- Total Medicare spending is expected to balloon to 5.9% of the GDP by 2040, and 6.5% by 2094, according to the Medicare Board of Trustees. The program, which covers roughly 62 million Americans, is currently at 3.9% of the GDP, spending $796 billion last year.
- In its annual report to Congress, the board predicts the Hospital Insurance Trust Fund, which finances Medicare Part A, will run out by 2026 — the same estimate as 2018 and 2019's reports due to policy inaction from Washington.
- However, the coronavirus pandemic is likely to increase hospital insurance spending and lower payroll tax revenue, substantially accelerating the date of Medicare insolvency, according to the Committee for a Responsible Federal Budget. The trustees did not factor COVID-19 into their analysis.
To date, lawmakers have not allowed the Medicare Part A trust fund to run out, and since it's hard to project healthcare cost growth, these projections aren't set in stone. But if reality follows the board's estimates, it will significantly strain the economy, Medicare beneficiaries and the federal budget.
Trustees chalked the mounting spend to physician payment updates not keeping pace with inflation, creating a growing gap between the updates and costs, along with inefficient fee-for-service care delivery models. Additionally, more Americans are aging into Medicare as the U.S. population skews older, further burdening the program, which is the second largest social insurance scheme in the country after Social Security.
In 2019, the Medicare Part A fund ran a deficit of $5.8 billion. The excess of spending over revenue is expected to continue until the trust fund eventually runs dry in just six years, trustees say. Part A assets were $194.6 billion at the beginning of 2020, which will only cover roughly 55% of projected spending this year.
Part A spending has grown 4% annually over the past five years, compared with income growth of just 4.7%. That's expected to shift in the next five years to 6.5% and 5.2%, respectively. The fund, which pays for inpatient hospital services, hospice care and skilled nursing facility and home health services after hospital stays for Medicare beneficiaries, hasn't been financially adequate since 2003.
There's been largely crickets from Congress on the issue since bipartisan efforts to lower spending in the early 2010s proved toothless. One potential solution would be to raise taxes, not a popular political move.
But Wednesday's report triggers a Medicare funding warning, requiring the president to submit proposed legislation to Congress next year to fix the issue after submitting the 2022 budget. Congress will have to consider the legislation on an expedited basis.
The trustees — HHS Secretary Alex Azar, CMS Administrator Seema Verma, Treasury Secretary Steven Mnuchin, Secretary of Labor Eugene Scalia and Commissioner of Social Security Andrew Saul — urged Washington to take quick action to curb deficits in the report.
"The sooner solutions are enacted, the more flexible and gradual they can be," the trustees wrote. Watchdog group Committee for a Responsible Federal Budget agreed.
"It's time for policymakers to stop kicking the can and start taking the finances of those programs seriously," the group's president Maya MacGuineas said in a statement. "After the coronavirus pandemic is under control and the economy is stabilized, that should be at the top of the legislative agenda."
The Part A trust fund faces a 75-year shortfall of 0.76% of payroll, meaning payroll tax would need to increase by roughly that amount to ensure Medicare solvency over the next 75 years. Last year's report pegged the 75-year shortfall at 0.91%, but it shifted due to lower costs in 2019 than expected and shifting demographic factors.
Medicare's other trust fund, the Supplementary Medical Insurance Trust Fund, which covers Medicare Part B and Part D, is on firmer financial footing. The fund is expected to remain full over the next decade, because premiums and revenue in Parts B and D are reset each year to cover expected costs.
Part B and Part D accounted for 1.7% and 0.5% of GDP last year and are projected to grow to 3.5% and 1% by 2094, respectively.
The Social Security Trustees also released their financial report on Wednesday, finding the Social Security Trust Fund will run dry in 15 years as a result of growing benefit spending and flat revenue as a share of payroll. That means, without Congressional intervention, Social Security will no longer be solvent when adults aged 52 years old today reach retirement age.