Medicare Part A to Run Deficit 2 Years Later than Expected

The Medicare Part A trust fund is still on track to run short of money before the decade is out, but not as quickly as previously anticipated.

If its current trajectory holds, Medicare will see shortfalls beginning in 2028 — two years later than earlier projections, according to the 2022 annual report from the Social Security and Medicare Boards of Trustees.

By 2028, Medicare would have sufficient dollars to cover 90% of Medicare expenses. The trustees called on Congress to take action to prevent this deficit.

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“Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing,” the trustees indicated in the report. “Costs of both programs will grow faster than gross domestic product (GDP) through the mid-2030s, primarily due to the rapid aging of the U.S. population.”  

Hospice expenditures in particular are expected to increase to more than $48.2 billion by 2031, up from an estimate of nearly $24.3 billion this year. These amounts are rising faster than prior projections, and now “substantially exceed” home health costs, according to the trustees.

Annual raises in reimbursement and Medicare residual costs spurred the higher rate of increase. “Residuals” represent the difference between projected and actual costs, according to the U.S. Centers for Medicare & Medicaid Services (CMS).

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CMS has proposed a 2.7% reimbursement increase for hospice in 2023, which some providers have called insufficient due to COVID headwinds and inflation.

While the nation may now have an additional two years to address Medicare solvency, the trustees noted that the full impact of the COVID-19 pandemic remains unknown.

Delays in non-COVID treatments like elective procedures during 2020 and 2021 likely contributed to some cost reductions, but those will likely spike during the next two years as utilization rebounds.

Nevertheless, COVID “dramatically affected” Medicare, the trustees reported.

“The amount of payroll taxes expected to be collected by the [Medicare Part A] trust fund was greatly reduced due to the economic effects of the pandemic on labor markets,” the trustees wrote in the report. “Spending was directly affected by the coverage of testing and treatment of the disease. In addition, several regulatory policies and legislative provisions were enacted during the public health emergency that increased spending.”

Total Medicare spending in 2023 will exceed $1 trillion for the first time, according to CMS. Costs are projected to double between 2020 and 2030, rising an average 7.2% annually.

The rate of increase should start to decline as of 2030, as fewer members of the Baby Boomer generation will be enrolling in Medicare by that time.

Federal health officials, as well as the U.S. Department of Labor, have urged Congress to collaborate on plans to address the forthcoming shortfall.

“We are committed to running a sustainable Medicare program that provides high quality, person-centered care to older Americans and people with disabilities,” said CMS Administrator Chiquita Brooks-LaSure. “Medicare trust fund solvency is an incredibly important, longstanding issue and we are committed to working with Congress to continue building a vibrant, equitable, and sustainable Medicare program.”