The solvency of the Medicare (Part A Hospital Insurance) Trust Fund turns in large part on Congress. Democratic leaders extended its life when they passed the Affordable Care Act and imposed additional payroll taxes on the wealthiest Americans. Now, according to the Center on Budget and Policy Priorities, Republican leaders in the House have voted to shorten its life by two years in passing the American Health Care Act (AHCA).
Over its decades-long history, the Medicare Part A Trust Fund has seen significant rises and falls in its projected life. In 2005, the Trust Fund was projected to remain solvent for 15 years until 2020, in 2009 for only eight years until 2017, and in 2015, for 15 more years until 2030. The Affordable Care Act extended its life by 11 years when it imposed an additional Medicare tax on wealthy Americans.
The ACA obligates people earning more than $200,000 a year (couples $250,000) to pay an additional Medicare payroll tax of 0.9 percent, essentially raising payroll contributions for this cohort from 2.9 percent to 3.8 percent. AHCA, as passed by the House, eliminates this tax in 2023, reducing contributions to the Part A Trust Fund by $59 billion over 10 years.
Medicare payroll tax contributions support the Medicare Part A Trust Fund, so when the economy is strong and more people are working, the fund grows faster than when the economy is weak and fewer people are working. The size of the Trust Fund also turns on Medicare hospital expenditures, a function of both the number of people with Medicare getting hospital care and the cost of that care.
The Medicare Part A Trust Fund is currently projected to have enough money to pay out Medicare Part A hospital benefits in full until 2028. If AHCA becomes law, it would have enough money to pay out these benefits until 2026. (Medicare Part B medical benefits are paid for through the Part B premium and general revenues.) And, a Congress that wants to keep it solvent can do so, much as Congress can ensure the Pentagon is funded.
If the Republican Congress passes AHCA and does away with the ACA’s additional payroll tax on the wealthiest Americans, it would hand over an additional $13,700 on average to wealthy Americans in 2025 and make it harder for people with low incomes to get Medicare or other affordable coverage. It would also cut payments to hospitals serving underinsured and uninsured people by some $48 billion over ten years.
N.B. Even if Congress did nothing in 2026, the Medicare Trust Fund could pay out 87 percent of Part A benefits and all of its benefits under Part B of the program.
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