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The Medicare Part A Trust Fund Could Become Insolvent by 2026


The Medicare Part A trust fund, or the Hospital Insurance trust fund, is where your Medicare taxes go throughout your working years. If you or your spouse contribute enough, you get premium-free hospital insurance when you reach Medicare eligibility.

Yet, official reports project that by 2026, without changes, less money will enter the Part A trust fund than it needs to spend. Thus, it could become insolvent, causing concern for Medicare beneficiaries. But, what are the further implications of potential insolvency? Read on to learn more.

Medicare Part A Trust Fund Solvency Projections

The trust fund for Part A shows signs of running out of money in 2026, as revealed by the 2021 Medicare Trustees report. Unfortunately, trustees had the same projection in 2019, but they didn’t anticipate the negative effects of the coronavirus.

If insolvency is reached, it would be the first time in Medicare’s history. For perspective, reserves decreased by $60 billion to $134 billion toward the end of 2020. Another concern among Medicare trustees is the determination that the program doesn’t have enough money to last the next decade.

How the Medicare Part A Trust Fund Works

The Medicare Part A trust finances health services that include hospital stays, hospice, and skilled nursing facilities. Payroll taxes, general tax revenue, and Part A premiums fund the program.

Medicare Part B and Part D are funded by a separate trust fund, known as the Supplemental Medicare Insurance (SMI) trust fund. General tax funding and monthly premiums fund SMI. The program pays for beneficiaries’ remaining health services that the Hospital Insurance Trust Fund does not cover.

Why is Medicare Running Out of Money?

The looming Medicare crisis continues to concern lawmakers and beneficiaries. As problems persist, trustees disclose that the COVID-19 pandemic impacted Medicare even more.
 
Particularly, the payroll taxes funding the Part A were lower due to COVID-19’s impact on the labor markets. Spending also took a hit, as funding went toward testing and treatment. Yet, there was no impact on services such as prescription drugs and physician-administration drugs.

Medicare Advantage enrollment is expected to rise at a faster rate than the previous year. Advantage plans are more expensive for the government than Original Medicare and could financially drain the Part A Trust Fund. Additionally, Medicare trustees expect the program’s expenditures to be lower than last year due to lower projected provider payment updates.

Medicare Funding Warning

This year makes the fifth consecutive year that a Medicare funding warning has occurred. The warning triggers when the program’s funding and spending affect the federal budget. When this happens, lawmakers must respond. Before it can go into effect, the President must submit a proposal to Congress nearly two weeks after turning in the Fiscal Year Budget.

How Can the Part A Trust Fund Reach Solvency?

Despite the projections that the trust fund will run out of money, if lawmakers act now, they can prevent this from happening. According to bipartisan analysts, there are solutions.

For instance, Medicare could wipe out payment debts and provide payment reforms to help beneficiaries afford their coverage. Other options include expanding revenue.

In conclusion, officials suggest Medicare finds ways to increase revenue and reduce overspending. Failing to do so could hurt the economy and put the health program in jeopardy.

Lindsay Malzone

Lindsay Malzone is the Medicare expert for MedicareFAQ. She has been working in the Medicare industry since 2017. She is featured in many publications as well as writes regularly for other expert columns regarding Medicare. You can also find her over on our Medicare Channel on YouTube as well as contributing to our Medicare Community on Facebook.

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