Is the Sky Falling on Medicare Funding?

You may have heard about the recent report from Medicare’s trustees, projecting Medicare funding to run out three years earlier than they previously thought. The trust fund for Medicare Part A will run out by 2026, the report says, putting millions of seniors and disabled people at risk. If you or your loved ones are Park Crescent residents or Medicare beneficiaries, you might be wondering what this means. In this article, we’ll explore the details of Medicare funding.

Medicare: How is it Funded?

Medicare is a federal insurance program for seniors aged 65 and up, and certain disabled people. Part A pays for hospital stays and short-term skilled nursing care, and Part B pays for outpatient services and medical equipment. Part D is an optional program that covers prescription drugs. There are two trust funds that pay for Medicare; the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund.

The HI fund pays for Part A benefits and administration costs. Payroll taxes are its main source of income. The SMI fund receives Medicare Part B and Part D premiums, as well as cash when Congress authorizes it. In return, it pays your Part B and D expenses and contributes to administration costs.

Medicare: On the Path to Insolvency

Last year the hospital trust fund’s total income was $705.1 billion, while it spent $710.2 billion. The trustees warn that if this pattern continues, Part A funding will run completely dry in seven years. There are a few factors that have caused this funding deficit:

  • An aging, shrinking tax base, reducing payroll tax revenue
  • Lower Gross Domestic Product (GDP)
  • Lower taxes on Social Security income under the 2017 tax reform legislation
  • Higher-than-expected spending, including increased hospital spending

It’s important to keep in mind that Medicare is NOT bankrupt right now. There will be no change to your benefits or the amount Medicare will pay for your qualifying inpatient stay. The program trustees release this report every year, based on the previous year’s performance and projections of the future. The big news here is that the date of insolvency is three years earlier than past projections.

The good news is that the SMI fund, which funds Parts B and D,  is stable and should stay that way. The revenue for this fund comes from annual premiums that are reset every year. Should Medicare Part A eventually reduce their coverage, it will not affect your Part B coverage.

Medicare: Congress Needs to Act Now

The main point of the Medicare report is that our government needs to act now to resolve this looming crisis. Seven years is not a lot of time to implement reform that actually works—and not reforming Medicare will leave our most vulnerable population at risk of losing vital health coverage.

In fact, the trustee’s report is a mandated funding warning. This obligates President Trump to submit proposed legislation to Congress within 15 days after submitting the 2020 fiscal budget. We hope this administration will take the warning to heart, and enact effective reform to protect our seniors.


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