Medicare’s Hospital Insurance Trust Fund is set to run out of money by 2026, as lower tax revenue and higher payments to medical providers have helped weaken the long-term fiscal outlook of the health care program for America’s senior citizens, the Trump administration said on Monday.
Medicare’s costs overall are expected to continue rising sharply over the next several decades, from about 3.7 percent of the total U.S. economy to 5.9 percent, putting a strain on the federal budget that lawmakers must act to avoid, according to a report produced by the Social Security and Medicare Board of Trustees.
The Hospital Insurance Trust Fund, which pays for vital inpatient hospital services such as home health services and hospice care, will only have enough revenue to afford 89 percent of its costs by 2026, the report found. The trustees gave the same deadline for the program last year.
“The projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation,” stated the report, signed by Treasury Secretary Steven Mnuchin and Secretary of Labor R. Alexander Acosta, among other officials. “Lawmakers should address these financial challenges as soon as possible.”
Experts have fought over how best to restrain rising health care costs, with some conservatives pushing greater market involvement in the health care system to drive down prices through increased competition. Meanwhile, some liberal lawmakers have embraced a single-payer health system, which would allow the U.S. to use the federal government’s bargaining power to drive down payments to providers.
The growth in health care costs has slowed somewhat since passage of the Affordable Care Act in 2010, but continues to rise faster than the pace of inflation.
The trustees’ report suggests that trend, coupled with the retirement of the baby boomer generation, poses significant new challenges for the decades-old Medicare program.
Medicare has historically been funded primarily by revenue from payroll taxes, but those are projected to fall far short of the program’s total expense. Even a significant increase in premium payments from Medicare enrollees would not be sufficient to cover its surging costs, the report shows.
Medicare’s Hospital Insurance Trust Fund fails tests for either short-term or long-term financial balance. The report says the fund could be made solvent by a dramatic increase in the payroll tax, from 2.90 percent to 3.81 percent, a measure that could hurt business development and growth.
Alternatively, the report says the trust fund could be funded with a 19 percent cut in spending on the program — a step that could push greater health care costs on elderly patients, likely reducing the generosity of benefit payments.
Medicare also faces a funding shortfall in its trust fund that covers outpatient hospital, home health, and other physician services, the report says, although not nearly as immediately.
“Its enormous — and the predictable result of the average retiree getting back three times what they paid into the Medicare system,” said Brian Riedl, a budget expert at the Manhattan Institute, a conservative-leaning think tank. “Just not sustainable.”
The report says Social Security’s reserves were higher than last year, but its old age and survivors’ insurance trust fund can only pay full benefits until 2034 — the same number given last year
But report also extended the deadline for funding shortfall facing Social Security’s disability insurance program by about two decades from last year, as disability insurance applications have fallen with the overall improvement in the U.S. economy since 2014.
The report “confirms that Social Security remains fully affordable, notwithstanding its modest projected shortfall,” said Nancy Altman, president of Social Security Works, a left-leaning organization.