Skip to content

Latest Medicare Solvency Projections Highlight the Need for Reforms to Improve Medicare’s Fiscal Outlook

A new report from the Medicare Trustees underscores looming Medicare insolvency and calls for Congress and the president to address financial challenges.

Image of U.S. Treasury building with metal bars in foreground.
(Chip Somodevilla/Getty Images)

The 2023 Medicare Trustees Report, released last week, once again underscores the serious financial pressures facing the Medicare program. Spending is projected to continue increasing faster than economic growth and aggregate wages over the next several decades, placing a greater strain on taxpayers, beneficiaries, and the federal budget. 

The projected date of insolvency of Medicare’s hospital insurance (HI) trust fund is 2031, at which point Medicare hospital insurance payments will immediately face an 11% cut. While this date is three years later than the projection in last year’s report and buys policymakers a little more time to enact meaningful reforms, insolvency is still projected to occur within the next decade. In 2025 — just two years from now — trust fund revenues will start to fall below payments. The Trustees have determined that the HI trust fund is not adequately financed over the next ten years,” and they state that legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.” 

The HI trust fund is just one of several worrying indicators of Medicare’s poor fiscal health. Medicare spending is expected to grow rapidly across all parts of the program due to rising per-capita health care costs and the aging of baby boomers into the program. The Trustees project Medicare costs to increase from their current level of 3.7% of GDP in 2022 to 6% in 2047

Over the next five years, spending in Part B and Part D of the Medicare program is expected to grow at average annual rates of about 10% and 6%, respectively, exceeding the projected GDP growth rate of 4.3%. This growth places an increasingly large burden on beneficiaries who will have to pay higher premiums and taxpayers who subsidize those premiums because Parts B and D are funded through a combination of general revenue and premium contributions. Because the Medicare program is becoming excessively dependent on general revenues, which are deficit-financed, the Trustees issued a formal Medicare funding warning for the sixth consecutive year. 

The Trustees also project increasing enrollment into Medicare Advantage, an alternative to traditional Medicare coverage run by private insurance companies. Medicare Advantage now covers nearly half of all Medicare beneficiaries and accounts for more than half of total Part A and B spending. The evidence is clear that the Medicare program pays more to cover similar beneficiaries in Medicare Advantage than in traditional Medicare. About 42% of Medicare Advantage funding comes from the HI trust fund. The overpayments to Medicare Advantage plans and the growth in enrollment make Medicare Advantage one of the key drivers of Medicare program spending and thus an important target for reforms to improve Medicare’s fiscal situation. 

The Trustees note that there is a high degree of uncertainty in estimating Medicare’s future costs. One reason for this uncertainty is the COVID-19 pandemic, which has had a significant effect on Medicare program spending, with actual fee-for-service spending remaining consistently below pre-pandemic spending projections. Projected wage growth, which affects the amount of revenue flowing into the HI trust fund, is also uncertain and can change unexpectedly if economic conditions change. 

The Trustees’ current law projections represent a best-case scenario. Medicare’s financial situation would be much worse under an alternative scenario that the Trustees estimate, which assumes Congress increases provider payment rates above current law to help them keep pace with increasing costs. Under that scenario, spending would grow substantially faster over the next several decades. Congress is likely to face mounting pressure to address physician payments, which would increase Medicare spending and make this less fiscally favorable scenario a reality. 

The Trustees conclude that their projections indicate a need for substantial changes to address Medicare’s fiscal challenges,” and they urge Congress and the president to work together quickly to enact meaningful reforms to shore up the program for the 65 million Americans who depend on it. Improving Medicare’s fiscal outlook will require a comprehensive and balanced approach that reduces wasteful spending and strengthens the program’s financing. Such reforms are critical for putting Medicare on a fiscally sustainable path for future generations.