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Medicare’s Hospital Insurance Trust Fund Could Be Exhausted in Just Eight Years
Due to rising healthcare costs and the aging of the population, spending under the Medicare program will outpace its revenues, resulting in substantial cash deficits, according to the latest Trustees report. As a result, the Hospital Insurance (HI) Trust Fund, which finances Medicare Part A, will be depleted in 8 years, at which point payments to participating hospitals and other providers would be reduced.
Below are the key takeaways from today’s report:
- The Hospital Insurance Trust Fund will be depleted by 2031, at which point payments to hospitals would be reduced by 11 percent. Though the trust fund had a balance of $197 billion at the end of 2022, it is projected to run cash deficits over the next several years until it is exhausted.
- 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 gross domestic product (GDP) in 2023 to 2.0 percent in 2033; revenues, meanwhile, will hold steady at around 1.4 percent of GDP over that same period.
- 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. For example, policymakers could increase revenues dedicated to the program, reduce program expenditures, or some combination of both. Securing this trust fund would not only prevent payment cuts to beneficiaries, but also help relieve pressure on the nation’s unsustainable fiscal outlook.
Related: Social Security Faces Serious Financial Shortfalls, And Other Takeaways From The Trustees Report
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