Highlights of the 2026 Report

The 2026 Medicare Trustees Report, submitted to Congress on June 9th, presents the 61st annual assessment of the financial status of the Hospital Insurance (HI / Part A) and Supplementary Medical Insurance (SMI / Parts B and D) trust funds.

In 2025, Medicare covered an estimated 69 million Americans – 62 million aged 65 and older and 7 million disabled individuals.  Just over half (51 percent) of beneficiaries are now enrolled in private Medicare Advantage plans (Part C), where they receive their Part A and Part B benefits, and often Part D benefits as well.

2025 Medicare at a Glance

Total Beneficiaries: 69.3 million (62.2 million aged + 7.1 million disabled)

Total Expenditures: $1,210.1 billion

Total Income: $1,226.2 billion

Medicare Advantage Enrollment: ~51 percent of beneficiaries

Average benefit per enrollee: $18,650 (Parts A + B + D combined)

Medicare as percent of Gross Domestic Product (GDP): 3.9 percent

The Trustees project Medicare expenditures will grow faster than the economy over the next 75 years – rising from 3.9 percent of GDP in 2025 to 6.5 percent in 2050 to 7.5 percent by 2100 under intermediate (base case) assumptions. Under an alternative scenario – in which payments to hospitals and doctors grew faster than expected – spending could reach 9.8 percent of GDP by 2100.

Fiscal Impact on Trust Fund Solvency

  • The HI trust fund, which finances both traditional Medicare Part A and MA hospital services, is projected to reach insolvency in Q2 2033 – one quarter earlier than last year’s projection.
  • At insolvency, HI revenues would cover only 89 percent of scheduled benefits in 2033 (rising to 93 percent by 2100) – meaning an automatic effective reduction of 11 percent or more in payments to hospitals, MA plans, and other Part A providers, with the potential for reduced beneficiary access to care.

Hospital Insurance (Part A) Trust Fund

The HI trust fund finances inpatient hospital care, hospice, skilled nursing facility stays, and post-hospital home health services. It is funded primarily by a 2.9 percent payroll tax paid by employers and employees, plus a 0.9 percent surtax on wages above $200,000 (for single filers) and $250,000 (for married couples filing jointly) for high earners, and a share of income taxes on Social Security benefits. To date, Congress has never allowed the HI trust fund to become depleted.

Year Total Income ($ Billion) Total Expenditures ($ Billion) Change in Fund ($ Billion) Fund at Year End ($ Billion) Asset Ratio
2025 (actual) $462.4 $444.2 +$18.2 $255.7 53 percent
2026 $486.7 $480.5 +$6.2 $261.9 53 percent
2027 $514.5 $524.9 −$10.5 $251.4 50 percent
2028 $542.4 $563.6 −$21.3 $230.1 45 percent
2029 $570.5 $603.3 −$32.8 $197.4 38 percent
2030 $599.6 $643.5 −$43.9 $153.5 31 percent
2031 $629.1 $685.3 −$56.2 $97.3 22 percent
2032 $658.4 $727.5 −$69.2 $28.1 13 percent
2033 (depletion) $690.0 $775.1 — Depleted —

Long-Range Actuarial Deficit

Over the full 75-year projection period (2026–2100), the HI program carries an actuarial deficit of 0.56 percent of taxable payroll – up from 0.42 percent in the 2025 report. This means the program’s long-range costs exceed its long-range income by that margin, on average.

Changes in Law Impacting Medicare Part A Trust Fund Solvency

The One Big Beautiful Bill Act (OBBBA) (P.L. 119‑21) permanently extended the lower income‑tax rates and wider brackets originally enacted in the 2017 Tax Cuts and Jobs Act (TCJA) (P.L. 115‑97) and also made the higher standard deduction permanent. In addition, OBBBA created a temporary supplemental standard deduction for taxpayers age 65 and older. Because these provisions reduce taxable income, fewer beneficiaries exceed the income thresholds that trigger taxation of Social Security benefits. As a result, the Medicare Hospital Insurance (HI) Trust Fund receives less revenue from the portion of Social Security benefits subject to income tax, reducing HI trust fund income.

Multiple Options to Address Shortfalls in the HI Trust Fund Exist

Options to restore HI Trust Fund solvency suggested in the Medicare Trustees report include increasing the payroll tax rate from 2.90 percent to 3.46 percent starting in January 2026, OR

Reduce scheduled benefits by 12.0 percent for all current and future beneficiaries starting in January 2026. If action is deferred until the fund is depleted in 2033, substantially larger adjustments would be required, concentrated on fewer years and fewer generations.   The National Committee opposes cutting benefits (for proposals to extend HI Trust Fund solvency see “National Committee Position” at the end of this document).

