Medicare's Pandemic Recovery

Published February 2026 · 13 min read

The COVID-19 pandemic triggered the only meaningful decline in Medicare spending in the program's modern history. Elective procedures were cancelled, office visits shifted to telehealth, and millions of beneficiaries avoided healthcare facilities entirely. Then came the recovery — swift, uneven, and transformative.

Our analysis of year-by-year Medicare data from 2018 to 2023 reveals not just how spending recovered, but how the pandemic permanently changed the Medicare landscape.

The Crash and Recovery: Year by Year

The pattern is clear: a sharp 10.0% decline in 2020, followed by a dramatic 13.7% rebound in 2021 to $91.5B. Then a surprising 2.7% dip in 2022 before reaching the all-time high of $93.7B in 2023.

The 2020 Crater: Where Did Spending Fall?

The $9.0B decline in 2020 wasn't evenly distributed. Services dropped from 2.6B to 2.3B — a loss of over 264.8M services. The hardest-hit areas:

• Elective surgeries — Cataract removal (66984), knee replacements (27447), and hip replacements (27130) saw massive volume declines as hospitals cancelled non-emergency procedures.
• Office visits — In-person E/M visits dropped sharply, partially offset by the explosion of telehealth codes (99442, 99443) that didn't exist in meaningful volume pre-pandemic.
• Diagnostic imaging — CT scans, MRIs, and screening mammograms declined as patients avoided healthcare facilities.
• Preventive care — Annual wellness visits and cancer screenings saw significant drops, with potential long-term health consequences.

The 2021 Bounce: Faster Than Expected

The 2021 recovery was remarkably swift. Medicare spending surged 13.7% — the largest single-year increase in the entire 10-year dataset — driven by:

• Catch-up procedures: Patients who deferred surgeries and screenings in 2020 returned in force, creating pent-up demand.
• COVID-19 testing: New codes like U0003, U0004, U0005, and K1034 added billions in new spending — $5.8B combined over 2020–2023.
• Vaccination administration: COVID vaccine codes (0001A, 0002A, 0011A, 0012A, 0064A, 0124A, 90480) generated hundreds of millions in additional billing.
• Provider growth: The number of billing providers actually increased from1.1M to 1.1M, as telehealth lowered barriers to Medicare participation.

The Telehealth Revolution

Before 2020, telephone and virtual visit codes barely registered in Medicare data. The pandemic changed everything. The telephone visit codes 99442 and 99443 generated a combined $1.0B — over $1 billion in payments that essentially didn't exist pre-pandemic.

The 15.8M telephone visits represent a permanent shift in care delivery. While volumes have moderated from their 2020–2021 peak, telehealth has become a lasting part of the Medicare landscape, particularly for behavioral health, chronic disease management, and rural access.

2023: The New Normal Exceeds the Old

By 2023, Medicare spending reached $93.7B — 4.7% above the 2019 pre-pandemic level. But the composition of that spending shifted significantly:

• More providers: 1.2M vs. 1.1M in 2019, a 7.5% increase.
• More services: 2.6B vs. 2.6B in 2019, a 2% increase.
• Higher per-service payments: Average payment rose from about $34.52 per service to $35.43, reflecting both fee schedule updates and coding shifts.
• Higher markups: The markup ratio climbed from 3.86x to 3.96x, suggesting providers continued raising submitted charges faster than Medicare raised payments.

The Markup Trend: A Warning Sign

One subtle but important trend: the markup ratio has steadily climbed from 3.47x in 2014 to 3.96x in 2023. Providers are raising their submitted charges faster than Medicare is raising its payments. This 14% increase in the markup ratio over a decade means the gap between what providers charge and what they receive continues to widen.

Interestingly, 2021 was a brief exception — the markup ratio actually declined to 3.74x, possibly reflecting the surge of COVID testing and vaccination codes that had lower markup characteristics. But by 2023, the upward trend resumed.

Why This Matters

The pandemic recovery story has critical implications for Medicare's future:

• Deferred care has consequences: Patients who skipped cancer screenings and chronic disease management in 2020 may present with more advanced conditions in subsequent years, driving costs higher.
• Telehealth is here to stay: The $1+ billion in telephone visit payments represents a permanent expansion of how Medicare delivers care.
• Spending trajectory is steepening: The 4.7% increase above pre-pandemic levels outpaces both inflation and beneficiary growth, raising sustainability concerns.
• COVID costs are embedded: Testing and vaccination codes added billions in new spending categories that partially offset savings from reduced utilization elsewhere.

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