How Has COVID-19 Impacted Medicare Spending, Solvency?

The Medicare Trust Fund is still expected to run out by 2026 despite increased Medicare spending on COVID-19 treatment and prevention over the past year and a half, a new report reveals.

The annual report from Medicare’s Board of Trustees found just a short-term impact on Medicare spending attributed to efforts to counteract the highly contagious coronavirus. And this impact is “not expected to have a large effect on the financial status of the trust funds after 2024,” according to the report.

Still, Medicare spending on COVID-19 countermeasures was significant. Key impacts stemming from the pandemic include reduced payroll taxes collected by the Hospital Insurance (HI) trust fund because of the economic efforts of the pandemic on labor markets, spending on coverage and testing of the disease, spending on treatment of the disease, and implementation of several regulatory policies and legislative provisions.

Pandemic-related policy and regulation helped to provide flexibilities to healthcare providers struggling to treat the novel coronavirus and non-pandemic-related care. For example, Medicare waved the 3-day inpatient stay requirement for skilled nursing facility coverage to move patients out of hospital beds sooner, if it was medically appropriate. However, this policy and others like it increased Medicare spending, the report stated.

Notably, Medicare increased inpatient reimbursement rates by 20 percent for admissions related to COVID-19. CMS also expanded coverage of telehealth services to maintain access to care while social distancing orders were in place.

Pandemic-related spending, however, was “more than” offset by declines in spending on non-COVID care. The report found that Medicare spending was down compared to both actual 2019 spending and expectations for 2020 spending as outlined in last year’s report. The decline was primarily driven by a reduction in elective services, the Trustees reported.

Trustees also expect non-coronavirus-related spending to be lower than previously estimated for the beginning of 2021 because of the resurgence of the disease. The most recent report from the Centers for Disease Control and Prevention (CDC) shows that the seven-day average of reported cases is up by 2.8 percent, with a total of 38.3 million cases reported. Hospitalizations for COVID-19 are also up by 5.7 percent, with over 2.6 million new hospital admissions the week starting August 18.

The Trustees predict higher Medicare spending on non-coronavirus care in 2022 as deferred care returns, according to the report. At that time, Trustees also anticipate accelerated and advance payments made at the start of the pandemic as an emergency measure to be repaid, resulting in no net changes to the Medicare Trust Fund expenditures.

“It should be noted that there is an unusually large degree of uncertainty with these COVID-related impacts and that future projections could change significantly as more information becomes available,” Trustees cautioned in the report.

While the COVID-19 pandemic may only have a short-term impact on Medicare spending, solvency of the Trust Fund used to reimbursement hospitals and physicians is still at risk.

“Certain features of current law may result in some challenges for the Medicare program. Physician payment update amounts are specified for all years in the future, and these amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of physician cost increases. These rate updates could be an issue in years when levels of inflation are high and would be problematic when the cumulative gap between the price updates and physician costs becomes large,” the report stated.

Trustees stated that, “Current-law 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.”