Report: Medicare Expected to Run Out of Money in 2026

Sept. 7, 2021
A new report from Medicare’s board of trustees projects—the same as last year—that Medicare’s insurance trust fund that pays hospitals will run out of money by 2026

According to a new report from Medicare’s board of trustees, Medicare’s insurance trust fund that pays hospitals is expected to run out of money in 2026 (the same projection as last year).

The report states that in 2020, Medicare covered 62.6 million people, 54.1 million aged 65 and older, and 8.5 million disabled. Total expenditures in 2020 were $925.8 billion, and total income was $899.9 billion, which consisted of $894.6 billion in non-interest income and $5.3 billion in interest earnings.

The report states that “Beginning in 2020, the Medicare program was dramatically affected by the COVID-19 pandemic. The amount of payroll taxes expected to be collected by the Hospital Insurance trust fund (HI) was greatly reduced due to the economic effects of the pandemic on labor markets. Spending was directly affected by the coverage of testing and treatment of the disease. In addition, several regulatory policies and legislative provisions were enacted during the public health emergency that increased spending; notably, the three-day inpatient stay requirement to receive skilled nursing facility services was waived, payments for inpatient admission related to COVID-19 were increased by 20 percent, and the use of telehealth was greatly expanded. More than offsetting these additional costs in 2020, spending for non-COVID care declined significantly (compared to both actual 2019 spending and expectations for 2020 spending in last year’s Trustees Report). This decline was particularly true for elective services.”

According to an article in Axios by Bob Herman, “The surge in layoffs lowered payroll taxes, which fund Medicare, and the federal government had to shoulder expenses tied to COVID-19 hospitalizations, tests and vaccines for Medicare enrollees. However, ‘spending for non-COVID care declined significantly,’ the trustees wrote. Like the broader industry, deferral of care more than offset COVID-19 expenses. And it's why Medicare's solvency date for hospital bills didn't change.”

Further, Herman writes that “Medicare's private insurance option and a pricey new drug will factor heavily into the program's finances. Medicare Advantage enrollment is projected to rise drastically faster than the trustees anticipated last year. That could suck a lot more money from the hospital trust fund since Medicare Advantage plans cost more than traditional Medicare. All projections did not include Aduhelm, the controversial Alzheimer's drug that Medicare is still evaluating for coverage. With a list price of $56,000 per year on average, Aduhelm could blow up Medicare's financing structure.”

The report continues, “As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI income is projected to be lower than last year’s estimates due to lower payroll taxes. HI expenditures are projected to be lower than last year’s estimates because of lower projected provider payment updates and certain methodological improvements, including changes to the time to-death factors used in the projection model. In 2020, HI expenditures exceeded income by $60.4 billion due to the large amount of accelerated and advance payments. These payments will be repaid in 2021 and 2022, resulting in a small deficit in 2021 and a surplus in 2022. After that, the Trustees project deficits in all future years until the trust fund becomes depleted in 2026. The assets were $134.1 billion at the beginning of 2021, representing about 48 percent of expenditures projected for 2021, which is below the Trustees’ minimum recommended level of 100 percent. The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003. Growth in HI expenditures has averaged 7.6 percent annually over the last 5 years, compared with non-interest income growth of 5.2 percent. Over the next 5 years, projected average annual growth rates for expenditures and non-interest income are 3.1 percent and 4.6 percent, respectively.”

The full report can be found here.

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