Medicare Fund Falls Short in 2026, Sooner Than Last Forecast

(Bloomberg) -- The main trust fund behind Medicare, the U.S. health-care program for the elderly and disabled, will be exhausted in 2026, three years earlier than was projected a year ago, the government said Tuesday.

Medicare’s Board of Trustees blamed the earlier depletion forecast on expectations of lower payroll taxes and less revenue from taxing Social Security benefits, both the result of the tax overhaul signed by President Donald Trump last year, according to a senior administration official. Medicare is also expected to spend more than projected last year, the report said.

“As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years,” the report said.

Each year, the trustees project the long-term finances of Medicare, which covers about 58 million Americans. Medicare spent $710 billion in 2017, according to the report, making it the single biggest purchaser of health services in the U.S. The trustees include Treasury Secretary Steven Mnuchin and Health and Human Services Secretary Alex Azar.

The long-term solvency is also affected by lawmakers’ repeal in February of a controversial Obamacare effort to cut spending known as the Independent Payment Advisory Board, according to the official.

Medicare’s trust fund pays for hospital visits, nursing care and related services under what’s known as Part A of the program, which was created in 1965. Medicare Part B, which covers outpatient visits, and Part D, which pays for most prescription drugs, are paid for in part by general revenue and by individuals’ premiums. That means those programs don’t face a risk of funds running out.

Social Security

The trustees also annually weigh in on the solvency of Social Security, whose total cost is projected to exceed total income this year for the first time since 1982. The program’s reserves are expected to be depleted in 2034, according to the trustees report, the same projection as last year. The program’s cost will rise more rapidly through 2039 as the baby-boom generation retires faster than the number of covered workers increases, according to the report.

The trustees also expect Medicare spending “will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall.”

Medicare spending as a percentage of gross domestic product totaled 3.7 percent in 2017, and the trustees project it will increase to at least 6.2 percent by 2092.

“This report should eliminate any doubt that Trump’s tax law yanked Medicare closer to insolvency,” Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said in a statement.

©2018 Bloomberg L.P.