Annual Medicare Trustees Report on the Status of Trust Funds

Medicare is technically funded from contributions from workers and their employers; contributions which go into “Trust” funds. one of which is for Hospital Insurance and one of which is Supplementary Medical Insurance.  There are Trustees for these mythical funds and they issue an annual report discussing the state of Medicare and the Trust Funds.  If the the Funds run out of money, then general federal revenues would be needed to be able to continue paying benefits.  The Funds have generally been in decline, because more is being spend in benefits than is taken in through contributions.  The date at which the Funds are depleted has moved around significantly in the last few years, but is important because that is kind of the running room that Congress has before it has to have a fix implemented.  In the current report, the Trustees push exhaustion of the Hospital Fund out to about 2026, a delay of a couple of years from last year’s report with the Supplementary Fund in similar shape, although its funding mechanism which includes beneficiaries premiums leaves it in better fiscal condition.  (Trustees Report)   However, as the Report itself notes, these projections assume the full SGR cuts go into effect next year, and that all the reductions in the reform law occur.  Those are dubious assumptions, so really the Trust funds will likely be exhausted before 2026.  The uncertainty about what Medicare reimbursements will look like is exacerbated by the growth in beneficiaries as the number of retirees grows rapidly and because workforce participation and jobs do not appear to be recovering well from the recession, meaning there are less contributions made to the Trust funds.  Medicare payments on behalf of about 50.7 million beneficiaries in 2012 were $574 billion, against $537 billion in income to the Funds, making for a significant shortfall which resulted in a decrease of assets by about $37 billion.  Congress needs to take action now, and the obvious fix is to raise the eligibility age, really up to 70 in steps, and to curtail misuse of the disability program, which has become in essence long-term welfare for many people who simply don’t want to work, and to encourage much greater use of Medicare Advantage and force true competitive bidding in that program, and finally, to fully means test the premium cost so that wealthier individuals pay more, in some cases, all of their coverage cost.  Those steps would do far more to sustain the solvency of the program than tinkering with reimbursement or benefits.