This evening, the Medicare Board of Trustees released their annual report on the status of two separate trust funds, the Hospital Insurance (HI) Trust Fund and the Supplementary Insurance (SMI) Trust Fund. The Boards of Trustee report annually on the financial operations and actuarial status of the program in a combined report that covers Medicare Part A, Part B, and Prescription Drug Coverage (Part D). Most of the projections in the report are based on current law. Overall, the report states that the contained projections show a need for “substantial steps” addressing the financial challenges present in Medicare, particularly in relation to the depletion of the HI trust fund and projected growth expenditures for all three included parts of Medicare.

Trustees Predict Medicare Hospital Insurance Trust Fund Will Be Depleted in 2026

Overall, the Trustees are projecting that the Hospital Insurance (HI) Trust Fund, which finances Medicare’s hospital insurance coverage in Part A, will be depleted in 2026. This is earlier than the 2029 date projected in last year’s report. As in past years, the hospital trust fund has not met short-range financial adequacy, meaning the Trustees determined the HI trust fund is not adequately financed over the next ten years. The fund has not met this short-range test since 2003. The HI trust fund also failed to meet the Trustees’ long-range test.

Conversely, the report finds that the SMI trust fund is expected to be adequately financed over the next ten years and beyond. The Trustees attribute this to premium income and general revenue income for Medicare Parts B and D, which are reset each year to cover costs and ensure a reserve for Part B. However, costs in the SMI trust fund are projected to increase significantly as a share of GDP over the next few decades.

Long range projections as a percent of GDP are slightly higher this year than last year. Part D expenditure projections for this year’s report are lower than last year in the short range because of higher than previously predicted manufacturer rebates, a decline in spending on hepatitis C drugs, and a spending growth for diabetes drugs slowing down. The Trustees estimate that outlays for Part D will increase in the long-range, but the projections are similar to the increases from the report last year.

Additionally, the Trustees determined projected excess general revenue Medicare funding because of the difference in outlays and dedicated financing sources is projected to exceed 45 percent of outlays within 7 years. This is the second year of such a finding, meaning a Medicare funding warning is triggered and the President will have to submit to Congress proposed legislation responding to this warning within 15 days of the submission of the Fiscal Year 2020 Budget. Congress will then have to consider the legislation on an expedited basis.

Medicare Parts B and D Expected to Grow Faster than the Economy

The report predicts that costs in total Medicare expenditures will grow faster than both aggregate workers’ earnings and the U.S. economy overall. This is attributed primarily to the number of beneficiaries increasing faster than the number of workers as well as a continued increase in both the volume and intensity of delivered services. The Trustees predict that the average annual growth rate over the next five years will be 8.2 percent for Part B and 6.0 percent for Part D. This is faster than the 4.7 percent projected growth rate for the U.S. economy.

Elimination of Independent Payment Advisory Board (IPAB) Impacts Part B Expenditures

In past years, the Trustees report predicted whether the Independent Payment Advisory Board (IPAB) would be triggered. However, recent legislation eliminated the IPAB, which was initially set up through passage of the Affordable Care Act (ACA). In this year’s report, the Trustees note that short-range Part B expenditures as a percentage of GDP are higher for this year’s report than last year due to the elimination of IPAB in addition to the removal of payment caps for certain therapy services and higher projected Medicare Advantage (MA) payments.