AARP Hearing Center
A major focus of the newly released 2026 Medicare Trustees Report is its forecast of when the Medicare trust fund will face a funding shortfall. But the report also contains other important projections—key among them is how much Medicare enrollees can expect to pay in monthly premiums in upcoming years. Altogether, the annual trustees’ report provides an important look at the financial outlook of the Medicare program and implications for the people it serves.
Part A trust fund projected to face a funding gap beginning in 2033
The risk of the Medicare trust fund not having enough funds affects only one part of Medicare: Part A. Also referred to as Hospital Insurance, Medicare Part A pays for inpatient hospital, skilled nursing facility, hospice, and home health care for individuals enrolled in traditional Medicare or in one of the private plans that contract with Medicare, known as Medicare Advantage (MA) plans. This year’s Medicare Trustees Report projects the Part A trust fund will face a shortfall in resources starting in 2033—a situation sometimes referred to as “insolvency,” though more clearly described as a funding gap.
This funding gap means the Part A trust fund will have fewer financial resources than it is expected to pay out for Part A benefits. However, it would still cover 89 percent of Part A expenses in 2033, and approximately 85 percent in subsequent years. That is because revenue will continue to flow into the trust fund from the Medicare tax on wages, which is the main source of the trust fund’s revenue, as well as from other sources.
While the projected insolvency year, 2033, is unchanged since last year’s report, the trustees indicate the gap will begin a few months earlier than they forecasted last year. The Medicare program has faced predictions of an upcoming funding gap throughout its history, but so far Congress has always acted to strengthen the trust fund’s financial outlook and prevent insolvency.
If the Part A trust fund were ever to become insolvent, it would fall short of funds to pay claims by hospitals, other providers, and MA plans. Exactly how the Medicare program would handle this unprecedented situation is unknown. Some experts have suggested claims would pile up as the trust fund awaited incoming revenue, causing increasing delays on outgoing payments to hospitals, other providers, and MA plans. For Medicare enrollees, this could mean barriers to getting timely care if providers become reluctant to provide care for which payment is uncertain or expected to be delayed.
Report forecasts Part B premiums will rise 34 percent in the next five years
The trustees’ report also contains valuable information about the other parts of the Medicare program, including important implications for Medicare enrollees. Those implications particularly relate to Medicare Part B (physicians’ and other clinicians’ services, laboratory tests, some home health care, and other outpatient tests, services, and medical equipment) and Part D (outpatient prescription medications).
Because of how Parts B and D are financed, they do not face risk of a funding gap as can occur in Part A. But spending growth for these parts directly affects Medicare enrollees’ out-of-pocket costs—specifically the premiums and cost-sharing amounts they pay.
Most Medicare enrollees pay the Part B premium—which is usually deducted from their monthly Social Security income—regardless of whether they are enrolled in traditional Medicare or an MA plan. States pay the Part B premium on behalf of about one in five Medicare enrollees; these are individuals with low incomes and savings who are enrolled in Medicaid or a Medicare Savings Program.
The Medicare Trustees Report projects that over the next five years, the standard Part B premium will increase an average of 6 percent per year, growing from $202.90 per month in 2026 to an estimated $272.10 in 2031—an increase of 34 percent. (It’s important to note that the 2031 premium is an estimate and the actual premium may differ.)
Over this same five-year period, the Social Security cost-of-living adjustment (COLA), which is based on a measure of inflation, is projected to rise by an average of 2.4 percent per year—or a total of 13 percent between 2026 and 2031. With Part B premium growth outpacing the Social Security COLAs, most Medicare enrollees will see more of their Social Security income absorbed by the Part B Medicare premium.
For example, a person receiving $2,080 per month in 2026 in Social Security benefit payments (the average for retired workers) can expect COLAs to increase their monthly payments to about $2,340 in 2031, an increase of $260 per month. Over the same five years, their Part B premium will increase by an estimated $69 per month, thus absorbing more than one-fourth of the COLA increases and making it harder for Medicare enrollees to cope with other rising expenses.
How payments to Medicare Advantage plans affect Medicare Part B premiums
The growth in Part B premiums reflects both direct payments to providers for Part B services and payment to MA plans. Each fall, the Medicare program sets the Part B premium for the upcoming year based on its estimate of Part B spending for that year. The standard Part B premium is about one-fourth of average Part B spending per enrollee.
Part B spending consists of Medicare’s payments to physicians and other providers for Part B services for traditional Medicare enrollees, as well as Medicare’s payments to MA plans for their coverage of Part B benefits. Specifically, Medicare pays each MA plan a certain amount per person to cover all Part A and Part B benefits, and those plans then pay hospitals, physicians, and other providers. The Medicare program estimates the amount of MA payments that is for Part A benefits, and finances it from the Part A trust fund. Medicare similarly estimates the amount of MA payments that is for Part B benefits and includes this amount in the total Part B spending that determines Part B premiums.
Research finds that for a variety of reasons the Medicare program spends more on paying MA plans than it would if the same individuals were enrolled in traditional Medicare—these excess payments totaled an estimated $76 billion in 2026. Notably, these excess MA payments raise Part B premiums for everyone with Medicare, regardless of whether they choose traditional Medicare or an MA plan. As estimated by the U.S. Congress Joint Economic Committee, excess MA payments increased Part B premiums by $212 per enrollee in 2025—that’s about $18 more per month, or 11 percent higher.
In addition, because a portion of MA payments are financed by the Part A trust fund, excess payments to MA plans mean higher Part A spending and a worse financial outlook for the Part A trust fund than if MA payments were in line with traditional Medicare spending.
Looking ahead: Policy options to slow the rise in Medicare spending and premiums
Many factors drive the growth in Medicare spending per enrollee. These include medical and technological advances that make more diagnostic and treatment services possible, population aging, and rising medical care prices. In addition, the Medicare population is growing as a share of the total population, which contributes to Part A spending growing faster than the payroll tax revenue that is the main source of financing for the Part A trust fund. Rising Medicare spending not only puts the Part A trust fund at risk of a funding gap but also places an increasing financial strain on Medicare enrollees, who face rising premiums and other out-of-pocket health care expenses.
Policymakers can ease the pressure on Medicare enrollees by adopting policies that would slow the rise in Medicare spending and premiums, as well as policies that would help make Medicare more affordable. Options include the following:
- Reducing excess payments to Medicare Advantage plans by ensuring payment amounts to these plans are similar to what Medicare would spend if the same individuals were enrolled in traditional Medicare.
- Combating fraud, waste, and abuse in Medicare, such as by adequately funding anti-fraud and anti-abuse enforcement, while ensuring enforcement activities do not have unintended negative effects on individuals’ access to needed care.
- Enabling more people to get financial help with premiums and cost sharing by making it easier to enroll in Medicare Savings Programs, such as by streamlining the enrollment process and simplifying eligibility requirements.
- Adding an out-of-pocket spending limit to traditional Medicare, similar to the one that exists for people enrolled in MA. This change would not only help protect individuals from the risk of incurring high out-of-pocket costs but would also reduce the policy imbalances between traditional Medicare and MA.
Medicare is a foundational component of Americans’ retirement security. As shown in AARP polling of people ages 50 and older, over 90 percent want policymakers to ensure Medicare continues to provide financial security and access to health care for current and future generations of enrollees.
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