It's a New Horizons tradition – every year, we publish a summary of the Medicare Trustees Report. After all, it’s a few hundred pages long, and who has time for that?
Is Medicare running out of money? Always. Let's go through all the details together.
→ Read the full, official report from CMS: 2020 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds
New to the industry? Start here: Medicare Basics for New Senior Market Insurance Agents
But First, Coronavirus
The coronavirus has had a massive impact on our country, and our government's finances are no exception. The US government has spent over $2 trillion because of this pandemic. Many of us are wondering how this pandemic will affect Medicare's finances and future.
The 2020 Medicare Trustees Report isn't much of a help. The Medicare Board of Trustees explains,
The projections and analysis in this report do not reflect the potential effects of the COVID-19 pandemic on the Medicare program. Given the uncertainty associated with these impacts, the Trustees believe that it is not possible to adjust the estimates accurately at this time. (Page 1)
Take the highlights from this year's report with a grain of salt. The COVID-19 pandemic is sure to impact Medicare – we just don't know the full extent of it yet.
Highlights From the 2020 Medicare Trustees Report
Each year, we read the report and summarize it as briefly as we can. If you're short on time and can't read this full article, here's the gist.
Medicare Part A is expected to run out of money by 2026, the same estimation the Board has published for the last three years. For Medicare Part B and D, the finances are looking fine, because the premiums are set each year to cover expected costs.
For Part A, the trustees are recommending a payroll tax hike or a 16% cut in expenses. Medicare Advantage is still gaining steam – 37.5% of beneficiaries have it now, and 43.2% are expected to choose MA by 2029.
If you want a little more than that, you can read some more in-depth information from the report below. Don’t worry – we’ve translated the report into layman’s terms so you can quickly understand what’s going on.
Healthcare Tech Is Advancing
Making cost projections is more challenging than ever because healthcare technology is moving at lightning speed. The Board explains in this report that looking out more than several decades is nearly impossible because of new interventions, procedures, and therapies.
From the completion of the human genome draft to cutting-edge cancer treatments, some incredible medical breakthroughs are changing the way conditions and diseases are treated in the 21st century.
Diseases and conditions that aren't curable or treatable today may be handled routinely in the future. While advances in healthcare have increased spending in the past, the Board is optimistic that future improvements might increase efficiency and decrease costs.
The bottom line is... well, we have no idea how costs will change as science evolves.
Medicare Numbers Over Time
It's always nice to be in-the-know, so here's a look at some Medicare enrollment and spending numbers from this year's report compared to the last three years. Bonus: you'll be awesome at Medicare trivia.
|Medicare covered 61.2 million people||Medicare covered 59.9 million people||Medicare covered 58.4 million people||Medicare covered 56.8 million people|
|52.6 million were 65+||51.2 million were 65+||49.5 million were 65+||47.8 million were 65+|
|8.7 million were disabled||8.8 million were disabled||8.9 million were disabled||9 million were disabled|
|37.5% of these people chose to enroll in Medicare Advantage||About 36% of these people chose to enroll in Medicare Advantage||Over 34% of these people chose to enroll in Medicare Advantage||Over 32% of these people chose to enroll in Medicare Advantage|
|Total costs were $796.2 billion||Total costs were $740.6 billion||Total costs were $710.2 billion||Total costs were $678.7 billion|
|Total income was $794.8 billion||Total income was $755.7 billion||Total income was $705.1 billion||Total income was $710.2 billion|
|$785.7 billion of the income was from non-interest income||$745.9 billion of the income was from non-interest income||$694.3 billion of the income was from non-interest income||$700.4 billion of the income was from non-interest income|
|$9.1 billion of the income was from interest earnings||$9.8 billion of the income was from interest earnings||$9.8 billion of the income was from interest earnings||$9.8 billion of the income was from interest earnings|
|Assets held in special issue U.S. Treasury securities decreased by $1.4 billion to $303.3 billion.||Assets held in special issue U.S. Treasury securities increased by $15.1 billion to $304.7 billion||Assets held in special issue U.S. Treasury securities decreased by $5 billion to $289.6 billion||Assets held in special issue U.S. Treasury securities increased by $31.5 billion to $294.7 billion|
Part B and Part D
What has actually happened:
- Over the last 5 years, Part B costs have averaged annual growth of 6.9%
- Over the last 5 years, Part D costs have averaged annual growth of 4.5%
What is projected to happen:
- Part B costs will grow to 8.2% over the next 5 years
- Part D costs will grow to 7.3% over the next 5 years
- The GDP will grow by 4.3% over the next 5 years, which means these health care costs will be rising faster than the economy
Estimated Depletion Date
The Trustees still agree that there’s just not enough money to keep funding Medicare.
They estimate that the depletion date for the HI trust fund is 2026 – the same as what was estimated the last three years. (To clarify, the HI trust fund is what funds Medicare Part A. Parts B and D are funded separately by the SMI trust fund.)
(Image taken from Page 25.)Medicare Cost Projections
The report is still really cautious, with tons of disclaimers basically saying that anything can happen despite all these projections: “There is substantial uncertainty in the economic, demographic, and health care projection factors for HI trust fund expenditures and revenues” (Page 26). In fact, the report says that every year.
But still… things aren’t looking that great for Medicare.
They explain on pages 28-29 that the changes that need to happen to eliminate the deficit are pretty extreme. They give two options:
- Payroll tax needs to increase immediately from 2.9% to 3.66%.
- Expenses need to be reduced immediately by 16% (it was 19% last year, so we're moving in the right direction).
They do say that the changes could happen gradually, but they'd have to be higher in that case compared to just doing it immediately.
In other words, Medicare needs to balance the checkbook, and there are only two ways to do it – get more coming in or spend less. Both of which are difficult to do.