Medicare Expected to Become Insolvent by 2031, Trustees Say

WASHINGTON -- Interest groups here are sounding the alarm about a new report from the Medicare trustees that extended by 3 years the estimate for when the program would become insolvent.

"Based on our best estimates, this year's reports show that the Hospital Insurance (HI) Trust Fund will be able to pay 100% of total scheduled benefits until 2031, 3 years later than reported last year," the trustees explained in a fact sheet on the report. "At that point, that fund's reserves will become depleted and continuing program income will be sufficient to pay 89% of total scheduled benefits."

"Despite the downward revision to economic assumptions, the projected long-term finances of the HI Trust Fund improved since last year's report," the fact sheet continued. "The improvement is mainly due to lower projected healthcare spending stemming from updated analysis that uses more recent data."

In addition, "the Supplementary Medical Insurance (SMI) Trust Fund is adequately financed into the indefinite future because, unlike the other trust funds, its main financing sources -- premiums on enrolled beneficiaries and federal contributions from the Treasury -- are automatically adjusted each year to cover costs for the upcoming year," the trustees said. However, they added, "although the financing is assured, the rapidly rising SMI costs have been placing steadily increasing demands on beneficiaries and general taxpayers." The SMI trust fund pays for Part B and Part D Medicare benefits.

The trustees also warned of problems to come as a result of Medicare's physician fee schedule. "Additional payments totaling $500 million per year and annual bonuses are scheduled to expire in 2025 and 2026, respectively, resulting in a payment reduction for most physicians," the report said. "In addition, the law specifies the physician payment updates for all years in the future, and these updates do not vary based on underlying economic conditions, nor are they expected to keep pace with the average rate of physician cost increases."

"The specified rate updates could be an issue in years when levels of inflation are high and would be problematic when the cumulative gap between the price updates and physician costs becomes large," the trustees said. "Absent a change in the delivery system or level of update by subsequent legislation, the trustees expect access to Medicare-participating physicians to become a significant issue in the long term."

The Biden administration used the report to market its proposed healthcare budget for fiscal year 2024. "President Biden has taken bold action -- proposing a budget that extends the life of the Medicare Trust Fund by at least 25 years and passing historic legislation to strengthen benefits and lower prescription drug costs for people with Medicare," HHS Secretary Xavier Becerra said in a Treasury Department press release on the report. "The president has made his position clear: we will do everything we can to strengthen Medicare for the 65 million beneficiaries today and millions more in the years to come."

The American Medical Association expressed concern about the report's findings for the long term. "Another government report today echoed what the American Medical Association (AMA) and others have been saying: The Medicare payment system has not kept up with the cost of practicing medicine, threatening access for some of the 65 million Medicare patients," the AMA said Friday in a press release.

"The trustees, MedPAC [the Medicare Payment Advisory Commission], and some members of Congress see the long-term threats to Medicare access," AMA president Jack Resneck Jr., MD, said in the release. "For those who have not joined this effort, they should talk to patients and physicians across the country. Physicians have struggled to keep their practices open in the face of rampant inflation, COVID, and growing costs of running a medical practice. Medicare payments have not responded adequately, capped off most recently by a 2% payment reduction in 2023."

"Congress should adopt a 2024 Medicare payment update that recognizes the full inflationary growth in healthcare costs," Resneck added. "To ignore this would be malpractice."

The AARP also urged Congress to do something. "Today's Social Security and Medicare Trustees reports reinforce that while they are financially strong today, both programs face long-term funding needs, and Congress must act to find solutions to ensure Social Security and Medicare will be there for the next generation and into the future," AARP CEO Jo Ann Jenkins said Friday in a statement.

The Committee for a Responsible Federal Budget issued a similar warning. "These vital programs face large and growing shortfalls that will require reducing costs, boosting revenue, or both," Maya MacGuineas, the group's president, said in a statement, referring to Medicare and Social Security. "As partisans and special interests continue to demagogue Social Security and Medicare for short-term political gain, they are putting our nation's workers and seniors at risk. It's time for our leaders to take their heads out of the sand and put them together to develop real and lasting solutions to save Social Security and Medicare."

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