Medicare financial outlook worsens

Jun 5 2018

Medicare's financial condition has taken a turn for the worse following higher-than-expected hospital spending and reduced payroll taxes that fund the program, the federal government reported Tuesday.

In its annual report to Congress, the Medicare board of trustees said the program’s hospital insurance trust fund could run out of money by 2026 — three years earlier than projected last year.

In a separate report, the government reported that Social Security will be able to pay full benefits until 2034, the same estimate as last year.

Treasury Secretary Steven Mnuchin downplayed any pending crisis, although he acknowledged Medicare faces many long-standing economic and demographic challenges.

"Lackluster economic growth in previous years, coupled with an aging population, has contributed to projected shortages for both Social Security and Medicare," he said in a statement.

Mnuchin vowed the Trump administration's efforts to cut taxes, ease federal regulations and improve trade deals would help both programs survive long term. "Robust economic growth will help to ensure their lasting stability," he said.

The Medicare Part A hospital trust fund is financed mostly through payroll taxes. It helps pay hospital, home health services, nursing home costs and hospice costs. The report said lower payroll taxes are being paid as a result of lower wages and reduced income from taxation of Social Security benefits.

Medicare Part B premiums — which cover visits to physicians and other outpatient costs — should remain stable next year, the trustees said. About a quarter of Part B costs are paid for by beneficiary premiums with the rest from the federal budget.

The Medicare trustees said the trust fund will be able to pay full benefits until 2026 but then it will gradually decline to be able to cover 78 percent of expenses in 2042.

Medicare provides health coverage to more than 58 million people, including seniors and people with disabilities. It has added 7 million people since 2013.