The 2020 Medicare Trustees Report shows that Medicare solvency remains greatly improved since the enactment of the Affordable Care Act (ACA), with the Hospital Insurance Trust Fund paying full benefits until 2026. Implementation of payment and delivery system reforms that emphasize coordinated care especially for people with multiple chronic conditions, incentives to reduce the rate of hospital readmissions, and a reduction in the rate of increase in payments to hospitals and private Medicare plans are improving Medicare’s financing. At the same time, under the ACA, millions of Medicare beneficiaries are receiving preventive screenings and wellness visits without copayments as well as additional assistance with their prescription drug costs.
This year’s report does not reflect any impact that the COVID-19 pandemic may have on Medicare. The trustees have concluded that it is not possible to adjust their estimates at this time.
Each year the Medicare Trustees release a report on the current status and projected condition of Medicare’s two trust funds over the next 75 years – the Hospital Insurance (HI) Trust Fund that finances Part A inpatient hospital and related care, and the Supplementary Medical Insurance (SMI) Trust Fund that finances both Part B physician and outpatient care, and Part D that pays for prescription drugs.
Medicare Part A (HI Trust Fund) is primarily financed by payroll taxes on earnings that are paid by employees, employers and the self-employed. Employees and employers each pay 1.45 percent in taxes on all earnings. The self-employed contribute 2.9 percent, the equivalent of the combined employer and employee tax rates.
Medicare Parts B and D (SMI Trust Fund) are financed by payments from federal general fund revenues (about 75 percent) and by monthly premiums charged to beneficiaries (about 25 percent). Because Medicare Part B and Part D are automatically financed through general revenues and beneficiary premiums to meet estimated program costs each year, the SMI Trust Fund is adequately financed in both the short and long term.
Financial Outlook of the Medicare Program
The Medicare Part A (HI) Trust Fund will be solvent until 2026, which is unchanged from the estimate made last year. In 2026, payroll taxes alone are estimated to be sufficient to cover 90 percent of HI costs.
Solvency has improved by 9 years from the date that was projected before enactment of the Affordable Care Act. This legislation improved Medicare’s financing by reducing the rate of increase in provider payments, phasing out overpayments to Medicare Advantage plans and increasing Medicare payroll taxes for high-income individuals and couples.
Medicare’s actuarial shortfall decreased from last year. The HI Trust Fund projected 75-year actuarial deficit has decreased to 0.76 percent of taxable payroll compared with last year’s estimate of 0.91 percent. This is much less than the 3.88 percent of payroll that the Trustees estimated before the Affordable Care Act became law. In other words, the HI Trust Fund’s fiscal imbalance could be solved by increasing payroll taxes by 0.76 percent, by reducing the program’s spending by a corresponding amount, or by some combination of the two.
Medicare spending remained stable as a share of the economy. The Trustees project that Medicare’s costs (for both the HI and SMI Trust Funds) will grow from 3.7 percent of gross domestic product (GDP) in 2019 to 6.0 percent of GDP in 2044. This increase occurs because the number of people receiving benefits will grow as the baby boom generation retires. Thereafter, Medicare’s costs are projected to grow more slowly, reaching 6.5 percent of GDP in 2094. Again, these increases are lower than what was projected before enactment of health care reform when Medicare’s costs were projected to grow from 3.5 percent of GDP in 2009 to 11.3 percent of GDP in 2083.
Costs for Part B (SMI Trust Fund) are growing due to the aging population and rising health care costs. Part B spending, which was 1.7 percent of GDP in 2019, is projected to increase to 3.1 percent in 2094.
Medicare Part B Premium and Deductible
The Part B standard monthly premium for 2021 is projected to be $153.30, which is an increase of $8.70 from the 2020 amount of $144.60.
Higher-income beneficiaries (incomes exceeding $87,000 for an individual and $174,000 for a couple) pay larger income-related monthly premiums, which are projected to range from $214.70 to $521.30 in 2021, compared with $202.40 to $491.60 in 2020. The Bipartisan Budget Act of 2018 established a new income-related premium threshold. Since 2019, individuals with incomes at or above $500,000 a year (or couples at or above $750,000) pay premiums that cover 85 percent of program costs, a five percentage point increase over prior law.
The annual deductible is projected to increase slightly from $198 to $212 for all beneficiaries in 2021.
Medicare Part D
Part D expenditures as a percent of GDP are expected to increase from 0.48 percent in 2019 to 0.95 percent in 2094. Over the next 10 years, aggregate Part D benefits are projected to increase at 6.9 percent annually.
The base Part D monthly premium is $32.74 in 2020 and is estimated to be $33.91 in 2021.
In 2020, Part D enrollees with incomes exceeding the threshold of $87,000 for an individual and $174,000 for a couple are paying an income-related monthly adjustment amount in addition to their normal plan premium, ranging from $12.20 to $76.40 per month. In 2021 this range is estimated to increase from $12.60 to $79.10. The Part D annual deductible, which is $435 in 2020, will be $445 in 2021.
Parts B and D Out-of-Pocket Costs
The Medicare Trustees project that by 2094, Parts B and D out-of-pocket costs (premiums and cost-sharing amounts) will consume 37 percent of the average Social Security check compared to 24 percent in 2020.
NATIONAL COMMITTEE POSITION
Medicare faces a long-term financial challenge due to the large increase in the number of beneficiaries as baby boomers reach age 65, skyrocketing prescription drug prices and overall health care inflation that continues to increase at too high a rate.
It is critical that we continue to implement reforms included in the Affordable Care Act that are containing costs and promoting access to quality health care. This includes supporting coordinated care through Accountable Care Organizations, medical homes, bundled payments, and reducing hospital readmissions and hospital-acquired infections, as well as efforts to further reduce spending due to waste, fraud and abuse. These provisions, along with requirements in the law to slow the rate of increase in provider payments and reduce overpayments to Medicare Advantage plans, are necessary to prevent Medicare costs from becoming unsustainable for both beneficiaries and the federal government.
The National Committee supports strengthening Medicare’s financing without shifting costs to beneficiaries by requiring pharmaceutical manufacturers to negotiate the cost of prescription drugs with manufacturers, putting inflation controls on drugs used under Medicare Part B, ending pay-for-delay deals and other gaming by pharmaceutical makers limit access to generics and drive up drug costs.