Medicare's Last Gasp
The Hospital Insurance Trust Fund covers acute hospital, nursing home, and hospice care. Because of COVID-19, it's running out quickly.
COVID-19 has flipped many aspects of our life upside down, one of them being Medicare’s solvency. The Hospital Trust Fund, which funds Part A of Medicare, is about to be depleted. In 2019, $328.3 billion was spent on Part A, and this number is expected to almost double by 2029. Previously predicted to be exhausted in 2026, it is now expected to be insolvent in 2024, largely thanks to the Coronavirus.
What is the Hospital Insurance Trust Fund, and how is it financed?
The Hospital Insurance Trust fund covers acute hospital care, nursing home-care, and hospice care. All seniors that are 65 years of age or older are automatically enrolled in this program, also known as Part A of Medicare. This program allows seniors to pay a deductible that is indexed to increase with health costs.
The Hospital Insurance Trust Fund is mainly financed by the Hospital Insurance (HI) payroll tax, which means expenditures depend on current employee and employer’s earnings. Employers and employees each pay 1.45 percent of a worker’s wage, while self-employed individuals pay 2.9 percent of their net earnings. The more recent Affordable Care Act increased payroll taxes for individuals that earn more than $200,000 and families that earn more than $250,000 to 3.8 percent, including unearned income.
The HI trust fund is being depleted at a rate faster than ever before. Why?
There are several factors that are stressing the HI trust fund more than ever before.
The increase in the number of hospital stays, especially in seniors, is a direct result of COVID-19. With more and more Americans enrolling in Medicare everyday, this puts a large amount of stress on the HI trust fund. Expenditures are higher than ever.
The state of the economy is not helping either. High unemployment rates, failing businesses, reduced salaries, and a smaller labor force forecast much lower contributions to the trust fund in the near future.
The “pay as you go” nature of the HI trust fund is proving to be unsustainable, and COVID-19 has accelerated its demise.
Are there any solutions?
Historically, policymakers tend to shy away from talking about healthcare. It is extremely unpopular for politicians to address this problem, as all options have very large drawbacks.
So what can be done to extend the solvency of the trust fund? To reduce financial stress, an option would be to exclude COVID-19 related care from Medicare Part A. Another option could be to increase taxes or government spending. More drastic options include restructuring Medicare or creating a new program, which is highly unlikely. This tradeoff between accessibility of services and charging more taxes makes the decision very difficult.
The Biden Administration will have to grapple with this issue, and it will be interesting to see what decisions, if any, will be made.
Cover: Gina Ferazzi/LA Times