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Financial Health of Medicare Trust Fund Improves

Trustees project solvency until 2031, but Congress still must act for the long term

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For the second year in a row, the trustees who oversee Medicare’s finances say the trust fund that helps pay for inpatient hospital care for 65 million beneficiaries has gotten healthier.

In its 2023 annual report, released on March 31, the trustees estimate that the Part A Hospital Insurance (HI) fund could start to run short of money in 2031, three years later than last year’s estimate. Even then, that trust fund would still be able to cover 89 percent of Medicare costs with incoming tax revenue.

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The trustees also project that in 2024, the monthly premium for Medicare Part B, which covers doctor visits and other outpatient services, will increase to $174.80, a $9.90-a-month hike from the 2023 premium of $164.90. The actual 2024 premium will be finalized this fall. 

The trustees also released their projections for the Social Security program, estimating that the two trust funds that help pay for retirement, survivor and disability benefits will run short in 2034, a year earlier than the trustees projected in their 2022 report. 

“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 says in a statement issued after the reports were released.

“Medicare is the primary or only source of health care for most older Americans,” Jenkins says. “Workers earn benefits by paying into both programs over the course of their careers with the promise that these programs will support them when they stop working.”

Lower spending fueling improved outlook

The improved health of the Medicare hospital fund is largely due to a decrease in health care spending as well as more money coming into the fund — both because there will be more workers and wages will be higher. The HI trust fund is funded primarily through the Medicare payroll tax.

In a call with reporters on March 31, administration officials said the lower projected health care spending is due to a number of factors, including that during the COVID-19 pandemic, many of the older adults on Medicare who passed away were among the beneficiaries who were being treated for other serious illnesses and so were using more health care resources. The surviving Medicare beneficiaries have fewer comorbidities (two or more diseases or conditions), officials said. In addition, spending has been lower because more Medicare recipients who are also on Medicaid have been enrolling in Medicare Advantage plans, which has saved the program money because those programs tend to spend less money on those who are dually eligible for both programs. Also, more Medicare patients are getting some procedures, most notably joint replacements, in outpatient rather than inpatient settings, and that has also saved the hospital trust fund money.

The new law that will lead to lower prescription drug prices will also improve the program’s financial health, the trustees say. “Medicare projections have been significantly affected by the enactment of the Inflation Reduction Act of 2022,” the report says. Administration officials said that the new law’s health care provisions have wide-ranging prescription drug provisions that will restrain the growth in prices, including the ability of Medicare to negotiate the price of some prescription drugs, penalties for drug companies that raise prices more than the rate of inflation, and changes to the Part D prescription drug plan, including the upcoming $2,000 cap on out-of-pocket costs.

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Congress should act

Despite the rosier near-term projections for the Medicare trust fund, the trustees call on Congress to act to shore up the program’s finances for the long term. The report points out that the fund will start to run short in less than a decade.

“The financial projections in this report indicate a need for substantial changes to address Medicare’s financial challenges,” the report says. “Current-law projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers and taxpayers.”

In her statement, AARP’s Jenkins says that “Congress must take its responsibility to protect Social Security and Medicare seriously, by developing a comprehensive plan and doing so in a way that is accountable and fully transparent to the American public. AARP will be vigilant in assessing how any proposals will impact older Americans — and fighting to protect the earned benefits of our members and all older adults.”

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