Supplementary Medical Insurance (Parts B and D) Trust Fund

The Supplementary Medical Insurance (SMI) trust fund contains two separate accounts – Part B (physician, outpatient, and related services) and Part D (prescription drugs). Unlike HI, both are self-balancing: beneficiary premiums and federal general fund contributions are reset each year to cover projected costs. The standard Medicare Part B premium pays 25 percent of Part B costs (beneficiaries whose premium is means-tested pay 35 percent to 85 percent of Part B costs) and general revenue pays the balance of 75 percent.  As a result, the SMI trust fund will remain technically solvent indefinitely. However, this automatic balance comes at an ever-increasing cost to beneficiaries, the federal government and taxpayers.

Part B – Physician and Outpatient Services

Total Part B expenditures in 2025 were $584 billion. Costs grew an average of 6.9 percent per year over the past five years, compared with GDP growth of 7.6 percent. However, Part B costs are projected to accelerate to an average of 8.5 percent annually through 2030 – more than double the projected GDP growth rate of 4.0 percent – driven largely by continued growth in physician-administered drugs.

Near‑term projections are lower than in last year’s report because Medicare expects a more than 90 percent reduction in skin substitute spending in 2026. Spending on these products rose sharply – from less than $1 billion in 2021 to $14.1 billion in 2025 – prompting major payment policy changes in the 2026 physician fee schedule final rule. As a result, the Trustees now project that spending on skin substitutes will fall by more than 90 percent. Skin substitutes are wound‑care products – often gels, sheets, or biologic materials – used to help heal chronic wounds such as diabetic foot ulcers.

In addition, projected growth in other high-cost Part B drugs (particularly biologics and physician-administered specialty drugs) will push Part B expenditures as a share of GDP above last year’s projections by 2048 and beyond.

Part D – Prescription Drugs

Part D expenditures were $181.5 billion in 2025. Looking ahead, Part D costs are projected to grow at 9.4 percent annually through 2030 – the fastest rate across all parts of Medicare – and substantially higher than prior-year projections. Several factors drive this:

  • Explosive growth in GLP-1 utilization: medications like semaglutide and tirzepatide, used for diabetes and obesity, drove significantly higher Part D spending in 2025, and the Trustees project continued elevated utilization.
  • High-cost specialty drugs: broader use of biologics and gene therapies contributes to structurally higher Part D costs.
  • Lower Direct and Indirect Remuneration (DIR): Medicare Part D normally gets a lot of money back from drug companies and pharmacies in the form of rebates and discounts, called Direct and Indirect Remuneration or “DIR.” These payments help lower the true cost of the drug benefit. But the 2026 report shows that these rebates are coming in much lower than expected. When Medicare gets fewer rebates, the real cost of the Part D program goes up. Since Part D premiums are set so that beneficiaries pay about 25 percent of total plan costs, higher plan costs mean higher monthly premiums for everyone enrolled in Part D. Lower DIR can also raise what some beneficiaries pay out of pocket at the pharmacy, because fewer rebates applied behind the scenes mean the upfront drug price is higher – and that higher price counts toward their deductible and other cost‑sharing.

Long-Range SMI Growth and the Federal Budget

While Supplementary Medical Insurance is automatically balanced, the rapid growth of its costs poses a serious and growing challenge for the federal budget and for beneficiaries:

Part B – Outpatient Services (percent of GDP) Part D – Prescription Drugs (percent of GDP) Total SMI (percent of GDP)
2025 1.90 percent 0.59 percent 2.5 percent
2035 2.90 percent 0.76 percent ~3.7 percent
2100 4.48 percent 1.01 percent 5.5 percent

Government contributions (general fund transfers) currently cover about 75 percent of SMI program costs. These contributions equaled 1.9 percent of GDP in 2025 and are projected to rise to 3.7 percent of GDP by 2100 – representing roughly 38 percent of all federal personal and corporate income tax revenues under current assumptions.

Average beneficiary out-of-pocket obligations are also projected to rise substantially over time, such that combined Part B and Part D premiums and related cost sharing requirements will absorb 27 percent of the average Social Security benefit in 2026, rising to an estimated 41 percent by 2100.

Federal law requires the Trustees to issue a “Medicare funding warning” when general revenue funding is projected to exceed 45 percent of total Medicare expenditures within the next 7 years. In 2026, this threshold is exceeded in the very first year of the projection. Because a similar determination was made in 2025, this year’s finding triggers an official Medicare funding warning, which directs the President to submit proposed legislation to Congress within 15 days of the Fiscal Year 2028 budget submission, and directs Congress to consider the legislation on an expedited basis.

