Medicare insurance trust expected to run out of funds by 2026

Medicare trustees give the program five years before one of the funds behind the program runs dry.

According to the 2021 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, the Hospital Insurance trust fund (HI) will be depleted in 2026 after the trustees determined the fund is not adequately financed over the next 10 years.

The HI trust is one of two trust funds which fund Medicare. HI, which is otherwise known as Medicare Part A, pays for inpatient hospital services, hospice care, skilled nursing facilities, and home health services after a hospital stay. The other trust fund, the Supplementary Medical Insurance (SMI) fund, consists of Medicare Part D, for prescription drug coverage, and Part B which helps pay for physicians, outpatient hospital, home health, and other services.

In 2020, Medicare covered 62.6 million; 40 percent of which chose to enroll in Part C private plans that contract with Medicare to provide Part A and Part B health services. The program’s total expenditures were $925.8 billion while total income was $899.9 billion made up of $894.6 billion in non-interest income and $5.3 billion in interest earnings. The assets held in special issue U.S. Treasury securities decreased significantly by $26 billion to $277.3 billion due to the amount of accelerated and advanced payments to providers, the report says.

The HI trust’s expenditures in 2020 exceeded income by $60.4 billion due to the same accelerated and advance payment which will be repaid in 2021 and 2022. These repayments will lead to a small deficit in 2021 and a surplus in 2022 but the trustees expect deficits every year until the fund is depleted in 2026, according to the report.

The HI trust’s assets at the beginning of 2021 were $134.1 billion which is about 48 percent of the projected expenditures for the year. This is below the minimum recommended level of 100 percent. The HI fund has not met the trustees’ formal test of short-range financial adequacy since 2003 with HI expenditures averaging 7.6 percent annually over the last five years compared to 5.2 percent growth in non-interest income, the report said.

The SMI trust fund is in better shape and is expected to be adequately financed over the next 10 years and beyond because income from premiums and general revenue for Part B and D are reset every year to cover the expected costs and ensure a reserve for Part B contingencies. The Part B premium for 2021 is $148.50 monthly, according to the report.