Dive Brief:
- A key trust fund underpinning Medicare could run out of funds 12 years earlier than previously expected, after Republicans cut taxes last summer that flowed into Medicare’s coffers, according to a new analysis from congressional scorekeepers.
- The Hospital Insurance trust fund is set to be exhausted by 2040, the Congressional Budget Office said Monday. Early last year, before the GOP’s “Big Beautiful Bill” was signed into law, the CBO expected the trust fund would last until 2052.
- Projections of looming insolvency have dogged Medicare for years and are highly uncertain. Still, the earlier go-broke date is concerning in light of the 70 million elderly and disabled Americans who receive health insurance from the program and would see their benefits reduced if the fund expires.
Dive Insight:
The HI trust fund pays for benefits in Medicare Part A, including care provided in inpatient hospitals, skilled nursing facilities and hospices. It’s funded by several sources, but the lion’s share comes from the Medicare payroll tax and income taxes on Social Security benefits.
The HI trust fund’s balance is set to increase through 2031. But spending will outstrip income in the following year, and that imbalance will continue until the fund is eventually exhausted in 2040, according to the CBO’s new projections.
The expected loss of more than a decade in HI solvency is mostly due to Republicans’ “Big Beautiful Bill,” which President Donald Trump signed into law in July. The legislation lowered taxes and created a temporary deduction for Americans aged 65 or older, shrinking Medicare revenues from taxing Social Security benefits, the CBO said.
The country’s underlying demographic shifts are also putting more pressure on Medicare’s finances. More and more Americans are aging into the insurance program, 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.
Despite the earlier insolvency date, the CBO’s projection is still less drastic than that of Medicare’s trustees, which expect the HI fund to go broke in 2033 as higher-than-expected spending for hospital care, hospice services and physician-administered drugs outstrip income.
Go-broke dates can shift drastically depending on when they’re performed, given they’re affected by the macroeconomic forces in a given year. And to date, Congress has not allowed Medicare’s trust fund to run dry.
Still, legislators’ lack of action despite years of warnings is a significant source of stress for budget hawks, Medicare advocates and physician lobbies. If the HI fund is allowed to expire, Medicare payments to providers would immediately be slashed and benefits would be reduced.
Experts say lawmakers need to act soon given many reforms to stabilize Medicare could take a few years to go into effect. But the simplest solutions — increasing taxes or reducing benefits — are both politically unpopular. Meanwhile, 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 current priority on the Hill.