Part C – Medicare Advantage

The 2026 Trustees Report highlights Medicare Advantage (MA) as a major driver of Medicare spending growth and a key factor in the program’s fiscal challenges. MA plans are private health insurance plans that contract with Medicare to provide Part A and Part B services, and often Part D drug coverage, receiving prospective capitated payments from the HI and SMI trust funds.

Capitated payments are fixed, pre-determined monthly amounts paid by the Centers for Medicare and Medicaid Services (CMS) to private MA insurance companies. These funds are paid per enrolled beneficiary to cover all of their necessary health care services, regardless of how much care the patient actually uses.

A. Enrollment and Growth

B. Role in Spending Growth

C. Policy Implications

  • Without action, MA’s rapid growth of enrollment and higher costs could force significant benefit reductions or provider payment cuts across both MA and traditional Medicare to avoid trust fund insolvency.
  • The Trustees call for reforms that lower costs in both traditional Medicare and in MA, and which generate additional revenue or premium contributions to sustain the program.

Key Takeaway: Medicare Advantage as a Fiscal Lever

The 2026 report underscores that Medicare Advantage is not merely a beneficiary coverage choice – it is a major fiscal lever shaping Medicare’s spending trajectory and trust fund sustainability. Its projected enrollment growth (to 56 percent of beneficiaries by 2035) and rising costs are central to the Trustees’ warning that Medicare is on an unsustainable fiscal course without structural reforms.

National Committee Position

Rather than cutting Medicare benefits or increasing the means-testing of premiums, the National Committee supports the following proposals to extend solvency of the Medicare Part A Hospital Insurance Trust Fund, contain Supplementary Medical Insurance (Parts B and D) spending without compromising care and reducing overpayments to private Part C Medicare Advantage plans.

  1. Increase Medicare tax rates on high‑income households: Raise the Medicare tax rate on earned and unearned income above $400,000 from 3.8 percent to 5 percent.
  2. Close loopholes that allow high‑income business owners to avoid Medicare taxes:  Some pass‑through business owners currently avoid both the 3.8 percent Medicare tax on wages and the 3.8 percent Net Investment Income Tax (NIIT) by characterizing income in ways that escape both categories.  The proposal would ensure all income above $400,000 is subject to Medicare taxes, regardless of how it is classified.
  3. Dedicate Net Investment Income Tax (NIIT) revenue to the HI Trust Fund: 8 percent NIIT currently goes to general revenues, not Medicare.  Redirecting NIIT revenue to the Part A trust fund, generating an estimated $500 billion over 10 years. This would shift Medicare Part A toward a broader income‑tax base for high‑income households.
  4. Reduce Overpayments to Medicare Advantage Plans: Medicare Advantage overpayments remain one of the largest and fastest‑growing drains on the Medicare Hospital Insurance Trust Fund. Independent analysts – including MedPAC and the Congressional Budget Office – estimate that MA plans will be overpaid by roughly $76 billion in 2026, or 20 to 22 percent per enrollee, compared with what traditional Medicare would spend for the same beneficiaries. These excess payments stem from two well‑documented practices: plans attracting healthier‑than‑average enrollees and inflating diagnosis codes to secure higher reimbursement (e.g., “up coding”). Addressing these issues by tightening risk‑adjustment rules and modernizing the benchmark formula would generate substantial HI savings without reducing benefits for Medicare beneficiaries.
  5. Credit prescription‑drug savings to the HI Trust Fund

Build on the Inflation Reduction Act by:

  • Authorizing Medicare to negotiate prices for more drugs,
  • Bringing drugs into negotiation sooner,
  • Extending inflation‑rebate requirements to commercial insurance.
  • Extending Medicare’s negotiation authority to include certain physician-administered drugs paid for under Part B – particularly biologics given in hospital outpatient settings, which are HI-funded.
  • Savings from these reforms would be credited directly to the HI Trust Fund.
  1. Equalize Medicare payments to hospital outpatient departments and physician’s offices: Making the same payments for the same service regardless of whether care is delivered in a hospital outpatient department or a physician’s office would generate substantial savings for the Medicare without cutting benefits. Because hospital outpatient departments are now paid far more for identical services, beneficiaries today face higher copays and rising Part B premiums. Site‑neutral payments would lower out‑of‑pocket costs, reduce premium pressure, and remove incentives for hospitals to buy up physician practices simply to bill at higher rates. Independent experts, including MedPAC, find no evidence of reduced quality for the routine services targeted by site‑neutral reforms, making this a fiscally responsible option that protects beneficiaries and improves market competition. 

Government Relations and Policy – June 2026