Medicare Hospital Trust Fund to Stay Solvent Until 2036, Trustees' Report Says

The Medicare Hospital Insurance Trust Fund is expected to remain solvent until 2036, 5 years longer than projected last year, the Medicare trustees said Monday in their annual report to Congress, but they also expressed concern about low payment rates to physicians.

The longer hospital trust fund solvency is "largely due to greater income and lower expenditures than was projected last year," a senior administration official said on a call with reporters. "Income was projected to be higher because the number of covered workers and average wages per worker were both projected to be higher than last year's estimate."

On the other hand, "expenditures were projected to be lower in the short-range period mainly as a result of a policy change to reduce Medicare Advantage spending," the official said.

The long range actuarial deficit of the hospital trust fund is 0.35% of taxable payroll, "lower than last year's estimate of 0.62%," he said. "Two ways to reduce the deficit are to decrease outlays by 8% or increase the standard payroll tax rate" from 2.9% to 3.25%.

The trustees' report covers two separate funds. The Medicare Hospital Insurance Trust Fund -- also known as the Part A Trust Fund -- pays for inpatient hospital care as well as hospice care and skilled nursing facility and home health services following hospital stays. The Supplemental Medical Insurance (SMI) Trust Fund pays for benefits under Medicare Part B -- which includes physician services -- and Medicare Part D, which is the prescription drug benefit.

The SMI Trust Fund is adequately financed into the indefinite future because it is financed by beneficiary premiums and federal funds that are automatically adjusted each year to cover costs for the upcoming year. In contrast, the Part A Trust Fund is financed by a variety of sources, including payroll taxes, a portion of the taxes on Social Security benefits, Part D state payments, Part B drug fees, and beneficiary premiums.

The Medicare board of trustees has six members: the secretaries of Labor, HHS, and Treasury; the Commissioner of Social Security; and two public trustees, although the public trustee positions have been vacant since 2015. The CMS administrator serves as the board's secretary.

The Medicare trustees also found that Part B expenditures were $502.9 billion in 2023 and are expected to grow annually at an average of 7.7% for the next 5 years under current law. In 2024, the monthly Part B premium rate is $174.70 and is projected to increase to $185 in 2025, although that amount won't be finalized until later this fall.

As for the Part D drug program, expenditures there stood at $131.1 billion in 2023 and are projected to grow at an average annual rate of 8.2% over the next 5 years, according to the report.

In comparison to the rosy overall forecast for the Hospital Insurance Trust Fund, the official warned that "uncertainty remains about adherence to current law payment updates, particularly in the long range," adding that the concern "is more immediate for physician services, for which a negative payment rate update is projected in 2025, and updates are projected to be below the rate of inflation in all future years."

In particular, the official told MedPage Today on the call, with a negative payment update anticipated for 2025 and 0.25% or 0.75% updates specified after that, which are "considerably lower than projected rates of inflation..., there's a recognition that those updates are not going to meet up with expectations for provider costs, and that's the concern that is raised."

The trustees' report includes an alternative scenario in which physician payment rates are raised in conjunction with the rate of increase in the Medicare Economic Index (MEI), a measure of healthcare inflation. Under that alternative -- which likely would ease concerns about beneficiary access to physicians -- "total Medicare expenditures would increase to 8.4% of GDP [gross domestic product] at the end of the long-range [75-year] projection period, as opposed to 6.2%" if current law doesn't change, the official said. He noted that without changes to current law, "should payment rates prove to be inadequate for any service, beneficiary access to and quality of Medicare benefits would deteriorate over time."

Raising physician payment rates in line with the MEI was also discussed by the Medicare Payment Advisory Commission (MedPAC) in its March report to Congress. "Given recent high inflation, cost increases could be difficult for clinicians to continue to absorb," the report said. "Yet current payments to clinicians appear to be adequate, based on many of our indicators. Given these mixed findings, for calendar year 2025, the commission recommends that the Congress update the 2024 Medicare base payment rate for physician and other health professional services by the amount specified in current law plus 50% of the projected increase in the MEI."

"Based on CMS's MEI projections at the time of this publication, the recommended update for 2025 would be equivalent to 1.3% above current law," the report continued. "Our recommendation would be a permanent update that would be built into subsequent years' payment rates, in contrast to the temporary updates specified in current law for 2021 through 2024, which have each increased payment rates for one year only and then expired."

American Medical Association president Jesse Ehrenfeld, MD, MPH, said in a statement Monday that "This report continues the drumbeat of recommendations that all point out that the payment system is failing patients and physicians. When physicians face a set of facts, we respond to improve the situation. It would be political malpractice for Congress to sit on its hands and not respond to this report."

"Medicare trustees and MedPAC have teed up the issue for members of Congress who, no doubt, have heard from constituents about problems accessing healthcare under Medicare," he added. "The AMA has plenty of reform ideas to permanently solve the problem and end this annual cycle of payment cuts and patches."

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