Tax Changes, Demographics, and Costs Trigger Changes in Medicare’s Financial Future

In its annual report to Congress, the Board of Trustees for Medicare said the program’s Hospital Insurance Trust Fund (Part A) could lack funds to pay full benefits by 2026—three years earlier than projected in last year’s report. Despite this finding, the Medicare program itself remains strong and sustainable. The trustees report identifies several factors that impact the balance of program funds:

• projected lower payroll taxes because of lower wages for several years;
• December’s Tax Cuts and Jobs Act, which lowers tax rates and therefore reduces the flow of revenue to the hospital trust fund; and
• an aging population and general increases in healthcare costs, which put pressure on the program’s finances.

The trustees also identify the elimination of two provisions of the Affordable Care Act as harmful to Medicare’s financial future: the rollback of the individual mandate—which requires all Americans to purchase health coverage or pay a tax penalty—and the repeal of an independent board charged with reining in Medicare spending if certain financial targets were reached.

In particular, the change to the ACA’s individual mandate, which takes effect next year, is expected to lead to millions more people going without health insurance. That in turn will leave hospitals with higher rates of uncompensated care; some of those expenses are covered by a special Medicare fund paid to hospitals with larger numbers of uninsured patients. It will also lead to higher costs for the Medicare program as newly eligible people seek care for untreated conditions.

Notably, MedicarePart B and Part D remain on firm financial footing, as they draw from general revenues and premiums paid by enrollees, rather than a separate trust fund. Furthermore, spending growth in the Medicare program has been slower than for the rest of the health care sector.

It is essential that these policy-driven changes not provide cover for drastic changes to Medicare benefits or cost shifting to beneficiaries. Instead, adequate funding for the program and the promises we have made as a society to our older adults and people with disabilities must be maintained.

Read the Medicare Trustees report.