News Feature | July 6, 2016

Medicare Trustees Say Program Will Be Insolvent By 2028

Christine Kern

By Christine Kern, contributing writer


New projection says money woes will hit two years earlier than previously estimated.

The Medicare trust fund will be insolvent by 2028, the newly released 2016 Medicare trustees’ report says, two years earlier than previously predicted. However, the new estimate is still later than that provided by the Congressional Budget office in January of this year, which said that insolvency would come in 2026, the Wall Street Journal reported.

In a press briefing, acting CMS administrator Andy Slavitt explained the updated estimate is the result of a projected decrease in payroll taxes and a slower-than-expected decrease in inpatient utilization. “Per-Medicare beneficiary cost growth continues to be exceptionally low,” Slavitt, said. Per-enrollee Medicare spending growth has been averaging 1.4 percent over the past five years, which is lower than GDP growth.

The Medicare trust fund only pays for hospital services, post-hospitalization home health services, skilled nursing facilities, and hospice care for the aged and disabled under Part A, while the rest of Medicare spending for outpatient care, medications, and physician services come from general fund revenue. Together, Medicare and Social Security account for approximately 40 percent of total federal spending.

According to the report, Medicare covered 66.4 million individuals in 2015, including 46.3 million aged 65 and over and nine million disabled, with total expenditures of $647.6 billion. Meanwhile, total income was only $644.4 billion. The report states, “As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI tax income and expenditures are projected to be lower than last year’s estimates, mostly due to lower CPI assumptions. The impact on expenditures is mitigated by lower productivity increases.”

Since expenditures are projected to increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall, while physician prices continue to push the limits of affordability, Medicare spending will outstrip funding.

Thus, “The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address the depletion of the HI trust fund and the projected growth in HI (Part A) and SMI (Parts B and D) expenditures.”

Ultimately, the report finds that, while there are substantial cost savings derived from provisions of the ACA and MACRA that lower increases in Medicare payment rates to most categories of healthcare providers, they remain uncertain. Therefore, the report authors recommend that “Policy makers should determine effective solutions to the long-rage HI financial imbalance. Policy makers should also consider the likelihood that the price adjustments in current law may prove difficult to adhere to fully and may require even more changes to address the financial imbalance.”