US Medicare Spending Since 1965

Medicare benefits cost about 3 percent of GDP each year.

“Net” Medicare: Medicare, the federal health care program for senior citizens, was passed in 1965. Benefits began in 1966 and rapidly climbed to over 0.5 percent of GDP by 1968, before flattening out for a decade till the mid 1970s.

Starting in the mid 1970s Medicare began a rapid increase in cost, hitting 1.0 percent of GDP in 1978, 2.0 percent in 1994 and peaking at 2.3 percent of GDP in 1997.

In the late 1990s Medicare declined as a percent of GDP, down to 2.0 percent of GDP in 2000. But then Medicare costs began an increase, hitting 2.5 percent of GDP in 2006 and 3.1 percent of GDP in 2009. Medicare is has held steady at about 3 percent of GDP for the 2010 decade. In 2025 Medicare was 3.4 percent of GDP.

“Gross” Medicare: As presented in the annual federal budget, Medicare outlays represent “net” spending on the program. Premiums and other collections received by Medicare are not considered as “receipts” but are counted as negative spending and subtracted from the overall cost of Medicare. The difference is about 0.5 percent of GDP.

In the 2010 decade “Gross” Medicare was about 3.5 percent of GDP. In 2025 “Gross” Medicare was 4.1 percent of GDP.

US Medicare: Part A, Part B, Part C, Part D

Medicare Part A, the Hospital Insurance program, went from nothing to 0.5 percent of GDP in its first deade, reaching 0.5 percent of GDP in 1974. Part B, the Supplementary Medical Insurance program, only cost 0.11 percent of GDP in 1974. Part A doubled to 1.0 percent of GDP by 1982 while Part B quadrupled in size to 0.4 percent of GDP by 1985.

In the early 1990s Medicare Part A Hospital Insurance spending expanded briskly, from 1 percent GDP to 1.5 percent GDP in the mid 1990s, while Part B Supplementary Medical Insurance increased from 0.4 to 0.6 percent GDP.

Starting in the mid-1990s we start showing spending for “Part C” Medicare. In fact, Part C, the Medicare Advantage program, did not start until 2006, but Medicare was still paying capitation fees to private health plans prior to the start of Part C. Part C spending data is taken from the annual Medicare Trustees Report and netted out of Part A and Part B benefits.

From the mid 1990s Medicare Part A Hospital Insurance spending (net of Part C spending) declined, from 1.5 percent GDP in 1995 to 1 percent GDP in 2000. Since 2011 Medicare Part A has declined from 1.2 percent GDP to 0.9 percent GDP in 2018. In 2025 Medicare Part A was 0.73 percent GDP.

Medicare Part B Supplementary Medical Insurance (net of Part C) also declined, from 0.6 percent GDP to 0.45 percent GDP before recovering to 0.7 percent GDP in 2003. Since then Part B Medicare spending has fluctuated between 0.7 and 0.8 percent GDP. In 2025 Medicare Part B was 0.63 percent GDP.

Medicare has always made capitation payments to managed care organizations; in the period shown from 1996 to 2005 these payments stood at about 0.3 percent GDP. When Part C Medicare Advantage began formally in 2006 with the passage of the Medicare Modernization Act, spending for managed care rose sharply. Indeed all the growth in basic Medicare shows up in Part C spending, hitting 0.4 percent GDP in its first year 2006, and rising to 0.7 percent GDP by 2011. Part C spending hit 1 percent GDP in 2019. In 2025 Medicare Part C was 1.59 percent GDP.

Medicare Part D, the SMI Drug Plan, was passed by Congress in the Medicare Modernization Act of 2003 and took effect in 2006 costing 0.2 percent GDP in that year. Subsequently the Medicare Drug spending hit 0.3 percent GDP in 2009 and has fluctuated around 0.3 percent GDP for the 2010s. In 2025 Medicare Part D was 0.48 percent GDP.