Medicare Part A Fund Projected to Be Insolvent by 2033, Three Years Sooner Than Expected

The Medicare Part A Hospital Insurance Trust Fund, which finances inpatient hospital stays for Medicare beneficiaries, is projected to face insolvency by 2033, three years earlier than last year's forecast. This projection indicates that after 2033, the trust fund reserves will be depleted, and incoming revenue will cover only 89 percent of scheduled hospital benefits. While the Supplementary Medical Insurance (SMI) Trust Fund that finances Medicare Part B and Part D does not face a shortfall, the rising costs of SMI continue to put financial pressure on both beneficiaries and taxpayers.

Medicare's financial challenges reflect broader concerns about the sustainability of the program as the U.S. population ages. The program currently covers 68.5 million people, with 90 percent being age 65 or older. Medicare funding derives from general revenues, payroll taxes, and beneficiary premiums. However, the ratio of workers supporting each Medicare beneficiary is declining, from 2.8 in 2023 to an expected 2.5 by 2029, creating additional funding pressure.

The Medicare Payment Advisory Commission highlights escalating Medicare spending, with projected increases of 7 to 8 percent annually over the next decade. Total Medicare expenditures are expected to nearly double, rising from $1 trillion in 2023 to $1.9 trillion by 2032. These increases are driven in part by an influx of aging baby boomers and higher usage of medical services.

Medicare Advantage (MA) plans, which offer private coverage options to beneficiaries, have seen enrollment surpass 51 percent of eligible Medicare members. MA plans are also more costly, expected to require 20 percent higher spending per enrollee compared to traditional Medicare. The Centers for Medicare & Medicaid Services plans to raise MA payments by an average of 5 percent for the upcoming year, contributing to cost growth.

The trustees attribute the poorer financial outlook of the Hospital Insurance fund to unexpectedly high expenditures in 2024 and revised assumptions about increased use of inpatient and hospice services during the early years of the projection period. These factors have increased the baseline spending level and future spending estimates.

AARP emphasizes the importance of strengthening Medicare's financial position to maintain affordability and sustainability for current and future beneficiaries. The organization notes Medicare's critical role in negotiating prescription drug prices and providing health coverage primarily for older adults.

The Medicare Board of Trustees report and related analyses underscore the urgency of addressing Medicare’s funding challenges amid demographic shifts and rising healthcare costs. The sustainability of Medicare is a significant concern for policymakers, insurers, providers, and beneficiaries alike.

Monitoring and responding to Medicare’s financial status will remain central to insurance industry stakeholders and health policy decision-makers. Adjustments to program funding, benefit structures, or cost management strategies may be necessary to ensure long-term viability of Medicare coverage for the aging U.S. population.