Medicare Spending Set to Nearly Double in 10 Years as Trump Tax Cuts Shorten Trust Fund Lifespan

Federal health care spending is set to become the largest category of government expenditures, surpassing Social Security and defense. Medicare spending is projected to nearly double to almost $2 trillion by 2036, while Medicaid and ACA subsidies will see growth of 36% and 33%, respectively according to projections. The Congressional Budget Office has updated its projections to reflect an earlier depletion of the Medicare Hospital Insurance Trust Fund, now expected by 2040 as reported.

The Medicare Advantage (MA) market is experiencing a slowdown in growth, with many organizations prioritizing financial sustainability over membership expansion. The market grew by 900,000 beneficiaries in PY2026, reaching 35.4 million, but at a slower growth rate of 2.5% compared to 2025 according to new data. Companies are narrowing their geographic reach and reducing benefit offerings, though long-term confidence in the market remains strong.

The Medicare Hospital Insurance Trust Fund, which finances essential services like inpatient hospital care and skilled nursing facility stays, is now expected to be entirely exhausted by 2040 as projections indicate. This marks a significant acceleration of insolvency from earlier projections, primarily due to the reduced tax revenue generated by the One Big Beautiful Bill Act according to analysis.

Why Did This Happen?

The One Big Beautiful Bill Act, passed in 2025, has significantly altered the financial landscape for Medicare. The legislation reduced tax rates and established a temporary deduction for taxpayers aged 65 or older, cutting off a significant source of revenue for the HI Trust Fund as reported. The result is a shortened solvency window for the fund, which now stands at 14 years less than previously estimated according to projections.

The HI Trust Fund is expected to rely on the Medicare payroll tax for about three-quarters of its annual income over the next 30 years. Another one-eighth of its funding comes from income taxes on Social Security benefits, a stream that has been directly impacted by the OBBBA as data shows.

How Did the Market Respond?

The MA market's recalibration has affected company performance. Alignment Healthcare reported a reduced fourth-quarter net loss of $11 million, down from $31 million in the previous year. The company's membership grew by 25%, and its revenue increased by 44% to $1 billion according to earnings. Alignment managed a medical benefits ratio of 87.7%, which is lower than the industry average according to analysis.

In contrast, Clover Health reported a net loss of $49.3 million for the fourth quarter, despite a 44.7% increase in total revenue to $487.7 million as disclosed. The company's medical benefits ratio rose to 95.0% due to increased patient volume and treatment needs. Clover also raised its 2026 membership forecast to between 154,000 and 158,000 according to their report.

US Physical Therapy showed improved performance in Q4 2025, with physical therapy revenues up 13% to $173.8 million according to company data. The company's adjusted EBITDA reached $24.8 million, and it raised its 2026 EBITDA target to $102 million to $106 million. Growth in patient visits and hospital alliances is expected to contribute significantly to its financial performance according to management.

What Are Analysts Watching Next?

The long-term sustainability of Medicare and Medicaid remains a key concern for analysts and policymakers. The CBO estimates that the HI Trust Fund could be insolvent by 2040, which would restrict Medicare payments to match revenues, leading to an 8% benefit cut in 2040 and potentially rising to 10% by 2056 according to forecasts.

The Trump administration has pledged to protect key health programs like Medicare and Medicaid. However, the accelerated financial deterioration of the HI Trust Fund raises questions about the ability to maintain current benefit levels without policy intervention as noted. Analysts are closely watching whether lawmakers will take action to slow the growth of health care spending and restore trust fund solvency according to CBO analysis.

For companies operating in the MA space, the focus is on managing costs and improving efficiency. Alignment and Humana are gaining traction as larger competitors like United and Aetna pull back according to market reports. The industry's recalibration is expected to continue into 2026, with most leaders anticipating steady or slightly growing enrollment in the coming years as projected.