The Economics of Financing Medicare

The pressure the Medicare program puts on the federal budget has been much discussed, but financing Medicare also has broader implications for the economy. Medicare expenditures currently account for 15% of federal spending and 3.6% of the total gross domestic product (GDP).1 Moreover, Medicare spending grew an average of about 2.5 percentage points faster than the GDP from 1975 through 2008,2 consuming a rapidly increasing share of the country's total resources.Health care services provided to Medicare beneficiaries are paid for by a combination of dedicated taxes and general revenues — in addition to the care financed by supplemental plans . . .