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Medicare Faces Insolvency in 2026, Three Years Earlier than Last Year's Projection

Analysis  |  By John Commins  
   June 05, 2018

Medicare Trustees in their annual report project that total program costs will grow from approximately 3.7% of GDP in 2017 to 5.8% of GDP by 2038.  

Funding for Medicare will be depleted in 2026, three years earlier than what was projected in last year's report by the federal trustees for the program.

By 2026, Medicare's Hospital Insurance Trust Fund will pay 91% of costs, and drop to 78% by 2039, according to a report released Tuesday by trustees for Medicare and Social Security.

"The HI fund again fails the test of short-range financial adequacy, as its trust fund ratio is already below 100% of annual costs, and is expected to decline continuously until reserve depletion in 2026," the report said.

Among the projections:

  • Medicare Part B, and D will remain adequately funded "into the indefinite future," the trustees reported, because law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs.
  • The aging population and rising health care costs cause Parts B and D projected costs to grow steadily from 2.1% of GDP in 2017 to approximately 3.6% of GDP in 2037. General revenues will finance roughly three-quarters of SMI costs, and premiums paid by beneficiaries almost all of the remaining quarter.
  • Total Medicare costs will grow from approximately 3.7% of GDP in 2017 to 5.8% of GDP by 2038.
  • Social Security and Medicare will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid aging of the Baby Boomer generation, and lower-birth-rate generations entering employment.
  • Social Security's Old-Age and Survivors Insurance Trust Fund, and Disability Insurance Trust Fund will be depleted in 2034, the same year projected in last year's report.   

The trustees urged Congress to consider options to reduce or eliminate the long-term financing shortfalls in Social Security and Medicare "as soon as possible."

"Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare," the trustees concluded.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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