Medicare Hospital Pay 'Bankruptcy' Deadline Remains 2026

Kerry Dooley Young

September 01, 2021

The estimated trigger date for Medicare to begin to reduce hospital payments remains 2026. Biden administration officials are urging Congress to get to work quickly on plans to avoid slated reductions in pay.

The annual reports from the Medicare and Social Security trustees, which were released on Tuesday, provide a snapshot of broad trends and estimates for future finances of the two largest drivers of federal spending. The Medicare report includes the projected date when that program's hospital insurance fund, also called Part A, will be depleted.

The projected 2026 date was the same one that the trustees, then members of the Trump administration, gave in last year's report. Unless Congress changes the law, funds for Medicare's Part A program would at that time be sufficient to pay 91% of total scheduled benefits.

This estimate on the status of the hospital insurance fund often is misleadingly reported in news stories as the estimated date on which Medicare will become "bankrupt," although this estimate applies only to funding for part of the federal program, wrote Paul N. Van de Water, PhD, a senior fellow with the liberal Center on Budget and Policy Priorities, in a Tuesday blog. Other aspects of the Medicare program are funded through a combination of general revenues and contributions from beneficiaries. They are not paid for through the special trust fund budget mechanism used for Medicare Part A.

The annual report on the Medicare hospital fund and an accompanying yearly estimate on Social Security finances should serve as calls to action for Congress and the White House to set priorities in the federal budget, Van de Water wrote. The trustees also provided an update on Social Security finances. They report that the major public retirement program "will be able to pay scheduled benefits on a timely basis until 2033, one year earlier than reported last year."

Is There a Funding Crisis?

To prevent Medicare Part A and Social Security shortfalls, members of Congress could add new revenue or take steps to reduce spending. At this time, it appears unlikely Congress would allow the full brunt of cuts to take effect, inasmuch as lawmakers have a track record for undoing and revising legislation that mandates reductions in Medicare pay.

"Social Security and Medicare do not face a financing 'crisis,' and the programs are not 'bankrupt,' as some critics charge," Van de Water wrote.

Presidents in both parties as well as members of Congress face strong political pressure to keep both programs in good financial condition.

"Beneficiaries can be assured that pattern will continue. Alarmists who claim that Social Security and Medicare won't be around when today's young workers retire either misunderstand or misrepresent the projections," Van de Water wrote.

The trustees also urged members of Congress to get to work on revising federal tax and spending laws to keep Medicare in the black.

"The early introduction of reforms increases the time available for affected individuals and organizations — including health care providers, beneficiaries, and taxpayers — to adjust their expectations and behavior," the trustees wrote in the report. They "recommend that Congress and the executive branch work closely together with a sense of urgency to address these challenges."

Senate Finance Chairman Ron Wyden (D-Or) issued a statement Tuesday calling both of these reports a call to action.

"[T]he Social Security trust fund will be depleted a year earlier than last projected. That means workers in the future will take a 25% cut in benefits, even though they'll still be contributing to Social Security with every single paycheck," Wyden said in the statement. "And while the projected depletion of the Medicare Trust Fund remains unchanged from last year's report, this provides cold comfort to the millions of Americans who rely on the Medicare program for their health care."

In 2020, Medicare provided coverage for almost 63 million people. Of these, 54.1 million were aged 65 and older, and 8.5 million had disabilities that qualified them for the program. About 40% of these beneficiaries have chosen to enroll in insurer-run Part C private health programs, also known as Advantage plans, which contract with Medicare to provide Part A and Part B health services.

Total expenditures for Medicare for 2020 were $925.8 billion, and total income was $899.9 billion, which consisted of $894.6 billion in noninterest income and $5.3 billion in interest earnings.

Pandemic Effects

The federal government brought in less in payroll taxes for Part A because of the COVID-19 pandemic, but the pandemic also reduced spending for many medical services, the trustees noted in the report. The pandemic also put many elective services on hold, but Medicare faced additional costs, owing to testing for COVID-19 and treatment of those affected, as well as to policies and legislative provisions put in place because of the pandemic, such as expanding telehealth, the trustees wrote.

"Given the unprecedented level of uncertainty, the Trustees currently assume that the pandemic will have no net effect on the individual long-range ultimate assumptions," the trustees wrote. "At this time, there is no consensus on what the lasting effects of the COVID-19 pandemic on the long-term experience might be, if any."

The trustees are Treasury Secretary Janet Yellen, Health and Human Services Secretary Xavier Becerra, Labor Secretary Martin Walsh, and Kilolo Kijakazi, the acting Social Security commissioner. This marked the sixth consecutive report that lacked the signatures of so-called public trustees. These are outside experts in federal spending whose role is to serve as watchdogs for Medicare and Social Security. The last report signed by public trustees was the one released in 2015.

Kerry Dooley Young is a freelance journalist based in Washington, DC. She is the core topic leader on patient safety issues for the Association of Health Care Journalists. Young earlier covered health policy and the federal budget for Congressional Quarterly/CQ Roll Call and the pharmaceutical industry and the Food and Drug Administration for Bloomberg. Follow her on Twitter at @kdooleyyoung.

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