Solvency extensions to the Medicare Hospital Insurance Trust Fund: what is driving them?

Abstract

The annual Medicare Trustees Report projects when the Hospital Insurance Trust Fund will become insolvent, a key indicator of the Medicare program's fiscal health. Over the past 40 years, the Trust Fund insolvency date was extended 20 times. The Trustees estimated in 2012 that the Trust Fund would be completely exhausted by now; their latest estimate pushed the depletion date back to 2036. Our analysis of Medicare Trustees Reports from 1985 to 2024 revealed the factors affecting solvency projections. While annual adjustments to cost growth assumptions have triggered minor solvency extensions, major reforms such as the 1984 Deficit Reduction Act, 1997 Balanced Budget Act, and 2010 Affordable Care Act had larger, more sustained impacts than originally estimated. These policy reforms directly affected provider payments and indirectly constrained growth in other parts of the program, including payments to private health plans. In light of recent growth in US health spending, the challenge for policymakers seeking to improve Medicare's financial outlook is to enact and sustain substantive legislative changes rather than short-term solutions.

Keywords: Medicare; costs and spending; healthcare finance; payment.

Figure 1.

Medicare Hospital Insurance Trust Fund insolvency projections, 1980-2024. Source: Medicare Trustees Reports, 1980-2024. The report published in 1989 did not provide a depletion year estimate.

Figure 2.

Relative effects of changes on the Medicare Hospital Insurance Trust Fund's actuarial balance by decade, 1985-2024. Source: Authors' analysis of Medicare Trustees Reports, 1985-2024. Published reports in 1980-1984 and 1989 did not quantify impacts of major contributors to annual changes in the 75-year actuarial balance. The value of the Medicare Hospital Insurance Trust Fund's actuarial balance is measured as a percent of the annually projected 75-year taxable payroll. Bars indicate the unweighted cumulative percent point of change on the actuarial balance resulting from changes due to either implemented legislative policy measures or changes in key assumptions of the Trustees.