As America ages, Medicare is ever more essential. In 2024, Medicare covered 67.6 million people: 60.3 million aged 65 and older, and 7.3 million disabled. The economic impact of the programs is massive, with total expenditures last year reaching $1.122 trillion, and total income $1.133 trillion.

The 2025 Medicare Trustees Report projects that the date of depletion of the Medicare Part A Hospital Insurance (HI) Trust Fund will be 2033, three years earlier than the report issued last year.  Trust fund depletion dates are a common way of tracking the status of the trust funds since, if annual income is not sufficient, full scheduled benefits in the law cannot be paid after trust fund asset reserves are depleted. The Trustees also observe that lawmakers have never allowed reserves held in the Medicare HI trust fund to become fully depleted.

Like many previous reports, the 2025 Trustees report identified both short and long-term financial challenges for Medicare, since spending is rising as a percentage of Gross Domestic Product (GDP). The 2025 report therefore urges policymakers in the legislative and executive branches to take action as soon as possible to adjust revenues and provider payment rates. Among the factors contributing to the earlier HI depletion date, according to the report, are that: “HI expenditures through the short-range period are projected to be higher than last year’s estimates. This increase is mainly a result of higher-than-anticipated 2024 expenditures and higher projected spending for inpatient hospital and hospice services.”

Starting with the Affordable Care Act (ACA) enacted in 2010, significant improvements to the financial health of Medicare have been realized through implementation of Medicare payment and delivery system reforms that emphasize coordinated care especially for people with multiple chronic conditions. For example, ACA incentives to reduce the rate of hospital readmissions and protocols are helping practitioners to more seamlessly coordinate care for Medicare beneficiaries across multiple settings.

However, the Trustees call for additional actions to be taken, noting that “the sooner solutions are enacted, the more flexible and gradual they can be. Introducing reforms early would give affected individuals and organizations — including health care providers, beneficiaries, and taxpayers — more time to adjust their expectations and behavior. The Trustees recommend that Congress and the executive branch work closely together to quickly address these challenges.” The report therefore recommends “prompt legislative action…to achieve financial adequacy for the HI trust fund.”

Like the 2024 report, the 2025 Trustees report observes that “a transformation of health care in the U.S., affecting both the means of delivery and the method of paying for care is also a possibility.  Private health insurance and Medicare are taking important steps in this direction by initiating programs of research into innovative payment and service delivery models, such as Accountable Care Organizations, patient-centered medical homes, improvement in care coordination for individuals with multiple chronic health conditions, better coordination of post-acute care, payment bundling, pay for performance, and assistance for individuals in making informed health choices. Such changes have the potential to reduce health care costs and cost growth rates and could, as a result, help lower health care spending.”

Background

Over the intermediate and long term, expenditures are expected to increase at a faster pace than either aggregate workers’ earnings or the economy overall. Relative to GDP, Medicare expenditures accounted for 3.8 percent of GDP in 2024, and this share is projected to rise to 6.2 percent of GDP by 2049. 

Each year, the Trustees 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 outpatient prescription drugs.  Data for 2024 shows in that year that Medicare covered 67.6 million people: 60.3 million aged 65 and older, and 7.3 million disabled. About 48 percent of all beneficiaries were enrolled in Part C private “Medicare Advantage” (MA) health plans that contract with Medicare to provide Part A and Part B health services.

The 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. Starting in 2013, high-income workers began paying an additional 0.9 percent of their earnings above $200,000 (for single workers) or $250,000 (for married couples filing joint income tax returns). Since income thresholds for determining eligibility for the additional HI tax are not indexed, the Trustees note that over time, an increasing proportion of workers will pay a higher HI tax rate.

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

Part A

The Medicare Part A (HI) Trust Fund will be actuarially solvent until 2033, which is three years earlier than the estimate made last year of asset depletion. Absent legislative fixes to shore up the HI Trust Fund, HI revenues starting in 2033 are projected to be able to cover 89 percent of incurred program costs.  

In 2024, HI income (from payroll taxes) exceeded expenditures by $28.7 billion. The Trustees project that surpluses will continue through 2027, followed by deficits until the trust fund becomes depleted in 2033. Key drivers of HI expenditures, according to the report, are higher-than-anticipated spending on inpatient hospital and hospice services.

