Lawmakers who supported the healthcare components of the budget reconciliation act cited fiscal responsibility as a key reason, saying reforms would help control federal spending and deficits. Many of those lawmakers argued the OBBBA changes would preserve Medicaid for vulnerable groups while tightening eligibility and adding work or verification requirements to ensure resources go to those truly in need.
What can the numbers tell us?
Medicare spending has grown significantly in recent years, reflecting both demographic shifts and policy factors. In 2020, total Medicare expenditures reached about $829.5 billion, representing 20% of national health spending, according to the Centers for Medicare & Medicaid Services. By 2023, that number had risen to approximately $1,029.8 billion, or just over $1 trillion. This marks an increase of around $200 billion over three years – roughly a 24% jump.
Medicaid experienced even sharper growth during the same period. In 2020, combined federal and state Medicaid spending was estimated at $671.2 billion, accounting for 16.3% of national health expenditures. By 2023, spending had expanded to approximately $871.7 billion. That nearly $200 billion rise represents close to a 30% increase over three years, outpacing Medicare’s rate of growth.
Together, these increases highlight the mounting financial pressures on the U.S. healthcare system. Medicare’s spending growth crossing the trillion-dollar threshold and Medicaid’s nearly 30% surge illustrate the effects of the COVID-19 pandemic, policy changes, and eligibility expansions. Both programs have grown faster than typical annual trends, underscoring the strain they have placed on federal and state budgets.
Supporters of the bill also highlighted giving states more flexibility, reducing federal mandates, and curbing fraud, improper payments or abuse in the system.
Improper Medicare and Medicaid payments topped $100 billion in recent years, according to federal data, highlighting the programs’ ongoing struggle with errors, fraud and documentation issues.
In fiscal year 2024, the Centers for Medicare & Medicaid Services reported a 7.66% improper payment rate in Medicare Fee-for-Service, totaling about $31.7 billion. Medicare Advantage accounted for $19.07 billion in improper payments, while Medicare Part D added another $3.58 billion, according to the Kaise Family Foundation. Across all Medicare programs, improper payments reached more than $54 billion last year, the Government Accountability Office reported.
Medicaid’s improper payment rate was 5.09% in 2024, equating to about $31.1 billion, CMS said. Roughly three-quarters of that amount – $23.4 billion – stemmed from insufficient documentation rather than fraud, the Center for Contemporary Finance found. Another $4.9 billion was tied to medically unnecessary services or ineligible recipients, while about $1.5 billion came from payments to unqualified providers or other losses.
The GAO reported that Medicare and Medicaid combined for more than $100 billion in improper payments in fiscal year 2023, representing a large share of all federal improper payments. Medicaid’s total that year was estimated at $31 billion, consistent with 2024 figures. Some independent analysts argue the government’s numbers understate the problem. The Paragon Health Institute estimates improper Medicaid payments could total $1.1 trillion over the past decade, far above official figures.