Medicare Hospital Fund Runs Out in 2026

 In CHR Blog

The future of Medicare is still in jeopardy. The hospital fund, known as Part A Medicare, will be depleted in just seven years according to a new report. The annual Medicare Board of Trustees sent its 2019 report to Congress a few days ago. The picture was about the same as last year. Overall, the Medicare program spent $741 billion last year, up about $31 billion from 2017.

The hospital fund within Medicare took in $306.6 Billion, but spent $308.2B. Anyone who has a checking account knows that plan doesn’t work very well.  Even though the hospital cost per beneficiary went up just 1.4%, the number of people covered by Medicare also increased. Furthermore, revenues (especially payroll taxes) didn’t keep pace with the cost increases.

Medicare data were shown for two separate trust funds:  Hospital Insurance (Part A), and the Supplementary Medical Insurance Trust Fund which covers Part B (physicians, Emergency Room and other hospital outpatient services) and Part D (prescription drugs). Both the Hospital Trust Fund and the Supplemental fund share the costs of Part C (private Medicare Advantage health plans).  Nearly 60 million people participated in the Medicare program last year. Over 51 million were age 65 or older; the rest were disabled.

Medicare is near and dear to most people. A survey by AARP found that nearly every adult (regardless of party affiliation) believes Medicare is important to people’s health in retirement. But not everyone is confident that Medicare will be there for them throughout retirement. Just over half (54%) were somewhat or very confident Medicare will be around in the very long term.  And no wonder, for the past decade, Medicare has issued annual warnings that the Hospital fund was in immediate danger of being depleted. Medicare’s 2007 report estimated the Hospital fund would be exhausted by 2019.  Luckily, financial patches were made, and quality of hospital care was improved, but the fund is still not stable long-term.

 

Warning on Medicare’s Hospital Fund

The 2019 Medicare Trustees report projects the Part A Hospital fund will run out of funds by 2026. This is the same prediction as last year’s estimates.  Part A is important because it covers inpatient hospitalizations, skilled nursing care for rehabilitation, hospice and some home health care. It also provided about $102 billion in funds for the Medicare Advantage health plans (Part C) last year.

What happens next?

 

What Happens Next, After a Medicare Warning?

When Medicare issues the kind of warning it did, there is a defined process to follow. First, the President is required to submit to Congress proposed legislation that responds to the Medicare warning. Such proposed legislation needs to be made within 15 days of his Budget submission for the upcoming year, typically in February. Congress is then required to consider the legislation (though not necessarily enact it) on an expedited basis.

The report specifies: “Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.”

 

What Does the Medicare Warning Mean for Consumers and Hospitals?

Required changes are significant.  The report notes that for the Hospital trust fund to remain solvent throughout the 75-year projection period, the standard 2.90 percent payroll tax could be immediately increased to 3.81%. A second option is to reduce expenditures to hospitals and nursing homes by 19 percent. Neither sounds very attractive. And both options are more drastic than what was calculated last year. The government’s “alternative scenario” which projects higher costs for Medicare beneficiaries, is even more bleak. To fix the hospital fund in the alternative scenario, the payroll tax would need an immediate hike to 4.64% or cut expenditures and payments for health care by 30 percent.

When last year’s report declared the hospital fund’s demise in 2026, US Treasury Secretary Steven Mnuchin tried to calm fears and reassure the public that Medicare is secure. Given the pervasive and passionate public support for Medicare, such reassurance is reasonable. However, Mnuchin went on to say, “The Medicare Hospital Insurance program is on track to meet its obligations to beneficiaries well into the next decade.”  That was a bit of a stretch given Medicare’s hospital program is completely bankrupt in less than 10 years. The 2019 report explains that the hospital fund is already losing money (estimated at $1.6 billion loss for 2018). By 2022, losses mount to $25B and skyrocket until the fund’s demise in 2026. True, the government can meet its obligations to about 2025, but after that, it reneges on its promises.

 

Two Things Consumers Can Do to Help Fix Medicare

What can consumers do to help ensure Medicare is around for the long haul?  Here are two actions you can take:

  1. Be as healthy as you can be, regardless of age. The biggest drivers of healthcare costs are illness and injury. It is well-known that poor diet and lack of physical activity contribute to many chronic illnesses, disability and early death. Consumers can apply self-discipline to better eating and greater exercise, consistent with their income and neighborhood. Eat your fruits and vegetables. Exercise five times a week for a half-hour each. Plus, do muscle-strengthening exercises at least twice a week. CDC published a report last summer, that found less than ¼ of adults ages 18 to 64 met the leisure time physical activity guidelines. We know we can do better. Help save Medicare by your personal actions and choices.
  2. Stay on top of health care issues. According to the Kaiser Health Tracking Poll published after the November mid-term elections, healthcare was one of the top two issues that people want Congress to act on in 2019. Immigration/border security was the top priority, cited by 21%.  Health care came in a close second, mentioned by 20% of people. The next three concerns – Gun control, tax reform and education – ranked much lower. With the Medicare fund warning, it’s important to ask people in Congress to use their knowledge, compassion and courage to fix the problem. One of the challenges in the past, is that any funds taken out of Medicare, often are tacked on to the prices that private health insurance plans must pay. And that can drive hikes in what you pay for in monthly premiums, even though you are too young to be on Medicare. Everyone has a stake in this fight.

We welcome your comments about healthcare costs and the value of Medicare. (We ask for your email, but do not show it to the public. It will be kept private.)

  • To compare costs and prices among hospitals and other healthcare providers, see Healthcare Costs  at ConsumerHealthRatings.com
  • To learn more about what Medicare pays for care, see Medicare at ConsumerHealthRatings.com
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