Medicare Trust Fund Depletion Accelerated to 2033 Due to Rising Costs

The depletion dates for Medicare and Social Security's trust funds have been accelerated due to rising healthcare costs and new legislation affecting Social Security benefits, according to an annual report released recently. The report indicates that Medicare’s hospital insurance trust fund will be depleted by 2033, a year earlier than the previous estimate of 2036. Similarly, Social Security’s trust funds, which cover old age and disability recipients, will be unable to pay full benefits beginning in 2034, a year earlier than the previous estimate of 2035. After this point, Social Security would only be able to pay 81% of benefits.

The trustees of these programs emphasize the urgency of implementing changes to address the financial challenges faced by Medicare and Social Security. However, making changes to these programs has historically been politically unpopular, and lawmakers have often deferred addressing these issues to future generations. President Donald Trump and other Republicans have pledged not to make any cuts to Medicare or Social Security, despite efforts to reduce federal government expenditures.

Social Security Administration Commissioner Frank Bisignano highlighted that the financial status of the trust funds remains a top priority for the administration. A common misconception is that Social Security would be completely unable to pay benefits once it reaches its depletion date. The trustees' report states that Medicare still faces a substantial financial shortfall that requires further legislation to address. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.

The trustees of the programs include the Treasury Secretary, the secretaries of Labor, Health and Human Services, and the commissioner of Social Security. Two other presidentially-appointed and Senate-confirmed trustees serve as public representatives, but these roles have been vacant since July 2015. Approximately 68 million people are enrolled in Medicare, the federal government’s health insurance that covers those 65 and older, as well as people with severe disabilities or illnesses.

The report shows a worsening situation for the Medicare hospital insurance trust fund compared to last year. However, the forecasted depletion date of 2033 is still later than the dates of 2031, 2028, and 2026 predicted just a few years ago. Once the fund’s reserves become depleted, Medicare would be able to cover only 89% of costs for patients’ hospital visits, hospice care, and nursing home stays or home health care that follow hospital visits. The report indicated that expenses last year for Medicare’s hospital insurance trust fund came in higher than expected.

Income exceeded expenditures by nearly $29 billion last year for the hospital insurance trust fund. Trustees expect that surplus to continue through 2027. Deficits will then follow until the fund becomes depleted in 2033. A payroll tax on covered earnings provides the main funding for the hospital insurance trust fund. Future expenses paid by the fund are expected to increase at a faster pace than earnings, necessitating legislation to change those tax rates.

The report also states that the Social Security Fairness Act, enacted in January, which repealed the Windfall Elimination and Government Pension Offset provisions of the Social Security Act and increased Social Security benefit levels for some workers, had an impact on the depletion date of the Social Security Administration’s trust funds. Romina Boccia, a director of Budget and Entitlement Policy at the libertarian CATO Institute, called the repeal of the provisions “a political giveaway masquerading as reform. Instead of tackling Social Security’s structural imbalances, Congress chose to increase benefits for a vocal minority—accelerating trust fund insolvency.”

Myechia Minter-Jordan, CEO of AARP, emphasized the need for Congress to act to protect and strengthen Social Security, stating that more than 69 million Americans rely on Social Security today and that the stability of this vital program only becomes more important as America’s population ages. Social Security benefits were last reformed roughly 40 years ago, when the federal government raised the eligibility age for the program from 65 to 67. The eligibility age has never changed for Medicare, with people eligible for the medical coverage when they turn 65.

Nancy Altman, president of Social Security Works, an advocacy group for the popular public benefit program, stated that there are two options for action: bringing more money into Social Security or reducing benefits. Any politician who doesn’t support increasing Social Security’s revenue is, by default, supporting benefit cuts. Congressional Budget Office reporting has stated that the biggest drivers of debt rising in relation to GDP are increasing interest costs and spending for Medicare and Social Security. An aging population drives those numbers. Several legislative proposals have been put forward to address Social Security’s impending insolvency.