Medicare Trustees: Trust Fund Will Begin to Deplete by 2026

What measures and means will be taken in the meantime?

To the average person, Medicare is simply health insurance for people of retirement age. And while that description is incomplete, it isn’t wrong either.

But where the understanding of the program begins to erode is in discussing funding for Medicare—it’s not as simple as “American tax dollars pay for healthcare for the elderly.”

In reality, Medicare is divided into four parts:

Medicare Part A: funded primarily by payroll taxes, which end up in the Hospital Insurance Trust Fund.

Medicare Part B: where revenue comes from both general revenues and premiums paid by Medicare beneficiaries.

Medicare Advantage, or Part C: This is also funded by general revenues, but also by beneficiary premiums.

Medicare Part D: A prescription drug plan funded by general revenues, premiums and state payments.

Part C or Medicare Advantage stands apart, but Parts B or D draw from the Supplementary Medical Insurance (SMI) Trust Fund, much as Part A draws from the Hospital Insurance Trust Fund.

That’s what makes last week’s report from the Medicare Board of Trustees alarming. In their annual report on the Hospital Insurance (HI) and SMI Trust Funds, the trustees found that full benefits will be paid only until 2026. What’s more, CMS reports that over the 75-year period the report is able to project, the HI actuarial deficit has increased to 0.91 percent of taxable payroll from 0.82 percent in last year’s report.

The change in that actuarial deficit is due to several factors, most notably lower assumed productivity growth, as well as effects from slower projected growth in the utilization of skilled nursing facility services, higher costs and lower income in 2018 than expected, lower real discount rates, and a shift in the valuation period.

For years, we’ve heard about the increasing portion of the population that is age 65 or over. Those projections are about to start having a true effect, as the Medicare Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.7 percent of GDP in 2018 to 5.9 percent of GDP by 2038, and then increase gradually thereafter to about 6.5 percent of GDP by 2093. Aside from Medicare-eligible population growth, another factor in this increase is the availability and depth of available medical services.

What’s Next?

Increased spending is likely inevitable at this point to keep the Medicare program able to provide full benefits, but it’s not the only measure officials plan to take.

“At a time when some are calling for a complete government takeover of the American health care system, the Medicare Trustees have delivered a dose of reality in reminding us that the program’s main trust fund for hospital services can only pay full benefits for seven more years,” said CMS administrator Seema Verna in the wake of the Trustees’ report.  

“The Trump Administration is working hard to protect and strengthen Medicare and lower costs while improving quality in order to protect the program for future generations of seniors who have paid into the program their whole lives. If we do not take the fiscal crisis in Medicare seriously, we will jeopardize access to health care for millions of seniors.”

If the president’s proposed 2020 budget is ratified, it would provide further strength to a program that has been one of the administration’s main focuses over the past 2.5 years. CMS has already introduced a number of initiatives to strengthen and protect Medicare and proposed and finalized a number of rules that advance CMS’ priority of creating a patient-driven healthcare system through competition. Highlights include:

  • strengthening Medicare through increasing choice in Medicare Advantage while adding supplemental benefits to the program;
  • offering more care options for people with diabetes;
  • providing new telehealth services;
  • lowering prescription drug costs for seniors.

CMS continues working to advance policies to increase price transparency and help beneficiaries compare costs across different providers.

SOURCE: Centers for Medicare and Medicaid Services

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