Medicare’s Hospital Insurance Trust Fund Could Be Exhausted In 8 Years
Last Updated June 24, 2025
Due to rising healthcare costs and the aging of the population, spending under the Medicare program will soon outpace its revenues, resulting in substantial cash deficits, according to the June 2025 Trustees report. As a result, the Hospital Insurance (HI) Trust Fund, which finances Medicare Part A, will be depleted in eight years — three years earlier compared to last year’s report. At that point, payments to participating hospitals and other providers would be reduced.
Below are the key takeaways from the report:
1. The Hospital Insurance Trust Fund will be depleted by 2033, at which point payments to hospitals would be reduced by 11 percent. The projected depletion date draws three years closer than last year’s projections, primarily due to higher projected expenditures for hospital services, hospice services, and physician-administered drugs. The trust fund had a balance of $238 billion at the beginning of 2025 and will run surpluses for the next few years. Soon after, costs will outpace revenues and the trust fund will incur deficits until it is exhausted.
2. Rising healthcare costs and an aging population are driving Medicare costs. As the nation’s population ages, enrollment in Medicare will continue to climb and add to program costs. Older Americans spend more on healthcare, on average, than younger Americans and are not subject to payroll taxes once they stop working. The combination of the long-term trend of rapid healthcare cost growth and population aging accelerates the gap between Medicare’s spending and dedicated revenues. As a result, HI spending will climb from 1.5 percent of GDP in 2024 to 1.9 percent in 2034; payroll tax revenues, meanwhile, will hold steady at around 1.4 percent of GDP over that same period.
3. The largest source of Medicare’s financing comes from the federal government’s general fund. When looking at Medicare as a whole (including the Supplementary Medical Insurance program and provision of prescription drugs), nearly half of the program’s receipts come from the general fund rather than dedicated payroll taxes. Furthermore, Medicare’s general fund financing is projected to continue to grow and put increasing pressure on the rest of the federal budget.
Without reform, Medicare spending will continue to rise over the coming years — threatening the HI Trust Fund and placing immense pressure on the overall federal budget. Fortunately, there are many solutions available to put the program on sound financial footing. Policymakers could increase revenues dedicated to the program, reduce program expenditures, or some combination of both. Securing that trust fund would not only prevent payment cuts to beneficiaries but also help relieve pressure on the nation’s unsustainable fiscal outlook.
Image credit: Photo by Getty Images
Further Reading
How Do States Pay for Medicaid?
Medicaid’s role in state budgets is unique, since the program acts as both an expenditure and the largest source of federal support in state budgets.
How Does Government Healthcare Spending Differ From Private Insurance?
Government insurance programs, such as Medicare and Medicaid, made up 45 percent, or $1.9 trillion, of national healthcare spending.
7 Key Facts About Rising Healthcare Spending in the U.S.
Healthcare spending in the United States is a key driver of the nation’s fiscal imbalance and has risen notably over the past few decades.