Medicare Trust Fund: Empty by 2026?

Legislation | June 12, 2018 | by Nicole Fallon

According to a just-released report by the Medicare program's trustees, the Part A trust fund that covers hospital and skilled nursing care could be depleted as early as 2026, just 8 years from now and 3 years earlier than last year's projection.

While this estimate doesn’t mean that the fund balance will be zero in 2026, as it continues to receive an influx of dollars from payroll taxes, it is projected to only have 91% of the dollars needed to pay the expected bills. This latest development and the second warning from the Trustees will place renewed pressure on Congress and the Trump Administration to address the issue because by law the trust fund, “cannot borrow money or pay benefits that exceed the asset reserves in their trust funds.”  The Committee for a Responsible Federal Budget notes, “the law calls for payments to be cut by 9 percent to bring spending in line with revenue, with the cut rising to 22% by 2040.”

The trust fund's solvency is impacted routinely by federal legislation.  Recent legislation adversely impacted both income and costs. According to the report, “HI income is projected to be lower than last year’s estimates due to: (i) lower payroll taxes attributable to lowered wages in 2017 and lower levels of projected GDP and (ii) reduced income from the taxation of Social Security benefits as a result of legislation. HI expenditures are expected to be higher than last year’s estimates due to higher-than-anticipated spending in 2017, legislation that increases hospital spending, and higher Medicare Advantage payments.”

Prior reports lowered the projected Medicare expenditure growth account for some of the observed impacts of payment and delivery system reform that are changing health care practices.  However, trustees firmly believe, “Notwithstanding the assumption of a substantial slowdown of per capita health expenditure growth, the projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.”

It remains to be seen how and if Congress will address this shortfall as options include provider cuts, changes to eligibility or services covered, and increasing beneficiary cost-sharing.  However, the Medicare Modernization Act of 2003 requires that the President submit legislation to Congress to respond to the warning issued by the Trustees within 15 days after the submission of the Fiscal Year 2020 Budget. Congress is then required to consider the legislation on an expedited basis.  If a majority of Congress decides, it can alter this expedited process.

LeadingAge will work with policymakers on effective and equitable solutions to maintain the health of the trust fund while also ensuring that post-acute care providers have the resources needed to continue high-quality services.