Almost from its inception, the Medicare Trust Fund has been at risk of running out of money. The life of the Trust Fund has fluctuated tremendously over the last several decades. Whenever necessary, Congress has stepped in to keep Medicare strong. Given the new Congressional Budget Office projection that the Trust Fund will run out of funding in 2024, President-elect Joe Biden should prioritize Congressional action to strengthen the Medicare Trust Fund once again.
The Medicare Trust Fund covers most of the cost of inpatient services under Medicare Part A. Every working American pays a small percentage of their earned income into the Medicare Trust Fund, which their employers match. When they become eligible for Medicare, if they have contributed to the Trust Fund for at least 10 years, they receive Part A coverage premium-free. They are responsible only for out-of-pocket costs, deductibles and copays. (People with Medicare contribute about 25 percent of the cost of outpatient services in monthly premiums under Medicare Part B. General tax revenues cover the remaining costs.)
In 1975, the Medicare Trust Fund was projected to have a 24-year life, writes David Muhlestein in the Health Affairs blog. Seven years later, it was projected to be exhausted in five years. A decade after that, it had just four years of funding. But, Congress took action and, in 2002, the Trust Fund again had a projected life of more than two decades, 28 years.
With the passage of the Affordable Care Act in 2010, the Trust Fund received a new injection of funding from higher payroll contributions of people with high incomes. At that time, it was projected that the Trust Fund had 19 years before exhaustion. But, as things evolved and, now, with the pandemic and a high unemployment rate, the Trust Fund is receiving less money than projected. Consequently, the Congressional Budget Office again has revised its estimate of when the Trust Fund will be exhausted to 2024.
It is not clear what will happen if the Medicare Part A Trust Fund is depleted in 2024, and we do not want to find out. People will continue to pay in. But, that money will cover only about 83 percent of the cost of inpatient care. Unless Congress acts, beginning in 2024, CMS will either have to delay payments to Part A health care providers until money comes in or adjust their rates down to 83 percent of negotiated rates. Either way, the providers are sure to sue for the full amount they are due or stop treating people with Medicare.
What’s crystal clear is that President Biden will need to work closely with Congress to arrive at a solution to shore up the Medicare Trust Fund.
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