Medicare trust fund to run out of money 2 years sooner than expected

Medicare’s hospital-insurance trust fund will run out of money two years earlier than expected, in 2028. The news was part of an annual report on the program released Wednesday. The report itself is hundreds of pages long but a summary of the findings was published on the Social Security Administration’s website. Regarding Medicare the summary reads:

The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2028, two years earlier than projected in last year’s report. At that time dedicated revenues will be sufficient to pay 87 percent of HI costs. The Trustees project that the share of HI cost that can be financed with HI dedicated revenues will decline slowly to 79 percent in 2043, and will then rise gradually to 86 percent in 2090. HI expenditure is projected to exceed non-interest income throughout the projection period, as it has in every year since 2008. The HI fund again fails the test of short-range financial adequacy, as its trust fund ratio is already below 100 percent of annual costs and is expected to decline in a continuous fashion until reserve depletion in 2028.

The Wall Street Journal puts the current numbers in some context:

As recently as 2009, trustees had estimated that the hospital-care fund would be depleted by 2017, but projections have improved over the past decade due to a slowdown in health-care inflation. Wednesday’s report projects that costs will begin to rise to around 5.4% annually over the next five years, from a 2.4% annual growth rate over the previous five years.

What the summary does not say is what happens to Medicare when doctors and hospitals are told (circa 2028) that reimbursements are getting cut 13 percent and will continue to decline over the next 15 years. At that point we’re likely to see doctors begin to opt-out and others deciding to become non-participating doctors, meaning they accept Medicare patients but also bill them an extra amount above the standard reimbursement rates. The summary of the report concludes that lawmakers need to take action as soon as possible:

Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.

The current best case scenario gives us 12 years to address the problem, but if health inflation picks up the date when the program runs out of money could move even closer.