spending has grown at a slightly slower pace, on average, than private health insurance spending for comparable services. Private health insurance spending grew at an average annual rate of 10.1 percent in the period between 1970 and 2003, while Medicare spending grew at an average rate of 9.0 percent. Administrative expenditures currently account for less than 2 percent of Medicare benefit expenditures, significantly lower than the cost of running private health plans.