Dive Brief:
A key trust fund underpinning Medicare’s hospital benefit will go broke three years earlier than previously expected absent congressional action, threatening benefits for seniors, according to the Medicare trustees’ annual report released Wednesday.
The Medicare Hospital Insurance trust fund will be depleted in 2033, instead of 2036, as Medicare spending continues to outpace the program’s income, the trustees — a group comprised of the HHS, Treasury and Labor secretaries, along with the Social Security commissioner — warned.
The bleaker outlook is due to higher-than-expected spending for hospital care, hospice services and physician-administered drugs. The trustees called on Congress to act quickly to stabilize Medicare, though near-term action is unlikely as the Republican majority focuses on advancing their reconciliation megabill.
Dive Insight:
Medicare has been teetering on the edge of insolvency for a while. But the latest report from Medicare’s trustees is more dire than last year’s, which projected Medicare would become insolvent in more than a decade.
Now, Medicare’s hospital trust fund will start running out of money in eight years — when today’s 57-year-olds first become eligible for the program.
The looming go-broke date is a result of the fund’s substantial shortfall as Medicare costs continue to grow rapidly, trustees said in the report. Medicare costs are expected to increase from 3.8% of the gross domestic product in 2024 to 6.2% in 2050 before reaching 6.7% in 2099, the report projects.
Costs to another fund that pays Parts B and D, called the Supplemental Medical Insurance trust fund, are also climbing, increasing pressure on beneficiary budgets and the federal budget. (Though, the Supplemental Medical Insurance trust fund is largely funded by premiums and general revenue that resets each year and doesn’t face the same solvency concerns.)
This year’s estimates, which are based on current payment rates, could be conservative, trustees said. Under an alternate scenario, in which provider payments grow at a rate more consistent with underlying medical costs — a change aggressively lobbied for by physician associations — Medicare spending will rise to 8.8% of the GDP in 2099 rather than 6.7%, according to the report.
The precarious footing of the federal insurance program, which covers almost 69 million people in the U.S., is due to the country’s underlying demographic shifts, according to experts.
More and more Americans are aging into Medicare, while at the same time the number of workers paying into its trust fund is dropping. More seniors are also selecting privatized Medicare Advantage plans, which are more expensive than traditional Medicare coverage.
If and when the U.S. hits Medicare’s go-broke date, the hospital trust fund, which pays hospitals and providers of post-acute services and also covers some of the cost of private Medicare Advantage plans, will have inadequate income to fund those benefits. Medicare payments would immediately be cut by 11%, according to the report. Those cuts would grow over time, likely disrupting services for seniors and reimbursement for providers.
It’s worth nothing that there’s a significant degree of uncertainty in trustees’ projections, which vary based on macroeconomic forces in a given year.
For example, in 2020, in the early throes of COVID-19, the board predicted the hospital trust fund would run out by 2026. That deadline was pushed back to 2028 and then 2031 in subsequent years’ reports, amid a broader economic rebound and more care shifting to cheaper outpatient settings.
Still, the fund hasn’t met the trustees’ test for short-range financial adequacy since 2003, and has triggered funding warnings since 2018.
To date, Congress has not allowed Medicare to go under. But legislators’ lack of action despite years of warnings is a source of heartburn for budget hawks, Medicare advocates and physician lobbies.
Experts say lawmakers need to act soon given many reforms to stabilize Medicare could take a few years to go into effect.
“The projections in this report show that change is needed to address Medicare’s financial challenges,” the Medicare trustees wrote in their report. “The sooner solutions are enacted, the more flexible and gradual they can be.”
According to the Committee for a Responsible Federal Budget, restoring Medicare solvency would require Congress to boost the payroll tax rate by 14% or reduce Medicare spending by 9% — both politically unappetizing proposals.
Other reforms that could curb Medicare spending, like implementing site-neutral payments or reducing overpayments in MA, have more bipartisan support but aren’t a policy priority on the Hill. Republicans are currently focused on hammering out legislation to extend tax cuts from President Donald Trump’s first term, cut green energy programs, fund border control and curb Medicaid spending.
“We are running out of time to phase in changes gradually and avoid harsh cuts, sharp tax increases, or unacceptable borrowing. Demagoguing this issue may be politically expedient, but it will ultimately prove ruinous for the tens of millions of Americans that rely on the programs,” Maya MacGuineas, the president of the CRFB, said in a statement Wednesday.