HI trust fund assets at the beginning of 2025 were $237.5 billion, representing about 53 percent of expenditures. This is below the Trustees’ minimum recommended level of 100 percent, but this pattern is not new: the HI Trust Fund has not been adequately financed in the short range (10 years) since 2003. Over time, total Medicare expenditures are projected to increase at a faster pace than either aggregate workers’ earnings or the economy overall. Spending as a percentage of GDP is projected to increase from 3.8 percent in 2024 to 6.7 percent by 2099.

One possible approach to addressing the imbalance between HI expenditures and income, according to the report, is that the “standard 2.90-percent payroll tax could be immediately increased…to 3.32 percent, or expenditures could be reduced immediately by 9 percent.” It also notes that either tax and/or benefit changes could occur gradually, but that the tradeoff is that a phased approach would ultimately require more substantial adjustments as compared to those that were done immediately.

In 2024, the previous Administration sent proposals to Congress aimed at increasing Medicare revenue as part of the FY 2025 budget submission. Those proposals did not advance. By comparison, the budget reconciliation bill enacted on July 7, 2025 (PL 119-21) did not include proposals to either increase Medicare revenues or reduce spending. Instead, the Trump Administration contributed to overpayments made by Medicare to private Medicare Advantage (MA) plans by increasing payments 5 percent to MA plans — the largest rate hike in the past decade — costing the U.S. Treasury an extra $25 billion over one year.

Part A Beneficiary Costs

With regard to current out-of-pocket hospital costs for beneficiaries, in 2025, Medicare’s hospital deductible is $1,676. The daily hospital coinsurance amount is $419 for days 61-90, and $838 for days 91 and beyond. For beneficiaries who are discharged to skilled nursing facilities, the daily coinsurance amount is $209.50 for days 21-100.

Part B

Transfers from the general fund of the Treasury are the major source of financing for the SMI trust fund. They are central to the automatic financial balance of the fund’s two accounts, while representing a large and growing requirement for the Federal budget. SMI government contributions equaled 1.7 percent of GDP in 2024 and will increase to an estimated 3.5 percent in 2099 under current law.

Examined in another way, the Trustees project that if income taxes in the future maintain their historical average level of the last 50 years relative to the national economy, general revenue contributions from the Treasury to the SMI trust fund would represent about 34 percent of total income taxes by the end of the 21st century.

Part B and Part D costs have each averaged an annual growth rate of 8.4 percent over the last 5 years, outstripping the GDP growth rate of 6.1 percent. Trustees project that cost growth over the next 5 years will average 8.8 percent for Part B and 7.1 percent for Part D, significantly faster than the projected average annual GDP growth rate of 4.2 percent over the period. For Part B, the report notes that expenditures are driven by higher spending for outpatient hospital and physician-administered drugs. Over the long term (75 years), and as a share of GDP, SMI costs are projected to increase from 2.4 percent to 4.8 percent under current law.

Part B Premium and Deductible

The Part B program, which covers outpatient services provided by physicians and is financed with general revenues and beneficiary premiums. The Trustees estimate that the standard Medicare Part B premium will rise to $206.20 per month in 2026, compared with $185 per month in 2025 and $174.70 per month in 2024 — a $30.50 increase per month over the 3-year period.

Higher-income beneficiaries have paid an income-related premium for their Part B coverage since 2007, and for Part D since 2011. Accordingly, higher-income beneficiaries with incomes exceeding $106,000 for an individual and $212,000 for a couple, pay Part B premiums ranging from $259 to $628.90 in 2025.   Since 2019, individuals at the highest income levels — at or above $500,000 a year (or couples at or above $750,000) — have paid premiums that cover 85 percent of program costs.

The Part B annual deductible in 2025 is $257.

Part C

About 50 percent of Medicare beneficiaries have chosen to enroll in Part C private health plans (the Medicare Advantage program). In Part C, managed care plans contract with Medicare to provide Part A and Part B health services, and sometimes Part D.

