Today, the Medicare Board of Trustees released their annual
report (
fact sheet) for Medicare’s two separate trust funds: (1) the Hospital Insurance (HI) Trust Fund; and (2) the Supplementary Medical Insurance (SMI) Trust Fund. Overall, U.S. Treasury assets jumped from $83.4 billion to $409.1 billion in 2022 due to significantly lower expenditures than previously estimated. The report asserts
that the HI Trust Fund will be depleted by 2031 — three years later than projected in last year’s Report. After 2031, Medicare Part A is projected to only have the ability to pay 89 percent of estimated expenditures. Continuing its observation from the 2022 report, the Trustees report that the
SMI Trust Fund is “adequately financed into the indefinite future.” This extrapolation is due to current law that would provide a steady flow of general revenue to cover costs, as well as increases to beneficiary premiums to meet expected SMI program costs.
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What it means. The Trust Fund covers costs in Medicare Part A, which pays for inpatient, nursing care, and hospital costs, and is mainly subsidized through payroll taxes. Other portions of Medicare such as Part B, physician services, Medicare Advantage (MA) plans, and prescription drug plans have a separate source of funding collected through premiums and general taxpayer revenue. In 2022, income exceeded spending by $53.9 billion, compared to the Trust Fund’s spending exceeding income by $8.5 billion in 2020. The significant surplus has been due in part to repayments of the accelerated and advance payments that were made in 2020, and repayments to the Trust Fund were made in 2021 and 2022.
The Trustees note that their projects have been “significantly” altered by enactment of the Inflation Reduction Act (IRA). The report explains that yearly changes in Medicare projections will vary drastically as the law continues to be implemented, though overall, the IRA will: (1) reduce Part B expenditures; (2) increase Part D spending through 2030; and (3) reduce Part D spending starting in 2031. The change in Part D’s impact on the Trust Fund in 2031 will be due to the initial administrative costs of setting up the IRA’s Part D drug price negotiation. Additionally, the report follows up on the impact of COVID-19, finding that increased costs from testing, treatment, and other flexibilities — many of which are slated to be in effect until the end of 2024 — were more than offset by a substantial drop in non-COVID routine care.
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Context. The report is released as congressional committees continue to engage in budget talks for fiscal year (FY) 2024. However, these discussions may stall, as House Budget Committee Chair Jodey Arrington (R-TX) stated that addressing the debt ceiling must take precedence before any FY 2024 budget resolution. Amid negotiations between Republicans and Democrats regarding the debt limit, the Biden administration made it clear that it will not cut Medicare. However, the insurance industry and Republicans are expressing concern that Biden’s promise may not include Medicare Advantage (MA), which is funded through the SMI. In the past couple of months, the Centers for Medicare and Medicaid Services (CMS) released two rules that would reduce overpayments to MA plans and expand oversight of the program.
The report points toward lower projected health-related spending given the use of more recent data as the driver of improvements in the solvency projections. The Trustees project that expenditure rates will surpass either the rate of average workers’ earnings or the economy overall, and that the percentage of Medicare spending will rise from 3.7 percent of gross domestic product (GDP) in 2022 to 6.1 percent by 2097. Medicare Part B outlays were 1.8 percent of GDP in 2022, and the Trustees project that rate will grow to about 3.5 percent by 2097. Medicare Part D outlays are also anticipated to increase from 0.5 percent of GDP in 2022 to 0.7 percent in 2097. SMI revenues are expected to increase from 1.7 percent in 2022 to approximately 3.0 percent in 2097, which could place a larger strain on the workforce, economy, Medicare beneficiaries, and the Federal budget, the report notes.
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What’s Next? The Trustees reissued a determination of projected excess general revenue Medicare funding for the sixth year in a row, triggering a Medicare funding warning. This requires the President to submit proposed legislation in response to the warning within 15 days of the FY 2025 budget. It then requires that Congress consider the legislation on an expedited basis.
