The go-broke date for a pivotal trust fund that props up Medicare has been pushed back three years, giving additional wiggle room for Washington to address looming insolvency for a program that currently covers 65 million senior and disabled Americans.
Medicare’s hospital trust fund is now expected to go broke in 2031, according to the Medicare Board of Trustees’ annual report to Congress. At that point, the government won’t be able to pay full benefits for inpatient hospital visits, nursing home stays and home healthcare.
Last year’s report predicted the government would have to stop paying out full benefits in 2028.
But that date was pushed back, in part because healthcare spending hasn’t rebounded after the COVID-19 pandemic as much as expected.
That could be in part because some of the sickest Americans died due to the virus, trustees said. In addition, pricey hip and knee replacements are increasingly taking place in less expensive outpatient settings.
And, the number of workers and average wages are projected to be higher, resulting in higher taxable payroll going into the fund.
The Hospital Insurance Trust Fund, which pays hospitals and providers of post-acute services, and also covers some of the cost of private Medicare Advantage plans, is mostly funded by payroll taxes, along with income from premiums.
The fund is separate from another trust fund that covers benefits for Medicare Parts B and D, including outpatient services and physician-administered drugs. That Supplemental Medical Insurance trust fund is largely funded by premiums and general revenue that resets each year and doesn’t face the same looming solvency concerns.
Despite the new report’s rosier outlook, America’s financial safety nets are increasingly fragile, and are only expected to become more stressed as more Americans age into eligibility. On Friday, the Social Security trustees also released their annual report finding that the program will run out of money by 2033, one year earlier than previously expected.
The Medicare trustees found the cost of the hospital trust fund is projected to exceed revenues in 2025, resulting in trust fund depletion by 2031. At that point, Medicare would cut spending by 11%, likely resulting in benefit disruption for beneficiaries. That cut would increase to 19% by 2047.
Legislators are taking a tougher look at federal entitlement programs, as Democrats and Republicans in Washington spar over the debt ceiling and whether to shrink the nation’s deficit. President Joe Biden has made protecting Medicare a priority during the debate, despite promises from Republican leaders that the program won’t be touched.
Biden has pitched a plan the White House says will keep Medicare’s hospital trust fund solvent beyond 2050 without cutting benefits. The plan would further reduce what Medicare pays for prescription drugs and raise taxes on Americans earning over $400,000.
To date, lawmakers have not allowed the Medicare trust fund to become depleted. But amid increasingly dire warnings from trustees and watchdogs urging the need to align spending with revenue, Congress has delayed taking action to improve Medicare’s finances, following bipartisan efforts to lower spending in the early 2010s.
The fund hasn’t met the trustees’ test for short-range financial adequacy since 2003, and has triggered funding warnings since 2018.
“While the deadline has moved, the ultimate goal hasn’t changed,” said Chip Kahn, president and CEO of the Federation of American Hospitals, in a statement on the report. “It is vital that stakeholders use this additional time to find workable solutions that will allow the millions of seniors who depend on Medicare to maintain access to the essential care provided by hospitals and physicians.”