Medicare is a one trillion-dollar federal program that more than 65 million seniors and people with disabilities rely on for their healthcare. And at a time when per-capita healthcare costs are rising and enrollment in the program is expected to increase, strengthening Medicare’s fiscal sustainability has never been more critical.
This week the 2024 Medicare Trustees Report was released, and while there was some favorable news with the date of insolvency for the Hospital Insurance (HI) Trust Fund extending to 2036, five years past last year’s projections, there is still cause for concern. This later date is mostly due to projected increases in the number of workers and average wages – not because of any structural changes to strengthen solvency. Without action, spending for services paid out of the HI trust fund will start exceeding revenues after 2029, and in 2036, the year of exhaustion, hospitals will be paid just 89 cents on the dollar.
A bigger and more worrisome issue facing Medicare is the program’s overall fiscal health. Spending across all parts of the Medicare program is expected to grow faster than our ability to pay for it – largely driven by rising per-capita spending – rather than enrollment growth.
Spending Is Expected to Increase Rapidly
Over the next 10 years, spending will grow annually by 6.7% in Part A, 8.2% in Part B, and 6.4% in Part D, far outpacing GDP growth of 4.2% over the same period. Because Parts B and D are funded through a combination of general revenue and premium contributions, this growth places an increasingly large burden on enrollees — who will have to pay higher premiums — and taxpayers — who subsidize those premiums. The Medicare program is becoming excessively dependent on general revenues, which are deficit-financed. Because of this, the Trustees issued a formal Medicare funding warning for the seventh consecutive year.
Medicare Advantage Is Driving Costs Up
The Trustees are also projecting an increase in enrollment into Medicare Advantage. Currently, more than half of all Medicare-eligible Americans are enrolled in Medicare Advantage (MA) plans, and that number is projected to increase to 57% by 2033. MA plans are paid more than it costs to cover similar populations in traditional Medicare, resulting in ongoing and excessive overpayments to plans. About 40% of MA funding comes from the HI trust fund. Growing MA enrollment, coupled with overpayment to plans has made MA a major driver of Medicare spending with negative implications for its solvency. MA is thus an important target for reforms to strengthen Medicare’s sustainability.
Solutions Will Take Time
As things stand today, it would take an approximate increase in revenue of 3% or an 8% decrease in spending to avoid a shortfall in Medicare’s HI Trust Fund. This means that swift action on the part of Congress and the administration is critical to ensuring Medicare solvency and addressing the substantial fiscal challenges facing the program. Meaningful reforms cannot occur overnight, and the release of the 2024 report is a clear reminder we cannot take our foot off the gas in pressing for reforms. Americans depend on the care they receive through Medicare, and improving the program’s fiscal outlook will require a comprehensive and balanced approach that reduces wasteful spending, including overpayments to Medicare Advantage plans, and strengthens the program’s financing. Such reforms are crucial for preserving Medicare’s fiscal sustainability for future generations.
Read our statement from Mark E. Miller on the release of the Medicare Trustees Report here.
