Analysis: Another year closer to depleting the Part A Trust Fund

The Wall Street Journal is reporting “Medicare’s hospital insurance fund would be depleted in 2026, unchanged from last year’s report, as lower payroll taxes and reduced income from the taxation of Social Security benefits weighed on the trust fund’s income.

The trust fund’s costs, meanwhile, are expected to be slightly higher than last year due to higher spending and projected provider payment updates. The costs of both programs are projected to rise substantially as a share of the economy over the next 16 years, as a wave of retiring baby-boomers boosts the number of beneficiaries, and lower birth rates over the past few decades weigh on employment growth and economic output. As a share of gross domestic product, Medicare costs are projected to rise from 3.7% of GDP to 5.7% by 2035.”  

Takeaway

It was easy to forget about the Social Security Board of Trustees report with everything else going on the week of April 22.

At least, given this isn’t something either political party is talking about, Congress seems to have done so in short order.

So, what happens when the trust fund is exhausted? In 2026 Medicare payroll taxes will only be enough to pay 89% of the Part A benefit. At that point, some combination of hospital/SNF payment cuts, changes to covered benefits, increases in beneficiary cost sharing and/or increases in payroll taxes will be required. Despite already inadequate inpatient payment rates, hospitals will likely bear the brunt, if not all, of the pain in 2026 and thereafter.

It’s hard to imagine Congress increasing taxes on the working population, increasing costs for sick beneficiaries or generally reducing beneficiaries access to care. The other option is to implement models that decrease potentially avoidable hospital and SNF utilization, which is where models like Primary Care First and Direct Contracting, efforts to coordinate care for duals and expand bundled payments, come into play. While the timing may not have been intentional, CMS and CMMI announced opportunities in each area last week as well.