Medicare Trust Fund Is Running Out of Money

According to Medicare’s Board of Trustees, who oversee the fiscal health of the Federal Hospital Insurance (HI) program that provides health care benefits to elderly Americans, the trust fund that pays the cost of hospitalization and hospice care for covered patients through the Medicare Part A welfare program will run out of money in seven years. In their 2019 report, the Trustees project that by 2026, Medicare will only be able to cover 89 percent of the cost of hospitalization for these patients.

The Washington Post indicates that the event will only mark the beginning of Medicare’s fiscal problems:

Medicare’s Hospital Insurance Trust Fund is set to run out of money by 2026, as lower tax revenue and higher payments to medical providers have helped weaken the long-term fiscal outlook of the health care program for America’s senior citizens, the Trump administration said on Monday.

Medicare’s costs overall are expected to continue rising sharply over the next several decades, from about 3.7 percent of the total U.S. economy to 5.9 percent, putting a strain on the federal budget that lawmakers must act to avoid, according to a report produced by the Social Security and Medicare Board of Trustees.

The ongoing retirement of the very large Baby Boom generation is the primary driver of the program’s fiscal problems, which will deprive Medicare’s HI program’s trust fund of revenue as they stop paying Medicare’s payroll tax after they retire and instead start pulling money out of the trust fund as they become eligible for Medicare benefits.

Although an “Additional Medicare Tax” of 0.9 percent was implemented as part of the Affordable Care Act in 2013, none of that money has ever gone to support the solvency of Medicare’s Federal Hospital Insurance trust fund.

The challenge of dealing with the mass retirement of Baby Boomers has been a known quantity for some time, where the fiscal cliff being faced by Medicare’s HI trust fund is not new news, except in that as we get closer to the depletion of the trust fund, the projection of exactly when it will run out of money becomes more firm.

Budget analyst Howard Gleckman described what that would mean while writing at Forbes back in 2018, when the Trustees first identified 2026 as the year in which the HI trust fund would run dry:

It doesn’t mean Medicare will stop paying hospital insurance benefits in eight years. We don’t know what Congress will do—though the answer is probably nothing until the last minute. Lawmakers could raise the payroll tax. But my bet is they’ll use general revenue to support the HI program, which is another way to say they’ll borrow the money and further raise the national debt.

That’s a pretty reasonable assessment for what to expect based on how politicians in Washington, D.C., have traditionally dealt with their failures to match their spending to the amount of money they collect through taxes. Alternatively, the Trustees have indicated that either increasing the Medicare payroll tax by 0.91 percent or reducing planned spending by 19 percent could cover Medicare’s HI trust fund’s fiscal gap.

No matter what, you’re going to pay. The only questions to be answered are: How much? and When?

Craig Eyermann is a Research Fellow at the Independent Institute.
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