Medicare funds slated to run out by 2036 without changes

Medicare money will dry up in a little over a decade, according to the latest the federal program’s trustees.

The trustees’ annual report to Congress estimates that Medicare’s Hospital Insurance (HI) Trust Fund will be depleted by 2036. A separate report released on the same day by the Social Security Board of Trustees also predicts those funds to run out by 2035.

Both programs have received more time, with Medicare’s HI Trust Fund receiving a five-year lifeline and Social Security an additional year. The reports underscore the positive effects of a stronger economy and job growth. Medicare also enacted policy changes to how medical education expenses are accounted for in Medicare Advantage rates and experienced lower-than-projected healthcare spending last year. In particular, the report shows decreased spending on home health care as the healthcare industry navigates severe staffing shortages.

However, the outlook for Social Security and Medicare is still grim. For Medicare, specifically, the HI Trust Fund will only be able to pay all total scheduled benefits through 2036, after which program income will only be sufficient to pay 89% of total scheduled benefits. The HI Trust Fund pays for Medicare Part A, which reimburses hospital providers for inpatient care, as well as hospice, skilled nursing facility and home health care following a hospital stay.

On the other hand, Medicare trustees expect the Supplemental Medical Insurance (SMI) Trust Fund, which pays for Medicare Parts B and D, to be adequately financed indefinitely because of its main financing structure. Medicare Part B covers physician, outpatient hospital, and home health services, among other voluntary services. Medicare Part D provides voluntary subsidized access to drug insurance coverage.

Unlike other trust funds, the federal government adjusts SMI Trust Fund contributions and premiums each year to cover the costs of the upcoming year. Still, the report projects spending on Parts B and D to increase faster than general economic growth over the next five years.

Overall, Medicare spending across the entire program is slated to grow “in most future years at a somewhat faster pace than either aggregate workers’ earnings or the economy overall” as more Americans age into the program and require greater volume and intensity of healthcare services.

Medicare trustees say the HI Trust Fund does not meet their short-range test of financial adequacy or the long-rate test of close actuarial balance.

“The financial projections shown for the Medicare program in this report reflect substantial, but very uncertain, cost savings deriving from current-law provisions that lower increases in Medicare payment rates to most categories of health care providers,” the report states. “Without fundamental change in the current delivery system, these adjustments would probably not be viable indefinitely.”

Medicare trustees urge “timely and effective action” to address Medicare’s financial challenges, including the imminent depletion of the HI Trust Fund and rapid growth in overall Medicare spending.

In a statement, HHS Secretary Xavier Becerra said the Biden Administration “has left no stone unturned in our efforts to strengthen and preserve Medicare, not just for our parents and grandparents but for our children and generations to come.”

CMS Administrator Chiquita Brooks-LaSure added that the Administration is working on reinforcing Medicare through proposed enhancements to extend the program’s solvency. Among recent changes is an overhaul of the Part D system so Medicare can negotiate prices for certain Part B and Part D drugs. Policymakers have also floated site-neutral payments as a way to cut Medicare expenditures by paying lower rates to hospitals for services that can be effectively delivered in outpatient settings.

“We are committed to protecting Medicare now and for future generations,” Brooks-LaSure said.

According to AARP, Medicare covered 66.7 million people in 2023, which is expected to jump to nearly 94 million by 2060.