Cost and rate cuts won't prevent Medicare hospital trust fund insolvency

Cost and rate cuts won’t prevent Medicare hospital trust fund insolvency

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The Medicare program, which provides health insurance coverage to 64 million elderly and disabled Americans, faces severe short- and long-term financial pressures. Reducing costs and tariffs has been proposed as a way to mitigate this, but these measures alone will not be enough to ensure the solvency of the programme’s hospital trust fund, which is about to run out. exhaust in six years, according to the Urban Institute.

While spending cuts will be needed, more taxes will be needed to ensure the program’s short-term stability, according to the report.

Financial pressures affect two components of Medicare. The first, Hospital Insurance (HI) or Part A, helps pay for hospital services and most institutional services as well as skilled nursing facilities, palliative care, and some home care. It is funded by HI’s trust fund, into which receipts for a payroll tax imposed on workers’ earnings are deposited. When inflows of payroll taxes and other revenues, as well as accumulated surpluses, are insufficient to cover HI’s costs, the law requires that payments to providers be somehow reduced to the level of incoming revenues.

The second component, Supplemental Medical Insurance (SMI), has two components: Part B, which helps pay for doctors’ outpatient services, lab tests, doctor-administered drugs, and durable medical equipment; and Part D, which helps pay for self-administered prescription drugs. Parts B and D are funded by beneficiary premiums and federal general revenues deposited in the SMI Trust Fund. Unlike the HI Trust Fund, when SMI Trust Fund balances run out, they are automatically replenished with general revenue and beneficiary bonuses for Parts B and D are increased.

The HI trust fund is expected to be depleted around 2028, at which point Medicare would not be able to make full and timely payments to HI healthcare providers, which would adversely affect patient care, found UI.

Meanwhile, SMI spending will require ever-larger injections of funds from general revenue, leading to higher deficit spending and ever-increasing beneficiary premiums, the growth rate of which will generally outpace that of beneficiary incomes.

Given the immediate and visible negative effects that the insolvency of HI’s trust fund would cause, some type of congressional action is inevitable, UI said. To combat HI’s insolvency and increasing pressure on the federal budget, it is necessary to slow the rate of growth of health or other benefits paid, to increase funding – or most likely both.


Several key takeaways have emerged.

Taxes are just one way to fund Medicare spending growth, the report said. Deficits, bonuses, and reductions in other expenses are each employed over time. And funding and spending issues for Medicare are intertwined; policies that theoretically address one have implications for the other that need to be anticipated.

Because Medicare spending is under the partial control of the people who request services and the providers who provide services, much of Medicare’s funding power is passed from elected officials to individual actors – providers and consumers.

Although the creation of a new, dedicated funding source can fill a given Medicare funding gap, it is difficult to exactly match future growth in Medicare spending needs with the growth of any particular funding source, according to the report.

And it is easier to enact reforms consistent with fiscal or fiscal policy objectives through general revenue funding than through dedicated funding. Dedicated funding through a trust fund can work when it covers all costs and imposes budgetary rigor to match expenditure and revenue, but the HI trust fund is not designed to work that way.

According to the report, broadening the base of an existing dedicated tax, such as subjecting employer-sponsored health insurance to HI payroll tax, would follow the principle of fairness tax policy. horizontal without necessarily adding to the complex array of Medicare funding sources.

In addition, addressing HI and SMI funding issues together would help address the longer-term financial challenges of Medicare and allow for fairer and more efficient funding and spending trade-offs within HI, SMI and the broader tax system.


Legislation introduced in the U.S. House of Representatives in July aims to avoid a shortfall in the Medicare hospital insurance fund by closing tax loopholes and redirecting tax revenues in an effort to keep the fund solvent for at least another decade.

Introduced by Rep. Lloyd Doggett, D-Texas, the “Assuring Medicare’s Promise Act” aims to close a loophole through which wealthy Americans can bypass paying net investment income tax (NIIT) and redirect that income to the Medicare Hospital Insurance Fund.

Doggett said the move would not raise taxes, but would ensure seven more years of Medicare solvency.

Twitter: @JELagasse
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