Medicare and Medicaid Funding Challenges



It is projected that in Fiscal Year 2008 we will spend nearly $600 Billion dollars on health care entitlement programs alone (i.e., Medicare and Medicaid).  Demographic changes contribute to this health care fiscal challenge.  America's population is aging, and the aged use greater health care services.  For example, from 2007, the percentage of the population aged 65 and over will gradually increase until it nearly doubles, reaching a rate of greater than 20 percent of the population by the year 2047.  Not only are the baby boomers aging, but they are living longer, which means they will utilize more of the Medicare and Medicaid entitlement program benefits for longer periods of time. Demographic changes are only part of the problem: health care costs are rising faster than the economy.  For the past 40 years health care spending has consistently grown faster than the economy.  Specifically, the growth in health care costs has been 2.5 percentage points faster than the gross domestic product (GDP).  The major reason for this problem is the current expenditures for the provision of health care services: the costs of health care are high.  The reasons for the higher levels of spending on health care in America are not totally understood but include higher costs of treatment in the U.S. health care system, including rates of reimbursement for doctors and other health care providers; higher prices for hospital stays and prescription drugs; increased use of medical technology; a lack of reliable comparative information on medical outcomes, quality of care, and cost; and increased prevalence of risk factors such as obesity that can lead to expensive chronic conditions.


What are Medicare and Medicaid?

Medicare is an entitlement program that provides health insurance to persons aged 65 and older or to those with disabilities without regard to income. The Medicare program, enacted in 1965, provides seniors with health insurance coverage comparable to that available to non-elderly and non-disabled Americans in the private sector.  It includes hospital insurance (Part A), supplementary insurance (Part B) to cover outpatient and home health services as well as physician visits, and prescription drug coverage (Part D).  Seniors also have the choice to enroll in private plans (Part C), called Medicare Advantage, to cover their services.  The Medicare program covers 44 million people, 37 million seniors and 7 million disabled Americans. It is funded by Federal payroll taxes, general tax revenues, and beneficiary premiums. Medicare is administered by the Centers for Medicare & Medicaid Services (CMS).

Medicaid is also an entitlement program enacted in 1965 and provides health coverage for low-income Americans who fall into three general groups: families with children, elderly people, and people with mental or physical disabilities.  This entitlement program is means-tested which means that eligibility for benefits requires the beneficiary to be at or near the Federal poverty level.  Other eligibility criteria apply, as well, including age, family structure, and health status.  The Medicaid program covers 55 million low-income Americans. It is jointly funded by the Federal and State governments out of general tax revenues, with Federal government matching Medicaid spending at least dollar for dollar to State spending. The Medicaid program is administered by the States, subject to Federal minimum requirements for benefits.

The Medicaid program is a joint-initiative between Federal and State governments and is administered at the state-level. 

Learn more about America's Health Care Fiscal Challenges:

Medicare information:

Medicaid information:

Increasing the value of health care spending:

Long-term budget and slowing health care costs:

Increasing the efficiency in health care:

Accounting for sources of projected growth in Federal spending on entitlement programs:

Health Care 20 Years from Now (GAO report):

Reforming the health care delivery system: