Industry News

On April 22, 2019, the Medicare Board of Trustees released its annual report on the financial status of the Medicare funds.  Total annual Medicare expenditures, which were $741 billion in 2018 or 3.7% of Gross Domestic Product (GDP), are expected to grow to 6.5% of GDP in 2093.  The report warns that Medicare expenditures are projected to increase in most of the future years at a faster rate than either aggregate workers’ earnings or the overall economy.  Total income for the Medicare program in 2018 amounted to $756 billion.

The Medicare program consists of two component programs for the elderly and disabled: Hospital Insurance (HI) and Supplementary Medical Insurance (SMI).  The HI program (Medicare Part A) pays primarily for inpatient hospital care and is financed by a payroll tax of 1.45% of taxable earnings.  The SMI program consists of Medicare Parts B and D.  Medicare Part B is a voluntary program that pays for physician, outpatient hospital, home health, and other services.  Medicare Part D is a voluntary program providing access to outpatient prescription drug benefits.  Approximately one-quarter of the SMI program is financed by beneficiary premiums, with the remainder financed by transfers from the U.S. Treasury’s general fund.

According to the Medicare Trustees’ report, the long-term financial status of the HI Trust Fund changed with the actuarial deficit increasing to 0.91% of taxable payroll from 0.82% in last year’s report due to: 1) lower assumed productivity growth; 2) slower projected growth in the utilization of skilled nursing facility services; 3) higher costs and lower income in 2018 than expected; 4) lower real discount rates; and 5) other factors.  However, the HI Trust Fund is projected to be insolvent in 2026 (the same as projected last year).  After the HI Trust Fund is exhausted, payroll tax revenues would cover 89% of the projected HI program expenses in 2026, declining slowly to 77% in 2046, and rising gradually to 83% by 2093.

Additionally, the report states that “solutions can and must be found to ensure the financial integrity of the HI program in the short and long term and to reduce the rate of growth in Medicare costs through viable means.  The sooner the solutions are enacted, the more flexible and gradual they can be.  Moreover, the early introduction of reforms increases the time available for affected individuals and organizations…to adjust their expectations and behavior.  The Board recommends that Congress and the executive branch work together with a sense of urgency to address these challenges.”

The report is available here.