Retirement Strategist
Every year, the Social Security Trustees and Medicare Trustees Reports generate headlines about the long-term health of America's primary retirement programs. This year was no exception, with much of the attention focused on Social Security's long-term outlook.
Medicare, by contrast, tends to draw less scrutiny, even as escalating healthcare costs place increasing pressure on both federal finances and retirees’ budgets. While Social Security is a primary source of retirement income, healthcare is one of retirees’ largest expenses and may absorb an increasing portion of retirement resources over time.
Pamela Hess, Retirement Strategist, explains why these rising costs deserve greater attention from retirees, advisors, employers and the broader retirement industry.
Medicare is a growing fiscal story
Social Security remains the larger program today, but Medicare costs are growing more rapidly. As Medicare claims an increasing share of federal resources, beneficiaries may soon face higher premiums, greater cost sharing, or both.
The scale of that growth is striking. Medicare is expected to overtake Social Security as a share of U.S. gross domestic product (GDP) by 2037. Combined, the two programs are expected to grow from 9.4% of GDP today to roughly 12.5% by 2050—with more than half of that attributable to Medicare.1
Demographics only partially explain what’s happening: An aging U.S. population means more people are reaching Medicare eligibility and relying on it longer. Meanwhile, government spending per beneficiary keeps rising with escalating healthcare costs.
How Medicare is funded, however, differs dramatically from how Social Security is funded—and that difference is why the pressure is less visible on the surface. Medicare operates through two trust funds:
- The Hospital Insurance (HI) Trust Fund supports Medicare Part A hospital benefits and, like Social Security, relies largely on payroll taxes. Trustees project HI depletion in the second quarter of 2033; at which point, incoming revenue would cover only about 89% of scheduled Part A cost.2
- The Supplementary Medical Insurance (SMI) Trust Fund supports Medicare Part B (doctor/outpatient) coverage and Part D (prescription drugs). SMI accounts for nearly two-thirds of Medicare spending and is financed mainly through federal general revenues and beneficiary premiums. This funding is reset annually, according to projected costs—thus, it does not face a depletion date.2
- Medicare Advantage (Part C) plans draw on both trust funds, although most funding comes through SMI.
Because the government’s general revenues and retiree premiums adjust each year—the cost shifts onto the federal budget and retirees. The Trustees have issued a funding warning for nine consecutive years due to this reliance on general revenues, but thus far policymakers have not taken action.2
The rising cost of coverage
As Medicare costs continue to rise, policymakers have several options, including increased Medicare payroll taxes, expanded income-based premiums, changes to provider or Medicare Advantage payments, or benefit modifications. Regardless of the path they choose, a growing share is likely to land on retirees.
Medicare coverage already consumes a significant share of many retirees’ monthly budgets through premiums, deductibles, copayments and coinsurance charges. Higher-income beneficiaries pay more in the form of a surcharge, i.e., the income-related monthly adjustment amount (IRMAA).
In 2026, the standard Medicare Part B premium rose by 9.7%, to $202.90 monthly—more than $2,400 annually. At the same time, the annual deductible rose by 10%.2 Under traditional Medicare coverage, beneficiaries generally pay 20% coinsurance for covered Part B services after meeting the deductible. There is no annual out-of-pocket maximum. As protection, many retirees purchase Medigap coverage, while others choose Medicare Advantage, with different cost-sharing structures. Prescription drug coverage and IRMAA can add to the total.
One way to put these costs in perspective is to compare them with Social Security income.
It's not just what retirees receive. It's what they keep.
Medicare Part B and Part D premiums and average cost sharing are projected to consume a larger share of Social Security benefits, which means retirees will have less money left over to cover other retirement expenses. By 2050, an estimated 38 cents of each average Social Security dollar will go toward Medicare costs.
Retirement planning implications
Social Security should remain foundational. As discussed in our review of the 2026 Trustees Report, trust fund depletion does not mean Social Security disappears. Even without congressional action, ongoing payroll taxes would continue to fund a substantial majority of scheduled benefits.
Medicare requires a different planning lens.
Healthcare should be modeled as a significant, faster-growing expense not folded into general inflation. Plan selection also matters: traditional Medicare with supplemental coverage and Medicare Advantage each carry a distinct mix of premiums, cost sharing, provider access and out-of-pocket exposure.
Additional planning implications include:
- For younger workers, healthcare may warrant separate treatment in projections.
- Higher-income households should remember IRMAA is tied to income, so decisions affecting taxable income can influence premiums.
The bottom line
Social Security will continue to draw attention on benefits and solvency. Medicare presents a different challenge: Who ultimately bears the cost of rising healthcare expenditures—taxpayers, retirees, providers or some combination?
While the policy response remains uncertain, retirees should view healthcare as an important and growing component of their retirement budget.
See the Social Security and Medicare section of our Guide to Retirement, and our Social Security and Medicare Hub.