No, Medicare is Not Going Broke: Understanding the 2018 Medicare Trustees Report

The June 5 release of the Medicare Trustees Report has triggered alarm bell-style media headlines. Dozens of news reports about Medicare’s worsening financial outlook have painted a bleak picture—some bleaker than others, with one boldface headline announcing, “Medicare will go broke three years earlier than expected.”

The “go broke” headline was referring to the report’s projection that the trust fund that pays for hospital services, called the Hospital Insurance (or Part A) trust fund, will be depleted in 2026, three years earlier than projected in 2017.

Let’s set the record straight: First, Medicare is not going broke. Second, the Trustees Report is not even saying that Medicare won’t be able to pay for hospital services.

Even if the Hospital Insurance trust fund were to be depleted, Medicare would still be able to meet 91 percent of its obligations for hospital services. And, as it has done in the past, it could make adjustments to address the remaining shortfall without resorting to draconian changes to the program or imposing large costs on people with Medicare. According to a recent study, “…the [Medicare] trust fund has been projected to reach insolvency within 12 years or less in 22 of the annual reports issued since 1970, six of which predicted that the trust fund would be ‘broke’ within five years or less.” (Emphasis added.)

Moreover, let’s not forget that hospital services are just one part of the larger Medicare program. Medicare also includes coverage for physician services (Part B) and prescription drugs (Part D).  Efforts to strengthen Medicare’s long-term finances should look broadly across all these components, working to improve quality of care (which actually can mean savings) and control spending.

Some recent innovations in payment and delivery system reforms have shown promise in doing exactly that. Other strategies include ensuring that Medicare does not pay more for services based on the setting in which those services are delivered, and reducing use of services that are not necessary. Medicare should also stop overpaying for prescription drugs. A recent government report shows that brand-name drug prices in Part D increased six times faster than the rate of inflation between 2011 and 2015.

Finally, the latest report’s projection of the trust fund depletion date reflects Medicare’s position as part of a broader, interdependent whole. Medicare functions interdependently within a larger health care and economic system, and changes outside Medicare can affect Medicare’s finances. The Trustees Report projects higher hospital spending in the future and one of the reasons is rising numbers of uninsured persons and rising uncompensated hospital care due to the repeal of the Affordable Care Act’s health coverage requirement. The Report also projects lower revenues going into the Hospital Insurance trust fund because of lower projected Medicare payroll tax revenue—the result of both lower wages as well as lower revenues from taxes on Social Security benefits due to the recent tax cut legislation.

We should not overreact to the recent Trustees Report. Instead, we should use it as a signal to advance what’s working from current innovations and tackle unnecessary spending in Medicare and the broader health care system.

 

 

 

Lina Walker is vice president at the AARP Public Policy Institute, working on health care issues.

 

 

 

 

Harriet Komisar is a senior strategic policy advisor at the AARP Public Policy Institute, where she works on Medicare and other health care topics.

 

 

 

 

 

 

Keith Lind is a Senior Strategic Policy Adviser for the AARP Public Policy Institute, where he covers issues related to Medicare and medical devices.