The report notes that “the share of Medicare beneficiaries in such plans has risen rapidly in recent years. It reached 50 percent in 2024 from 12.8 percent in 2004. The Trustees project that the overall participation rate for private health plans will continue to increase—from about 51 percent in 2025 to about 58 percent in 2034 and thereafter.”

Part D

The Part D program pays for outpatient prescription drugs and, similar to Part B, is financed with federal contributions together with beneficiary premiums and other copayments.

The report finds that Part D pricing trends have consistently shown price growth that is higher than the Consumer Price Index (CPI). The Trustees also acknowledge that the Inflation Reduction Act (IRA) set out to curb this dynamic by requiring that drug price changes (before rebate adjustments) be limited to the CPI rate. Although drug manufacturers will likely find ways to partially skirt this rule, the report says that the result over time will be that price growth falls. Specifically, the Trustees project that year-by-year drug price cost growth will decline from 4.1 percent in 2049 (or GDP plus 0.5 percent) to 3.9 percent by 2099 (or GDP plus 0.2 percent). For Part B drugs administered in physicians’ offices, the report projects per capita spending growth rates will be similar to those for overall per capita national health expenditures (NHE).

The IRA also included a groundbreaking provision to essentially close the gap between initial coverage and catastrophic coverage. The result is that in 2025, the threshold for catastrophic coverage will be $2,000, dovetailing with the end of the initial coverage period. The cost growth of catastrophic coverage will be held to program growth for purposes of annual updates.

In 2025, the Part D base beneficiary premium is $36.78, although actual premium amounts charged to Part D beneficiaries vary depending on the specific plan they select. Higher income Part D enrollees (individuals with adjusted gross incomes over $106,000) must pay an income-related adjustment amount, ranging from $13.70 to $85.80 per month in 2025. In 2025, the Part D deductible is $590.

Parts B and D Out-of-Pocket Costs

In terms of costs to beneficiaries, the report finds that the combination of premium and cost-sharing amounts for Parts B and D “equal about 25 percent of the average Social Security benefit in 2025,” and are projected to reach 39 percent over the long run.

National Committee Concerns

Medicare faces financial challenges due to the large increase in the number of beneficiaries as the large baby boomer cohort reaches age 65 and retires, combined with a longstanding trend of low birth rates and persistent health care cost growth that continues to outstrip measures of general economic growth, including very high-cost prescription drugs.

Accordingly, it is critical that the Department of Health and Human Services (HHS) continues to implement reforms included in the Inflation Reduction Act and 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. We support policy to strengthen traditional Medicare, including the mission of ACOs that can coordinate care and better manage chronic conditions. But we oppose the participation of private insurers and private equity firms and any affiliated entities in ACO governance and management. Private investors should not inform health care decision-making.

The National Committee supports strengthening Medicare’s financing without shifting additional costs to beneficiaries. For example, we support continued gradual expansion of the IRA’s provisions that allow HHS to negotiate fair prices for Part D prescription drugs with manufacturers, putting inflation controls on drugs used under Medicare Part B, and ending pay-for-delay deals, among other gaming of prices by pharmaceutical makers, which have the effect of limiting access to generics and driving up drug costs.

We also support concrete, mandatory efforts to place stringent controls on the marketing practices of Medicare Advantage (MA) plans, and call on the Administration to do more than ask MA plans to temper their use of “prior authorization” – which is frequently being used to delay and deny medically necessary services to which Medicare beneficiaries are entitled. We also support making much bolder adjustments to payment policies that will rein in soaring MA payments relative to traditional Medicare. Devising additional requirements to reduce overpayments to MA plans is a necessary part of keeping Medicare costs from becoming unsustainable for both beneficiaries and the federal government.

The National Committee also believes that Medicare benefits should be statutorily expanded to cover vision, dental and hearing health services, because these are vital for healthy aging.  Finally, we support adding an out-of-pocket limit on beneficiary spending throughout the entire program.

Conclusion

Older Americans and people with disabilities should never have to choose between paying for health care, food or utilities. Medicare benefits must be improved, not cut. The program’s long-term solvency must also be strengthened, and access to health care providers and benefits must be preserved.