Medicare's Hospital Insurance (HI) Trust Fund will be depleted in 2026—three years earlier than the Medicare Board of Trustees had estimated last year, according to the trustees' annual report released Tuesday.
The trust fund covers the cost of Medicare's hospital insurance program, known as Medicare Part A. Other Medicare programs—such as those that cover outpatient care, known as Medicare Part B, and prescription drugs, known as Medicare Part D—are funded by premiums and federal budget allocations.
Reasons for the change
The trustees attributed the change in the HI trust fund's outlook "to adverse changes in both program income and costs," according to a fact sheet accompanying the report. In particular, the trustees projected that HI trust fund income will be lower than previously estimated because of:
- Lower gross domestic product (GDP) projections;
- Lower payroll tax revenue as a result of lower wages in 2017; and
- Lower revenue as a result of legislation that reduced taxes on Social Security.
At the same time, the trustees said they expect "HI expenditures" will "be higher than last year's estimates due to higher-than anticipated spending in 2017, legislation that increases hospital spending, and higher Medicare Advantage [MA] payments." Overall, the trustees projected that Medicare's total costs will increase from 3.7% of GDP in 2017 to 5.8% of GDP in 2038.
The trustees predicted a recently enacted tax reform law will have fairly modest effects on Medicare's finances. According to the report, a provision in the law that eliminates the Affordable Care Act's (ACA) individual mandate penalty beginning in 2019 is expected to increase Medicare payments to some hospitals for uncompensated care. Further, the trustees said they expect tax cuts implemented under the law to lead to a small reduction in revenue in the short term for the HI trust fund, but added that they expect HI revenue to grow in the long term.
The trustees also predicted that a spending package signed into law this year that eliminated the Independent Payment Advisory Board (IPAB) created under the ACA will increase Medicare costs. The trustees noted that IPAB's intention was "to develop and submit proposals aimed at extending the solvency of Medicare, slowing Medicare cost growth, and improving the quality of care delivered to Medicare beneficiaries." The trustees said, in previous years' estimates, "IPAB provisions reduced Medicare spending under current law, but they were assumed to not take effect under the illustrative alternative scenario." They added, "Therefore, the repeal of the IPAB increases current law spending in this year's report but does not affect the illustrative alternative scenario."
Trustees predict Medicare premium increases
The trustees in the report also estimated that Medicare Parts B and D will have "adequate financing … into the indefinite future" with funds generated from premiums and general revenues.
However, the trustees projected that the standard monthly premium for Part B will increase by $1.50 in 2019 to $135.50, while the monthly base beneficiary premium for Part D will increase by 50 cents to $35.52.The trustees said they "expect growth in … Part B and Part D premiums and general fund transfers to continue to outpace GDP growth and HI payroll tax growth in the future."
Trustees raise MACRA concerns
As in last year's report, the trustees raised concerns that, under MACRA, physician payment rate updates are not tied to economic changes or cost increases, and as such will increase by 0.5% annually through 2019 with no payment update from 2020 through 2025. The trustees wrote, "These amounts do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of physician cost increases." They added, "Absent a change in the delivery system or level of update by subsequent legislation, access to Medicare participating physicians may become a significant issue."
HHS Secretary Alex Azar, a Medicare trustee, said, "The current trajectories in health spending are both unsustainable and unmatched by increases in quality."
However, Department of Treasury Secretary Steven Mnuchin said the Trump administration's economic agenda—tax cuts, regulatory reform, and improved trade agreements—"will generate the long-term growth needed to help secure" Medicare.
CMS Administrator Seema Verma urged federal lawmakers to review Medicare proposals included in Trump's proposed budget for fiscal year 2019, saying such proposals would improve Medicare's integrity.
Max Richtman, CEO of the National Committee to Preserve Social Security and Medicare, called on the administration to allow Medicare to negotiate drug prices with pharmaceutical companies. Richtman said, "Trump's recently unveiled prescription drug pricing proposals were a missed opportunity to bring Big Pharma to the negotiating table with the Medicare program. Among all the steps we could take to maintain the program's financial health, this is one of the most crucial."
House Ways and Means Committee Chair Kevin Brady (R-Texas) said ensuring Medicare's solvency "is of the utmost importance." He added, "The time is now to come together in a bipartisan manner to address these real challenges."
The Center for Medicare Advocacy said, "This report should not be used as an excuse to cut Medicare by passing along more costs on to beneficiaries. Instead, it serves as evidence that sound policy solutions should be pursued, such as real efforts to rein in both prescription drug prices and [MA] overpayments" (Dickson, Modern Healthcare, 6/5; Galewitz, Kaiser Health News, 6/5; Williams, Roll Call, 6/5; Demko, Politico, 6/5; Goldstein, Washington Post, 6/5; Pear, New York Times, 6/5; Medicare trustees report, 6/5).
Medicare 101: Cheat sheets for Parts A through D
Through the years Medicare has grown more complicated, including private supplemental insurance and prescription drug coverage. Download our cheat sheets to learn how each of the four parts of Medicare works, and why they’re so important for provider organizations: