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Fact check: What are the projected cost increases for Medicaid and Medicare over the next 5 years?
Executive Summary
Federal projections and expert surveys converge on a clear near-term trajectory: Medicaid spending is expected to grow modestly in the low single digits annually while Medicare spending will rise faster and strain trust funds within the coming decade. The Congressional Budget Office and federal trustees show Medicaid federal outlays climbing at roughly 4.8% per year from 2025 onward in one estimate and Medicare gross spending rising as a share of GDP with the Hospital Insurance trust fund projected insolvent by 2033 under current law, while state-level reports and recent federal legislation introduce variables that could push costs higher or shift timing [1] [2] [3] [4].
1. The Competing Claims: What the major forecasts actually state and why it matters
The principal, explicit claim in the materials is that CBO estimates federal Medicaid spending will rise about 4.8% annually from 2025 to 2034, a pace that contributes to longer‑run fiscal pressure and possible trust‑fund depletion scenarios discussed in policy debates; the Medicare Trustees likewise project growing Medicare costs with Hospital Insurance insolvency around 2033 and rising gross Medicare spending as a percentage of GDP in coming decades [1] [2]. These headline numbers matter because they quantify near‑term budgetary pressure and underpin policy choices about revenue, benefits, payment rates, and eligibility. The sources show consensus on growth but divergence on magnitude and drivers: Medicaid’s increase is described as moderate and state‑driven, while Medicare’s growth is both larger and more structurally tied to demographic change and rising per‑beneficiary costs [1] [5] [2].
2. Medicaid’s near‑term drivers: State budgets, provider rates and policy changes that will push costs up
State survey data and policy trackers indicate that inflation, workforce shortages, and rising provider rates are key drivers of Medicaid cost increases in the next five years, while states also expand services—behavioral health, long‑term services and supports—and implement delivery reforms that may raise short‑term spending even if intended to lower long‑term costs [3]. The 2024–2025 Medicaid budget survey reports that states expect continued pressure on provider reimbursement and pharmacy costs, and recent federal policy changes from the 2025 reconciliation law alter eligibility and benefits in ways that could increase enrollment and per‑enrollee spending; these operational and policy shifts make the 4.8% CBO average growth figure plausible but sensitive to state choices and federal offsets [3] [4].
3. Medicare’s trajectory: Demographics, medical price growth, and trust‑fund insolvency risks
Medicare projections show much faster expansion than Medicaid on a GDP basis, driven by an aging population, growth in hospital, hospice and physician‑administered drug spending, and unit‑price increases; trustees estimate Medicare’s share of GDP rising substantially over the long run and project the Hospital Insurance trust fund facing insolvency by 2033 absent policy changes [5] [2]. Short‑term five‑year cost increases are embedded in those longer trends: while year‑to‑year percentage increases vary, the trustee analyses and methodological notes indicate sustained above‑GDP growth for Medicare, meaning federal outlays will meaningfully outpace broader economic growth and add to the federal deficit pressures already documented in recent fiscal reports [5] [2] [6].
4. How recent legislation and economic assumptions change the near‑term numbers
The 2025 reconciliation law and differences in inflation measures and economic growth assumptions materially influence five‑year projections; analysts note that policy changes affecting eligibility, benefits, and payment rates in the 2025 law could raise baseline Medicaid and Medicare spending relative to prior projections, while macro assumptions—CPI, PCE inflation, and labor costs—alter provider payment growth and enrollment dynamics [4] [7]. These policy levers create a range of plausible outcomes: the CBO‑style central estimate of ~4.8% Medicaid growth and trustee warnings on Medicare are conditional, not immutable, and lawmakers’ choices between revenue increases, benefit changes, or provider payment adjustments will determine whether projected cost increases materialize as modeled [1] [4] [2].
5. Bottom line for the next five years and key uncertainties to watch
For the next five years, the best synthesis of available projections is that Medicaid federal spending will likely rise at roughly low–to–mid single‑digit percentages annually while Medicare spending will increase faster and continue to erode trust‑fund reserves, with Medicare’s structural growth posing larger fiscal challenges. The precise path depends on state provider rate decisions, implementation of the 2025 reconciliation provisions, drug and service price trends, and macroeconomic inflation—each of which could produce variance around central projections. Watch three signals closely: state Medicaid budget actions and provider rate changes, implementation details of federal reconciliation provisions, and updated trustee and CBO reports each year for revised five‑year trajectories [1] [3] [4] [2].