“If anything, some of the administration’s actions appear to be working in the opposite direction, at least as measured by the status of the Medicare Part A trust fund,” Juliette Cubanski, associate director of the Kaiser Family Foundation’s Program on Medicare Policy, told us in an email.
Cubanski is referring to the Medicare trustees’ most recent annual report, which provides an updated projection on the financial status of the Hospital Insurance, or HI, trust fund.
Medicare is made up of four parts: Part A (payments to hospitals), Part B (payments to physicians), Part C (Medicare Advantage, or private insurance options) and Part D (prescription drug coverage). Those parts are funded by two funds: the Hospital Insurance (HI) trust fund, which is funded primarily by a payroll tax paid by workers and their employers, and the Supplementary Medical Insurance (SMI) trust fund, which is funded primarily through general revenue and beneficiary premiums.
The Medicare Part A trust fund is designed to be self-supporting, but the trustee report warns that the financial outlook for the fund “has deteriorated as compared to the projections in last year’s annual report.”
The HI fund spent more on hospital payments than it received in income from 2008 through 2015, the report said. Although the fund had a slight surplus in 2016 and 2017 and a balance of about $200 billion prior to 2017, the trustees say deficit spending will return this year and accelerate in the coming decade, exhausting the fund earlier than expected.
“The estimated depletion date for the HI trust fund is 2026, 3 years earlier than in last year’s report,” the report said. At that point, Medicare would be able to pay only 91 percent of hospital expenses, as the table on page 29 shows. (The SMI trust fund, because of how it is structured, cannot be depleted.)
The trustees, in part, cited the tax cut law as a reason the HI fund is expected to run out of money more rapidly than previously expected.
The Tax Cuts and Jobs Act of 2017 that Trump signed in December repealed the so-called individual mandate in the Affordable Care Act, which requires people to have health insurance or pay a penalty. The repeal, which is effective in 2019, is expected to increase the number of uninsured Americans and that, in turn, will increase Medicare Disproportionate Share payments made to hospitals that serve large populations of low-income people without insurance.
“[T]he percentage of people without health insurance is expected to increase. Because the change in this percentage is a factor used in determining payments to Medicare disproportionate share hospitals for uncompensated care, these payments are expected to increase as well,” the trustees’ report said.
Also, about 8 percent of HI trust fund revenues come from a federal income tax on Social Security benefits. But the tax cut law reduced the federal income tax rates, meaning a portion of Social Security benefits will be taxed at a lower rate and generate less income for Medicare, as explained in a July report by the Congressional Research Service on Medicare’s finances.
“A stronger economy is definitely one of the factors that could help to shore up the status of the Medicare Part A trust fund since the majority of funding for that comes from payroll taxes,” Cubanski, of the Kaiser Family Foundation, said. “But all of the factors that affect Medicare financing would have to be going in a positive direction, whereas the administration has taken other steps that have actually made Medicare’s funding situation worse.”
As we said, Medicare Part A is just one part of the program for seniors and the disabled. In total, Medicare cost $710 billion in 2017 and about 41 percent of that was paid through general revenues (see Table II.B1). Total Medicare expenditures will more than double to about $1.44 trillion by 2027, as illustrated by the CRS chart, and the share of general revenues will increase to 49 percent by 2032, the trustees' report said.
Separately, the Bipartisan Budget Act of 2018, which Trump signed in February, will have a negative impact on all parts of Medicare, the trustees’ report said.
That law, among other things, repealed the Independent Payment Advisory Board, a 15-member board created by the Affordable Care Act to reduce Medicare costs. As designed, the board would make recommendations for cutting spending that could only be overridden with a three-fifths majority of both houses of Congress, or Congress could institute its own reductions of an equal amount recommended by the IPAB. (The IPAB had not yet been formed.)
“The expenditures in this year’s report are higher than last year’s mostly due to (i) the Bipartisan Budget Act of 2018, which eliminated the Independent Payment Advisory Board and removed payment caps for certain therapy services, and (ii) higher projected Medicare Advantage (MA) payments attributable to higher risk scores for beneficiaries enrolled in MA plans,” the report said. (Risk scores are estimates of the cost of care for beneficiaries.)
Economic Growth Projections
As for Trump’s claim that “Medicare will be $700 billion stronger over the next decade thanks to our growth,” the Committee for a Responsible Federal Budget and Cubanski, of the Kaiser Family Foundation, were not aware of any economic projections that would improve Medicare’s finances by that amount.
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