On Tuesday, CMS released the long-awaited Medicare Trustees' 2021 report, which did not change the projection that the Medicare Trust Fund will become insolvent in 2026.
Many analysts had expected the Covid-19 pandemic would accelerate the Trust Fund's insolvency, but the trustees said that the pandemic will not have long-term effects on Medicare spending—and the short-term effects will balance out.
For example, the trustees determined that declines in payroll taxes and increases in spending on Covid-19 testing, treatment, and care, were more than offset by deferrals for non-Covid care that occurred in 2020. Other services, "such as prescription drugs, durable medical equipment, physician-administered drugs, and hospice, were not materially affected by the pandemic," the trustees wrote.
The trustees project spending in 2022 will be higher than previously estimated as people who deferred care return to their providers' office—and in some instances, they'll be sicker than they would have been if they had sought care earlier. But the trustees did not factor in any longer-term morbidity impacts, projecting that any increased costs from care delays will be offset by a reduction in spending related to Covid-19 mortality rates.
Another factor influencing the report is that the trustees assume providers will fully repay Medicare accelerated and advance payments by September 2022—but provider groups are lobbying against this. While the trustees acknowledge there is a lot of uncertainty in their Covid-19 projections, they ultimately project that as utilization smooths out and provider payments are recouped, the Trust Fund's long-term finances will remain roughly unchanged.
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What the latest report means for Trust Fund solvency
The good news for the Biden administration and congressional Democrats is the Trust Fund's financial situation did not get worse, but it still isn't great—and we are now one year closer to 2026.
The trustees are pushing a sense of urgency, writing, "The sooner solutions are enacted, the more flexible and gradual they can be. The early introduction of reforms increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations and behavior."
But Congress typically does not approach these situations with a sense of urgency; they wait until the financial reality is so dire that they are forced to act. This is because many of the solutions to the Trust Fund problem would have a direct impact on voters, such as raising taxes or cutting benefits. That said, this is the closest we’ve been to insolvency since 1997, when Congress passed the Balanced Budget Act, which reduced provider payments and increased premiums.
So, the trustees' sense of urgency is certainly warranted, but it may not be enough to spur immediate congressional action. In fact, the 2026 insolvency date could give Democrats more breathing room to use savings from their upcoming reconciliation package to finance party priorities, such as Medicare benefit expansions, as opposed to bolstering the Trust Fund. The 2022 midterm elections are also on the horizon, and Democrats may be unlikely to pass unpopular reforms before then—or perhaps even before the next presidential election in 2024.
This of course means hospitals and payers, particularly Medicare Advantage plans, could be the target when Congress ultimately comes looking to extend the Trust Fund's solvency. Exactly what the makeup of Congress will be at that point is unknown, but it will be critical in negotiations to determine exactly what reforms are made to extend the Trust Fund's lifespan.