The Medicare Board of Trustees has issued its annual report, setting the estimated depletion date for Medicare's Hospital Insurance trust fund at 2030, four years later than the trustees predicted in last year's report.
Here are six things to know about how Medicare is financed and its solvency going forward, based on the trustees' report and the Congressional Budget Office's 2014 long-term budget outlook, which was released earlier this month.
1. Medicare Part A benefits are financed through the Hospital Insurance Trust Fund, which is credited with payroll taxes and a small amount of other revenues.
2. According to the trustees, the fund isn't adequately financed for the next 10 years. HI trust fund expenditures have exceeded income each year since 2008, and that trend is expected to continue this year. During the past five years, HI expenditure growth has averaged 2.5 percent annually. The growth rate is expected to average 3.9 percent during the next five years. Although the trustees project slight surpluses for the HI trust fund from 2015 to 2022, the fund will return to deficits after that time period until it becomes insolvent in 2030.
3. The extension of the fund's expected solvency by four years reflects a number of factors that have changed since last year, including lower-than-expected spending in 2013, lower utilization assumptions for inpatient hospitals and lower case mix increases for skilled nursing facilities and home health agencies.
4. The Patient Protection and Affordable Care Act — which contains roughly 165 provisions concerning Medicare — also factors into the trustees' projections. The PPACA includes measures to reduce Medicare costs, increase revenue, improve benefits, combat fraud and abuse, and more. The report states that "the board assumes that the various cost-reduction measures—the most important of which are the reductions in the annual payment rate updates for most categories of Medicare providers by the growth in economy-wide multifactor productivity — will occur as the [PPACA] requires."
5. The trustees' most recent prediction echoes the CBO's latest projections. Although projections of future spending under Part A are uncertain because of likely changes over time in the healthcare system, according to the CBO's April 2014 baseline projections, Part A spending is expected to start increasing faster than HI trust fund income after 2024 or so, meaning the trust fund will be exhausted around 2030.
6. Once the HI trust fund is exhausted, total payments to health insurers and providers for Medicare Part A would be limited to the revenues the trust fund receives. According to the CBO, in that scenario, Medicare beneficiaries' access to care "would almost certainly be reduced."