The Financing Problem

Medicare benefit payments reached $1.2 trillion in 2025, up from $666 billion a decade earlier. The Part A trust fund is projected for depletion in the second quarter of 2033. Those two facts set the constraint that every Medicare payment policy operates inside.

Where the growth is

The composition matters as much as the total:

• Medicare Advantage accounted for $534 billion in 2025 and is projected to reach 59 percent of total Part A and Part B spending by 2035.
• Part D is projected to “nearly double from 2025 ($181 billion) to 2035 ($346 billion), representing an average annual growth rate of 6.7%.”

The Medicare Advantage figure is the one to sit with. Within a decade, most Medicare hospital and physician dollars will flow through private plans rather than being paid by Medicare directly. The traditional program’s payment systems, covered in the second module of this course, will still exist and will still set the benchmark against which plans are paid, but they will govern a minority of the spending.

Why only Part A has a deadline

Part A is financed by a payroll tax fixed in statute, so spending growth draws down a finite fund and creates a date. Parts B and D are financed mainly by general revenues reset annually to match expected costs, so they cannot be depleted in the same sense. Their growth appears as pressure on the federal budget and on beneficiary premiums instead.

The practical result is asymmetric political attention. Hospital payment has been cut repeatedly because Part A generates recurring deadlines. Physician and drug spending, growing at least as fast, generate no equivalent forcing event.

Worth remembering: it is tempting to read these projections as an argument that value-based care will be adopted because it must be. The evidence does not support that inference. The evaluation course showed that most tested models did not produce net savings, and financial pressure creates urgency rather than effectiveness. What the arithmetic reliably predicts is that Medicare will keep trying to buy care differently, not that the attempts will work. Those are different claims, and conflating them is the most common error in advocacy on this subject.

Key takeaways

• Medicare benefit payments were $1.2 trillion in 2025, up from $666 billion a decade earlier.
• The Part A trust fund is projected for depletion in the second quarter of 2033.
• Medicare Advantage was $534 billion in 2025 and is projected to reach 59 percent of Part A and B spending by 2035.
• Financial pressure guarantees continued reform attempts, not that the attempts will succeed.

Sources

• KFF, Key Facts About Medicare Spending Trends and Projections from the 2026 Medicare Trustees Report (opens in a new tab)
• KFF, Medicare 101: Key Facts (opens in a new tab)