Medicare’s insurance trust fund that pays hospitals is expected to run out of money in 2026, the same projection as last year, according to a new report from Medicare’s board of trustees.
The report, released Tuesday, found Medicare spent $925.8 billion in 2020 and served 62.6 million people. It found that the COVID-19 pandemic had a major impact on the short-term financing for the program, but the financial status overall of the fund hasn’t significantly changed.,
“The amount of payroll taxes expected to be collected by the [hospital insurance] trust fund was greatly reduced due to the economic effects of the pandemic on labor markets,” the report said. “Spending was directly affected by the coverage of testing and treatment of the disease.”
Several regulatory and legislative policies also impacted spending, including payments for inpatient admissions related to COVID-19, which increased by 20%.
But major declines in spending for non-COVID-19 care declined dramatically due in part to a postponement of elective procedures, helping offset some of the increases in spending.
“Because of the large wave of COVID-19 cases in early 2021, non-COVID-related spending is estimated to be lower than previously expected for the beginning of the year,” the report added. “As care that was reduced or deferred returns, the trend in the latter part of 2021 is slightly higher than anticipated previously.”
Hospital insurance trust fund expenditures exceed income by $60.4 billion due to a massive amount of accelerated and advance payments. The Centers for Medicare & Medicaid Services sent out $100 billion in advance and accelerated payments to providers at the onset of the pandemic to plug financial shortfalls.
However, this money is expected to be repaid by providers this year and in 2022, “resulting in a small deficit in 2021 and a surplus in 2022.”
“After that, the trustees project deficits in all future years until the trust fund becomes depleted in 2026,” the report added.
It found that tax income for the hospital insurance trust fund and other dedicated revenue will “fall short” of expenditures in future years.
In light of this continued shortfall, Congress needs to quickly move to address the disparities.
“The sooner solutions are enacted, the more flexible and gradual they can be,” the report said. “The early introduction of reforms increases the time available for affected individuals and organizations—including healthcare providers, beneficiaries and taxpayers—to adjust their expectations and behavior.”
It remains unclear how Congress would curb Medicare spending. Democrats are seeking to expand Medicare by adding dental, vision and hearing benefits as part of a $3.5 trillion infrastructure package. Democrats also aim to give Medicare negotiation authority to lower drug prices to help pay for the expansion.
The Medicare Payment Advisory Commission, which advises Congress on Medicare policy, has recommended that lawmakers change how Medicare Advantage payments are calculated and result in a 2% cut to the payments. The cuts would result in $82 billion in savings from 2021 through 2029 and could go toward the fund, according to a MedPAC report.