What You Actually Need to Know From the 2021 Medicare Trustees Report

What You Actually Need to Know From the 2021 Medicare Trustees Report
September 7, 2021

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?

Typically, this report comes out at the end of April, but this year, it was over 3 months late. At the beginning of 2020, the Medicare program was dramatically affected by the COVID-19 pandemic, and a lot of time and resources went to the cause.

Even though this report is late, we're glad to have our hands on it so we can provide you the highlights.

Read the full, official report from CMS: 2021 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

COVID-19 and Medicare

Last year, we were just starting to understand the effects of COVID-19, and the trustees mentioned the report wasn't taking the pandemic into consideration.

Well, it's been over a year, and we now have a grasp on how the Medicare program has been and will be financially affected by COVID.

First, the amount of payroll taxes collected last year to support the Medicare program went way down, because a lot of people weren't working. They were either forced to quarantine or temporarily lost their jobs.

At the same time, Medicare spending went up to cover COVID-19 testing and treatments. On top of that, many Medicare coverage limitations and rules were lifted during the public health emergency, which further increased Medicare spending.

Payments for inpatient admission related to COVID-19 were increased by 20%.

However, a lot of people avoided the doctor and hospitals last year for fear of getting COVID-19. Many people canceled elective services or routine visits, which significantly reduced non-COVID-related spending.

Aduhelm, the new Alzheimer's Disease Drug

You may have heard the FDA recently approved Aduhelm, the Alzheimer's disease drug which costs $56,000 per person, per year.

This report does not take the potential effects of this drug into consideration. The trustees say it's not possible at this time to accurately adjust estimates. If Medicare covers this drug, spending will certainly increase.

Highlights From the 2021 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 four 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 – 40% of beneficiaries have it now, and 49% are expected to choose MA by 2030 (p. 192).

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 four years. Bonus: you'll be awesome at Medicare trivia.

Enrollees

2020 2019 2018 2017 2016
Medicare covered 62.6 million people Medicare covered 61.2 million people  Medicare covered 59.9 million people Medicare covered 58.4 million people Medicare covered 56.8 million people
54.1 million were 65+ 52.6 million were 65+ 51.2 million were 65+ 49.5 million were 65+ 47.8 million were 65+
8.5 million were disabled 8.7 million were disabled  8.8 million were disabled 8.9 million were disabled 9 million were disabled
40% chose to enroll in Medicare Advantage 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

Finances

2020 2019 2018 2017 2016
Total costs: $925.8 billion Total costs: $796.2 billion Total costs: $740.6 billion Total costs: $710.2 billion Total costs: $678.7 billion
Total income: $899.9 billion Total income: $794.8 billion Total income: $755.7 billion Total income: $705.1 billion Total income: $710.2 billion
$894.6 billion of the income was from non-interest income $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
$5.3 billion of the income was from interest earnings $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 $26 billion to $277.3 billion 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 8.5%
  • Over the last 5 years, Part D costs have averaged annual growth of 3.2% (down from last year)

What is projected to happen:

  • Part B costs will grow to 7.2% over the next 5 years
  • Part D costs will grow to 6.1% over the next 5 years
  • The GDP will grow by 5.3% 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 in the last four 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.)

medicare trustees report HI trust fund depletion date chart 2021

(Image taken from Page 28.)

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 28). In fact, the report says that every year.

But still… things aren’t looking that great for Medicare.

The trustees explain on pages 30-31 that the changes that need to happen to eliminate the deficit are pretty extreme. They give two options:

  1. Payroll tax needs to increase immediately from 2.9% to 3.67%.
  2. Expenses need to be reduced immediately by 16% (it was also 16% 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.

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