Reformers Should Look beyond Medicare’s Trust Funds

On March 31, key members of President Biden’s cabinet released Medicare’s annual trustees’ report. It paints a similar picture as past reports: Medicare’s tens of trillions of dollars in unfunded liabilities represent a severe fiscal challenge. But it is important that policy-makers understand just how severe that challenge is, so that they can undertake the bold, wide-ranging reforms that the crisis calls for.

Medicare is financed by two “trust funds,” though in reality, it is largely funded in a pay-as-you-go manner. The Hospital Insurance Trust Fund (HI TF) provides payments for Part A’s inpatient hospital and post-acute-care benefits, while the Supplemental Medical Insurance Trust Fund (SMI TF) finances Part B’s physician and outpatient benefits and Part D’s prescription-drug benefits. Payments for Medicare Advantage, or Part C, are also funded out of these accounts.

The HI TF’s income comes from payroll taxes. In the past, this tax revenue exceeded spending, which created a positive “balance” that the Treasury borrowed to fund other federal expenses. But according to the trustees’ report, the HI TF is on track to become insolvent by 2031, when growing expenditures will exhaust the fund’s balances — which in turn will require a 10 percent reduction in Part A payments, since expenditures cannot exceed revenues.

The full article can be found in National Review.

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