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On June 2, 2022, the Medicare Board of Trustees released its annual report on the financial status of the Medicare funds. Total annual Medicare expenditures were over $839 billion in 2021 or 3.9% of Gross Domestic Product (GDP), and are expected to grow to 6.5% of GDP in 2096. 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 2021 amounted to about $888 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 decreasing to 0.70% of taxable payroll from 0.77% in last year’s report due to: 1) changes to private health plan assumptions (+0.07%); and 2) changes to economic and demographic assumptions (+0.06%). However, the HI Trust Fund is projected to be insolvent in 2028 (two years later than reported last year). After the HI Trust Fund is exhausted, payroll tax revenues would cover 90% of the projected HI program expenses in 2028.

The financial outlook for the SMI program is better than the HI program. Under current law, each account within SMI is automatically in financial balance. For both Medicare Parts B and D, revenues are projected to equal expenditures for all future years, but only because beneficiary premiums and general revenue transfers must, by statute, be increased to meet expected costs for each year. However, the rapid growth of health care costs is expected to greatly accelerate the need to finance these benefits. 

The report states, “the COVID-19 pandemic has had significant effects on the short-term financing and spending of the Medicare program, but the financial status of the trust funds has not materially changed.”

The report is available here.