Medicare Part A Trust Fund to Run Out in 7 Years, Trustees Find

April 23, 2019 - The Medicare Board of Trustees still projects the Hospital Insurance (HI) Trust Fund, which supports provider payments under Medicare Part A, will deplete by 2026, according to their 2019 annual report.

The Board of Trustees, which currently includes four federal leaders and two vacant public representative seats, reiterates in their most recent report that Medicare Part A’s HI Trust Fund is operating under a deficit and will only be able to pay full benefits for another seven years.

The HI actuarial deficit increased to 0.91 percent of taxable payroll in 2018 from 0.82 percent in last year’s report. The deficit grew in 2018 primarily because of lower assumed productivity growth, the effects from slower projected growth in skilled nursing facility utilization, higher costs, and lower income than expected.

On the other hand, the Supplementary Medical Insurance (SMI) Trust Fund, which backs Medicare Parts B and D, is adequately financed in all future years thanks to its unique financing structure. Unlike the HI Trust Fund, the program receives funding from premiums and general revenue transfers.

The trustees, however, project costs for Medicare Parts B and D to rise in the long-term, growing by 3.1 and 1.1 percent by 2093, respectively.

Medicare spending as a whole will also grow as percent of gross domestic product (GDP), the trustees warn. Under current law, Medicare expenditures will increase from 3.7 percent of GDP in 2018 to 6.0 percent by 2043 and 6.5 percent by 2093, they predict.

But Medicare spending could account for as much as 9.0 percent of GDP by 2093 if healthcare regulations change, they add.

Medicare’s most recent financial projections indicate the program’s need for “substantial changes,” especially when it comes to funding hospital services and payment, the report says.

“If the health sector cannot transition to more efficient models of care delivery and if the provider reimbursement rates paid by commercial insurers continue to be based on the same negotiated process used to date, then the availability, particularly with respect to physician services, and quality of healthcare received by Medicare beneficiaries would, under current law, fall over time compared to that received by those with private health insurance,” the trustees write.

Solutions are needed sooner, rather than later, the trustees also emphasize.

“The sooner solutions are enacted, the more flexible and gradual they can be,” they write in the report. “The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address these challenges.”

In response to the report’s release, HHS Secretary Alex Azar describes the trustees’ findings as a “sobering reminder” that policymakers and stakeholders need to be supporting Medicare now and in the future.

“[W]e need to fulfill Medicare’s promise to our seniors,” he says in HHS’ official statement. “President Trump’s 2020 budget proposes reforms that will extend the life of the Medicare hospital insurance trust fund by eight years through lowering prescription drug prices and paying for value. These proposals complement the work we are doing administratively at HHS to lower costs in Medicare for American patients and transform our healthcare system into one that treats you like a person, not a number.”

Azar also stresses that policymakers and stakeholders should stop trying to expand Medicare into a universal entitlement program that also extends coverage to “wealthy Americans of working age.” Medicare-for-All policies will not be the solution to funding challenges, he indicates.

National healthcare spending has recently decelerated after a long period of rapid growth that outpaced economic growth rates. In fact, the growth in national healthcare spending fell to 3.9 percent in 2017, a rate similar to those observed during the post-Great Recession period, CMS actuaries report.

However, Baby Boomers aging into Medicare will put more strain on the public healthcare program in the near future, exacerbating financial challenges. Increases in volume and intensity of healthcare services will also create issues, the trustees explain.

Ensuring Medicare program solvency and decreasing healthcare spending are top priorities for the Trump Administration. The President’s fiscal year 2020 budget specifically includes a number of initiatives with the goals in mind, including site-neutral payments and programs targeting prescription drug prices and reimbursement.