Medicare Trustees: Hospital insurance fund will run out in 2031

Medicare's hospital insurance trust fund is projected to run out in 2031, three years later than forecasted in last year's report.

"Medicare is a key pillar of our healthcare system and a sacred promise that we’ll support the generations who came before us and those who come after,” CMS Administrator Chiquita Brooks-LaSure said. "Everyone in the Biden-Harris Administration is committed to protecting Medicare, and we look forward to working with Congress to strengthen this vital program serving over 65 million Americans."

According to the Trustees of the Social Security and Medicare trust funds' new report published March 31, the hospital insurance fund is not adequately financed over the next 10 years, with income anticipated to be higher than last year's estimates as the number of covered workers and average wages are both expected to be higher. 

Once the fund is depleted in 2031, the program's income will only be able to provide 89 percent of scheduled benefits to Medicare enrollees. 

Because of updated healthcare spending expectations following the pandemic, expenditures are expected to be lower than last year's estimates through the 10-year period. In 2022, the fund's income surpassed expenditures by $53.9 million. Trustees project deficits beginning in 2025 and continuing until the fund becomes depleted in 2031.

At the start of 2023, the fund's assets were $196.6 billion, representing about 49 percent of expenditures projected for the year — below the trustees' minimum recommended level of 100 percent. The fund has not met the trustees' formal test of short-range financial adequacy since 2003.

For its 75-year projection, the hospital insurance fund has increased to 0.62 percent of taxable payroll from -0.7 percent in last year's report. Key factors contributing to this change include:

  • Lower-than-estimated 2022 expenditures (+0.19 percent)
  • Changes to private health plan assumptions (+0.05 percent)
  • Changes in growth assumptions for skilled nursing, home health and hospice care (+0.03 percent)
  • Changes to economic demographic assumptions (−0.08 percent)
  • Lower-than-estimated 2022 incurred payroll tax income and income from the taxation of Social Security benefits (−0.03 percent)

The change also stems from the Inflation Reduction Act, which provides Medicare with drug negotiation powers, institutes inflation caps in Medicare Part D, and limits out-of-pocket spending on insulin products in Part D to $35 per month. 

"The total effect of the IRA is to reduce government expenditures for Part B, to increase expenditures for Part D through 2030 and to decrease Part D expenditures beginning in 2031," the report said. 

Additionally, the Supplementary Medical Insurance Trust Fund is stable and will be "adequately financed into the indefinite future." 

For the Medicare hospital fund to remain solvent over the next 75 years, the standard 2.9 percent payroll tax could be immediately increased to 3.52 percent or expenditures could be reduced immediately by 13 percent, according to the trustees. 

"We urge Congress to consider such options for both Medicare and Social Security, like the proposal for Medicare in the President's FY24 Budget," they wrote. "With each year that lawmakers do not act, the public has less time to prepare for the changes."

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