The financial stability of Medicare-especially Medicare Part A, otherwise referred to as Hospital Insurance-is gaining increasing concern, where projections recently showed it will be depleted by 2036. Such a condition places great risks not only to the millions of Americans relying on Medicare for their health needs but also to the greater health system. Understanding the implications of this funding shortfall is crucial for policymakers, beneficiaries, and taxpayers alike.
Current status of Medicare Part A funding
Medicare Part A is financed mainly through payroll taxes both from the employees and employers. It covers inpatient hospital services, care in skilled nursing facilities, hospice care, and some home health services. The Medicare Board of Trustees has projected in its most recent report that the HI trust fund can be expected to pay full benefits for an improving period-2036, in part, a function of stronger economic growth and lower-than-expected spending for health care.
However, once that trust fund is exhausted, it will only be able to cover about 89% of the costs of services provided. These increases thus mean that, unless Congress acts to address these funding issues, beneficiaries may have higher out-of-pocket costs, reduced access to needed medical care, or both.
Factors contributing to funding shortfall
A few contributing factors explain why Medicare Part A is facing a funding shortfall:
- Aging population: The United States continues to have a shifting demographic landscape as baby boomers reach Medicare eligibility. By 2030, an estimated 78 million baby boomers will join Medicare, further raising demand for healthcare services.
- Increasing health care costs: Health care now costs more and is increasing at a rate faster than general inflation. This increasing cost puts added pressure on the HI trust fund because more beneficiaries require high-cost medical treatments and hospitalizations.
- Economic conditions: Although recent economic gains bought the HI trust fund an additional five years of solvency, future economic downturns have the potential to threaten stability. A recession would raise the unemployment rate, depressing payroll tax revenues and further worsening funding conditions.
Impact on beneficiaries
The projected insolvency of the Medicare Part A trust fund has serious consequences for beneficiaries:
- Reduced coverage: In the event of the exhaustion of the trust fund, beneficiaries could be faced with a situation where they had to take on considerable portions of health care expenses themselves. Few could afford the exorbitant charges required for accessing hospital care or skilled nursing services, with only 89 percent of such costs covered.
- Increased premiums: Medicare would have to increase its premiums or cost-sharing for beneficiaries to make up for funding cuts. This will be a further burden on the poor senior citizenry that is just surviving on meager fixed incomes.
- Access to care: With lowered reimbursement rates because of shortfalls in funding, it would also mean that Medicare patients are not as welcomed into the hospitals and by the health professionals. It would translate to reduced access to care for millions of seniors dependent on Medicare for essential health services.
Solutions from legislation required
Medicare Part A is facing an impending funding crisis, and legislation is immediately called for. Following are some of the possible solutions:
- Raising the payroll taxes: The most obvious solution would be to increase payroll taxes paid to fund Medicare. Revenues for HI could increase with a rise in the 2.9% rate, which in turn would reinforce the trust fund reserves and extend solvency.
- Adjusting eligibility age: In this regard, raising the eligibility age for Medicare from 65 to 67-one aligns with the changes that went into effect in Social Security. While that would cut down on the immediate pressure on the fund, it would also leave a large number of older Americans without affordable healthcare options during a critical period in their lives.
- Means to control cost: Policies that restrain the growth of healthcare costs, like drug-price negotiations or prevention, might lower the expenditures and extend the life of the HI trust fund.
The fact that Medicare Part A funding is estimated to become depleted in 2036 makes the program a serious challenge that lawmakers really should no longer delay addressing. With millions of Americans dependent upon this important program for healthcare needs, it is time for Congress to proactively take the steps necessary to ensure the long-term solvency of the program.
