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Medicare Trust Fund Extends Solvency Another 5 Years

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The Medicare trust fund is now expected to deplete in 2036, with the Inflation Reduction Act being credited for at least some of the extension.

Stethoscope on money | Image credit: utah51 - stock.adobe.com

The latest report extended the solvency of the Medicare trust fund by 5 years.

Image credit: utah51 - stock.adobe.com

While the Medicare program continues to face financing issues, the latest projection shows the life of the program’s trust fund has extended another 5 years. The Medicare Hospital Insurance (HI) trust fund is now expected to be depleted in 2036, which is 5 years later than expected in last year’s report, according to the latest report from the US Department of Treasury.1

Until 2036, the HI fund will be able to pay 100% of the total scheduled benefits; however, the fund will be depleted at that time and the income of the program will only be sufficient to pay 89% of total scheduled benefits. As for the Supplementary Medical Insurance (SMI) trust fund, it is adequately financed into the indefinite future because its main financing source is beneficiary premiums and federal contributions from the Treasury.

The HI trust fund covers Medicare Part A, which pays for inpatient hospital services, hospice care, and skilled nursing facility and home health services after a hospital stay. The SMI trust fund covers Medicare parts B and D. Part B pays for physician, outpatient hospital, home health, and other services for enrolled individuals. Part D provides access to drug insurance coverage, as well as premium and cost-sharing subsidies for low-income enrollees.

The projections have been significantly impacted by the Inflation Reduction Act, which includes provisions to restrain drug price growth and negotiate drug prices for certain drugs.2,3

“Medicare provides a crucial lifeline for over 65 million Americans who depend on this vital program for their health care needs,” CMS Administrator Chiquita Brooks-LaSure, said in a statement.4 “The Biden-Harris administration has taken action to reinforce the program and propose enhancements that would extend its solvency while strengthening benefits. We are committed to protecting Medicare now and for future generations.”

In 2023, the Biden administration released proposals to extend the Medicare HI trust fund by at least 25 years through modestly increasing the Medicare tax rate on income above $400,000, closing loopholes in existing Medicare taxes, and crediting savings from prescription drug reforms to the trust fund.5

Similarly, the Social Security program is facing financing issues.6 The Old-Age and Survivors Insurance trust fund will be depleted as of 2033, which is unchanged from last year’s report. However, the Disability Insurance trust fund is projected to be able to pay 100% of scheduled benefits through at least 2098, an improvement from last year’s report, which projected 2097. Of note, 2098 is also the last year of that report’s projection period.

References

1. The Board of Trustees, Federal Hospital Insurance and Federal Medical Insurance Trust Funds. 2024 Annual report of the boards of trustees of the federal Hospital Insurance and federal Supplementary Medical Insurance trust funds. May 6, 2024. Accessed May 6, 2024. https://www.cms.gov/oact/tr/2024

2. Kaltwasser J. Inflation Reduction Act could cut Medicare drug spending by 5%, study suggests. The American Journal of Managed Care®. February 3, 2023. Accessed May 6, 2024. https://www.ajmc.com/view/inflation-reduction-act-could-cut-medicare-drug-spending-by-5-study-suggests 

3. Mattina C. CMS releases list of 10 drugs subject to price negotiation under IRA. The American Journal of Managed Care. August 29, 2024. Accessed May 6, 2024. https://www.ajmc.com/view/cms-releases-list-of-10-drugs-subject-to-price-negotiation-under-ira

4. Treasury releases Social Security and Medicare trustees reports. News release. US Department of Treasury. May 6, 2024. Accessed May 6, 2024. https://home.treasury.gov/news/press-releases/jy2325

5. Fact sheet: the president’s budget: extending Medicare solvency by 25 years or more, strengthening Medicare, and lowering health care costs. News release. White House. March 7, 2023. Accessed May 6, 2024. https://www.whitehouse.gov/briefing-room/statements-releases/2023/03/07/fact-sheet-the-presidents-budget-extending-medicare-solvency-by-25-years-or-more-strengthening-medicare-and-lowering-health-care-costs/

6. Fact sheet: 2024 Social Security and Medicare trustees reports. US Department of Treasury. May 6, 2024. Accessed May 6, 2024. https://home.treasury.gov/system/files/136/TR-2024-Fact-Sheet.pdf

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