The team in charge of monitoring Medicare's solvency kept its projection that the Part A trust fund's reserves will run out in 2026, although the COVID-19 pandemic could speed that up.
That prediction is unchanged from the trustees' past two annual reports to Congress. Medicare covered about 62 million Americans last year. The 2020 assessment has an elephant in the room: It doesn't factor in the effects of COVID-19 on Medicare spending. Senior administration officials acknowledged the global pandemic will "no question" have a negative effect on the reserve funds of both Medicare and Social Security.
The 2026 projection for the Medicare Hospital Insurance Trust Fund, which pays for Part A inpatient hospital expenses, assumes intermediate spending. In a high-cost environment, that reserve would run out by 2023, a senior official said on a background call with reporters Wednesday.
"It is also possible that experience could be even worse than that," the official said. "So it truly is too early to say exactly what the impacts are. But … they are generally going to be worse than presented under the intermediate assumptions in this report."
Reserves in the Hospital Insurance Trust Fund declined by $6 billion to $195 billion at the end of 2019, the report found. Even when the fund's reserves become depleted, the program's income—mostly taxes—still covers 90% of scheduled benefits. The same is true for Social Security's trust funds. If those reserves run out in 2035 as projected, taxes will still fund 79% of scheduled benefits.
People covered under Medicare—those over age 65 and people with disabilities—run a higher risk of requiring hospitalization from COVID-19, which could drive up the program's expenses, said Dan Adcock, government relations and policy director for the National Committee to Preserve Social Security and Medicare.
On the other hand, fewer Medicare beneficiaries are going in for regular doctor visits or getting expensive hip or knee replacements, he said.
"I guess it's possible that all this could be a wash," Adcock said.
In Wednesday's call with reporters, administration officials said the report's findings triggered a Medicare funding warning, which requires the president to submit to Congress proposed legislation to respond to the funding situation within 15 days of submitting next year's budget.
Once the trustees incorporate the effects of COVID-19 on payroll tax revenue and other factors in next year's report, "the situation will go from bad to worse," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement. Medicare's Hospital Insurance and Social Security's Disability Insurance funds may run out in just a few years, with Social Security's old age trust not far behind, she said.
"It's time for policymakers to stop kicking the can and start taking the finances of these programs seriously," MacGuineas said. "Tens of millions of seniors and disabled workers are counting on them to come together on a bipartisan basis to save Social Security and Medicare."
Medicare's Hospital Insurance Trust Fund has had a projected shortfall since the program was created in 1966. Congress has made a number of changes over the years to rein in spending to delay the fund's insolvency date, including revisions to Medicare's inpatient prospective payment system and Medicare Advantage payments.
In recent decades, slow wage growth made it harder to fund Medicare because of lower than expected revenue from the payroll taxes used to finance the program.
The Medicare program spent $796 billion in 2019, an increase of 7.5% over the prior year and comprising 3.7% of the U.S. Gross Domestic Product. Over the next decade, Medicare spending is expected to grow at 7.2% annually, compared with annual GDP growth of 4.2%.
Healthcare spending growing faster than GDP is not specific to Medicare, it is the entire system, according to Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy and vice chair of the Medicare Payment Advisory Commission.
"We just pay more attention to it in Medicare because of the presence of the HI trust fund and the fact that Medicare in its entirety is almost all funded by taxes," he said.
Of total Medicare spending, 47% was on Part B, which covers doctor visits and other outpatient care. Part B spending came in $2.4 billion higher than projected in last year's report, and is expected to grow 8.1% annually over the next decade.
"Much of this increased spending will not be associated with improved health for Medicare beneficiaries," said MedPAC Commissioner David Grabowski, a professor at Harvard Medical School. "This is why it so important that the Medicare program transition away from paying on a fee-for-service basis and towards a system based on paying for value. Without this transition, it will be challenging to bend the cost curve."
This year's Medicare Part B premium rate is $144.60, the report said. The projected 2021 Part B premium is $153.30, although a final rate won't be issued until fall.
A bright spot in the report was the fact that Medicare's prescription drug spending, Part D, came in $800 million lower than projected in last year's report. Part D spending comprised 12.3% of total Medicare spending last year. Medicare's drug spending is expected to increase 6.9% annually over the next decade.
"Given that drugs are one of the biggest drivers in the growth in healthcare costs, anything we can do to contain the rise of prescription drugs is a great thing," Adcock said, "especially given the unfortunate price gouging the pharmaceutical industry has been engaging in."
