The little-noticed 2016 actuarial report for Medicare states that the Hospital Insurance Fund (Part A) will go broke in only twelve years. The other Medicare programs are solvent and face no similar doomsday scenarios on the horizon. However, The HI Fund has seen its funding level drop more than half since 2007 as its reserves are used to pay more and more health care costs.
Navigating the Medicare Maze can be a little tedious but the Social Security Administration website provides a succinct explanation for the uninitiated:
The Medicare program has two separate trust funds, the Hospital Insurance Trust Fund (HI) and the Supplementary Medical Insurance Trust Fund (SMI). HI, otherwise known as Medicare Part A, helps pay for hospital, home health services following hospital stays, skilled nursing facility, and hospice care for the aged and disabled. SMI consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees
The report states (p. 7) :
The estimated depletion date for the HI trust fund is 2028, 2 years earlier than in last year’s report. As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI tax income and expenditures are projected to be lower than last year’s estimates, mostly due to lower CPI assumptions. The impact on expenditures is mitigated by lower productivity increases.
HI expenditures have exceeded income annually since 2008. However, the Trustees project slight surpluses in 2016 through 2020, with a return to deficits thereafter until the trust fund becomes depleted in 2028. In 2015, HI expenditures were financed with $267.1 billion in non-interest income, $8.2 billion in interest paid to the HI trust fund by the Treasury, and a $3.5-billion net redemption of trust fund assets by the Treasury. The assets were $197.3 billion at the beginning of 2015, representing about 71 percent of expenditures during the year, which is below the Trustees’ minimum recommended level of 100 percent. The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003 (as discussed in section III.B). Growth in HI expenditures has averaged 2.4 percent annually over the last 5 years, compared with non-interest income growth of 5.8 percent. Over the next 5 years, projected annual growth rates for expenditures and non-interest income are 5.4 percent and 6.0 percent, respectively.....
Total Medicare expenditures were $648 billion in 2015.....
The Trustees project that HI tax income and other dedicated revenues will fall short of HI expenditures in most future years. The HI trust fund does not meet either the Trustees’ test of short-range financial adequacy or their test of long-range close actuarial balance.
The Part B and Part D accounts in the SMI trust fund are adequately financed because premium income and general revenue income are reset each year to cover expected costs. Such financing, however, would have to increase faster than the economy to cover expected expenditure growth.
The financial projections in this report indicate a need for substantial steps to address Medicare’s remaining financial challenges. Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be. Moreover, 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.... (KF: Not happening. Much easier to demagogue and smear anyone who dares to discuss this problem.).
The report spells it out in even more detail on page 31:
At the beginning of 2016, HI assets represented 67 percent of annual expenditures. This ratio has declined from 150 percent since 2007. The Board has recommended an asset level at least equal to annual expenditures, to serve as an adequate contingency reserve in the event of adverse economic or other conditions....
However, the remainder of Medicare seems to be in much better shape since premiums can be adjusted. The report states (p.48):
The financial outlook for SMI is fundamentally different than for HI due to the statutory differences in the methods of financing for these two components of Medicare. The Trustees project that both the Part B and Part D accounts of the SMI trust fund will remain in financial balance for all future years because beneficiary premiums and general revenue transfers will be set at a level to meet expected costs each year. However, SMI costs are projected to increase significantly as a share of GDP over the next 75 years, from 2.1 percent to 3.8 percent under current law. The projected Part B costs in this report are lower over the short-range period than the comparable projections in the previous report due to lower-than-expected costs in 2015 and lower projections for general price inflation. The Part D short-range projections are higher than in past years’ reports, largely due to a higher projected drug cost trend, particularly for high-cost specialty drugs. Both Part B and Part D long-range projections are lower relative to those in last year’s report due to lower CPI assumptions.
The financial projections shown for the Medicare program in this report reflect substantial, but very uncertain, cost savings deriving from provisions of the ACA and MACRA that lower increases in Medicare payment rates to most categories of health care providers. Without fundamental change in the current delivery system, these adjustments would probably not be viable indefinitely...
In 2016 the monthly Part B premium rate is $121.80, which is $16.90 higher than the 2015 monthly premium of $104.90...
As a result, Part B premiums for other beneficiaries need to be raised substantially, and the estimated monthly premium for 2017 is therefore $149... (Relax, Brookings says this will only affect 30% of insured)
Total Medicare expenditures were $648 billion in 2015, and the Board projects that they will increase in most future years at a somewhat faster pace than either aggregate workers’ earnings or the economy overall. The faster increase is primarily due to the number of beneficiaries increasing more rapidly than the number of workers, coupled with a continued increase in the volume and intensity of services delivered. Based on the intermediate set of assumptions under current law, expenditures as a percentage of GDP would increase from the current 3.6 percent to a projected 6.0 percent by 2090....
There you have it. The possibility of the Medicare Hospital Insurance Trust Fund going broke in twelve years is not something to be ignored. The decline in the funding level from 150% to 67% is very troublesome. However, the media and Presidential candidates all chose to ignore this issue. The Brookings Institute posted these pie charts that show the growth in Medicare online:
These problems are real and not going away. However, it's much easier to say someone wants to kill Grandma or whine about the latest insult at a production of Hamilton than it is to deal with a real problem.