Medicare Funds Are Running Out, Marking a ‘Real, Impending Health Care Crisis’

In Jul. 2020, Dr. David Shulkin, former undersecretary for health at the Department of Veterans Affairs, told NPR that the projected insolvency of Medicare in 2026 was a “real, impending health care crisis.” Now, more than a year later, that timeline for that crisis hasn’t changed: Medicare will start running out of money in 2026, according to a new report from Medicare’s trustees.

In the report, submitted on Aug. 31, the trustees warn that the trust fund for Medicare Part A—the part that covers hospital insurance—would only be able to pay about 91 percent of claims starting in 2026, CNBC reports. “The estimated depletion date for the [Hospital Insurance] trust fund is 2026, the same as in last year’s report,” they write. “As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years.”

According to the Medicare website, the HI (Hospital Insurance) trust fund is funded through payroll taxes, income taxes on Social Security benefits, interest on trust fund investments, and Medicare Part A premiums, among other sources. The HI trust fund pays for Part A benefits, which include inpatient hospital care, skilled nursing facility care, home health care, and hospice care.

The COVID-19 crisis and the ensuing layoffs had a drastic impact on the payroll taxes that bolster the HI trust fund, according to Axios, though the trustees say the pandemic “is not expected to have a large effect on the financial status of the trust funds after 2024.”

Nevertheless, Americans have become closer to Medicare trust fund insolvency since 1997, according to Jack A. Goldstone, Hazel Professor of Public Policy at George Mason University’s Schar School of Policy and Government. Even worse, it would take a 27-percent increase in Medicare payroll taxes to maintain the current benefits, writes Goldstone for The Hill.

But the professor has another idea to solve the shortfalls facing both Medicare and Social Security: “Both [programs] can be made whole for all Americans, both current and future retirees, without any cuts in benefits or increases in payroll taxes, if Congress simply adopts a modest wealth tax that would not affect 99.9 percent of Americans.”

Medicare’s Supplementary Medical Insurance (SMI) trust fund covers physician and outpatient services through Part B and prescription drugs through Part D. The SMI trust fund is funded by Congress and through premiums from people enrolled in Medicare Part B and Part D, as well as interest on trust fund investments and other income sources.

The AARP notes that the SMI trust fund is solvent indefinitely, but KFF specifies that projected spending totals for Part B and Part D coverage “will increase the amount of general revenue funding and beneficiary premiums required to cover costs for these parts of the program in the future.”

With these challenges, it’s time for legislators to act, according to the Medicare trustees. “Lawmakers should address these financial challenges as soon as possible,” they advise in the new report. “Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”