Medicare’s Hospital Insurance Trust Fund Could Be Exhausted In 12 Years
Last Updated May 28, 2024
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 12 years. 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 2036, at which point payments to hospitals would be reduced by 11 percent. The trust fund had a balance of $209 billion at the end of 2023 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 HI spending, which is projected to climb from 1.5 percent of GDP in 2024 to 1.9 percent in 2036.
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 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 Does the Federal Government Subsidize Healthcare Under the ACA — and What Does It Cost?
In 2025, the expansions of the premium tax credit under the Affordable Care Act will expire, and lawmakers will have to decide whether to extend them.
Infographic: U.S. Healthcare Spending
Improving our healthcare system to deliver better quality care at lower cost is critically important to our nation’s long-term economic and fiscal well-being.
Budget Basics: Medicaid
This budget explainer describes what Medicaid is, how it is financed, and who benefits from it.