Medicare researchers are warning that time is running out for Congress to address the program's long-term fiscal problems, which are far more severe than the impending insolvency of the hospital insurance trust fund.

"Overall, not surprisingly, the situation is quite troubling," said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, during a June 6 webinar on thelatest Medicare trustees report. The report projects that the hospital insurance trust fund will be depleted in 2028.

That is two years later than last year's estimate of 2026. But Goldwein noted, "While we may have gained a year or two in solvency, we have lost a year by failing to act. So we are essentially back to square one."

Furthermore, the Committee for a Responsible Federal Budget believes that the economic assumptions in the report are outdated and may be more optimistic than reality. Therefore, the extra cushion in the trust fund may be overstated.

Although "it is easy to interpret this as good news," said Erica Socker, an investor at Arnold Ventures, when people focus on the health insurance trust fund, Medicare's fiscal challenges are not limited to Part A. Socker, who previously prepared cost estimates for Medicare legislation at the Congressional Budget Office, made these remarks during a panel discussion at the Bipartisan Policy Center on Tuesday.

The report, released annually by Medicare trustees, projects that spending for all parts of the program (Parts A, B, and D) will grow significantly as a share of gross domestic product over the coming decades.

This means that over time, higher premiums and more general revenue will be needed to fund the program, putting pressure on the federal budget and the wallets of Medicare beneficiaries.

Scholars said during a series of panel discussions last week that lawmakers cannot wait until insolvency is imminent to make corrections. Instead, the sooner politicians act to increase revenue or reduce spending, the better it will be for the health of the Medicare program and its 64 million members.

"There is a real cost to waiting," said Oliver King, health policy director at the Bipartisan Policy Center.

A bleak outlook

Although the specific date of the HI trust fund's depletion has been slightly delayed, Medicare still faces significant spending challenges. This is largely due to underlying demographic shifts in the United States, said Jenny Fuglesten Biniek, senior Medicare policy analyst at the Kaiser Family Foundation, during a webinar hosted by CRFB.

"The demographic issue is really what drives our future challenges," Fuglesten Biniek said.

According to Census Bureau data, by 2060, the number of Americans reaching Medicare eligibility age is projected to reach 95 million, rising from 16% of the population in 2018 to 23%.

As a result, more beneficiaries will join the program, while the number of workers paying into the trust fund will decline. In 2000, there were four workers for every Medicare beneficiary. According to the trustees report, by 2060, this number is projected to fall to about 2.25.

At that point, trust fund revenue will be insufficient to fund Part A medical benefits. Meanwhile, costs for the Supplementary Medical Insurance trust fund, which pays for Parts B and D, are also climbing, adding pressure on beneficiaries and the federal budget.

Researchers say a major driver of spending growth is Medicare Advantage, whose share of costs is rising. Supporters of MA claim the program is more efficient than traditional Medicare, with the government paying private plans to manage Medicare benefits. But according to the Medicare Payment Advisory Commission, MA has never saved Medicare money, with payments between 2004 and 2020 running 1.5% to 14% higher than fee-for-service Medicare.

However, MA is increasingly popular with beneficiaries due to its lower out-of-pocket costs and extra benefits such as dental and vision. By 2026, the program is expected to cover half of all Medicare beneficiaries.

MA does not have its own trust fund but receives benefit funding from Parts A and B through the HI and SMI trust funds.

"While per-capita spending in traditional Medicare is also expected to grow, growth in Medicare Advantage is expected to be faster," said KFF's Fuglesten Biniek, due to more beneficiaries choosing the plan and the cost of extra benefits.

The report projects the HI fund will face a $530 billion deficit over the next decade. Over the 75-year projection period, trustees expect a shortfall equivalent to 0.7% of payroll taxes or 0.3% of GDP.

Positive incrementalism

Congress has historically addressed Medicare's impending insolvency by deploying various policy tools, including increasing risk in the fee-for-service program or raising revenue through higher payroll taxes. But Brian Miller, a fellow at the American Enterprise Institute, said during the June 6 webinar that many historical measures will no longer work because they fail to address the primary demographic factors driving spending growth.

"Medicare in 2022 is very different from Medicare in 1965," Miller said.

Beyond larger fixes to the nation's increasingly imbalanced demographics, such as raising fertility rates or increasing immigration, scholars say policymakers could also consider more targeted solutions.

Lawmakers need to either find new revenue through tax increases to address the shortfall—"historically, that has not been a good way for lawmakers to get reelected," Miller said—or cut spending.

According to CRFB, if Congress wanted to immediately eliminate Medicare's projected deficit, it would need to raise payroll tax rates by about 24%, cut spending by 15%, or combine both, to ensure solvency.

But "delay will require more drastic changes," said Cori Uccello, senior health fellow at the American Academy of Actuaries.

In terms of program reform, researchers believe slowing the growth of MA payments is a particularly important area to focus on. One strategy is to overhaul how MA payments are calculated.

Currently, MA plans submit bids for the next plan year, which include the projected revenue needed to cover Parts A and B Medicare benefits. This is then compared to a benchmark based on fee-for-service spending in the plan's geographic area. The benchmark can vary based on plan quality and can lead to overpayments to MA plans.

The Medicare Payment Advisory Commission hasproposed a new modelthat calculates MA payments by blending local and national spending.

"The bidding model based on fee-for-service benchmarks does not work in all regions," said AEI's Miller. "We need to seriously consider how to modernize the program because it will be the mainstream in the future."

KFF's Fuglesten Biniek believes Congress should also require MA plans to provide more data, such as encounter data, appeals and denials, and the value of extra benefits.

"We really do not understand the inner workings of MA," Fuglesten Biniek said. This makes it difficult to know which policies and reforms could succeed.

According to a KFF analysis, if MA payments were reduced by just 2% annually, the program would save $125 billion by 2031. If MA per-capita payment growth matched traditional Medicare, the program would save $264 billion by 2031.

Miller also suggested policymakers could implement competitive bidding for the entire Medicare program, including fee-for-service, in an attempt to reduce costs.

"I think we can address these issues through positive, targeted, and incremental reforms around program design," Miller said.

Political will

Researchers say they are unsure whether politicians understand the severity of Medicare's situation. Combined with increasing polarization and a range of other pressing issues, including inflation, Russia's invasion of Ukraine, baby formula shortages, persistent gun violence, and the ongoing pandemic, Medicare reform has largely been shelved.

"I feel like there is less discussion on Capitol Hill about comprehensive solutions than there used to be," said CRFB's Gordon.

But there has been some progress. Last spring, a bipartisan group of senatorsreintroduced the TRUST Act, which would create bipartisan "rescue committees" for depleted major federal trust funds.

But Chuck Blahous, who served as a Social Security trustee from 2010 to 2015, said during a CRFB panel discussion, "I am skeptical of its potential benefits. I think what we need now is not procedural reform."

If the HI trust fund is depleted, covered benefits will shrink. Payments to providers will be delayed or reduced. Wages and employment will be affected, and beneficiaries may face reduced access to medical care, said AAA's Uccello.

The ripple effects will extend to other aspects of the program. MA, which is partially funded by the HI trust fund, will also face financial disruption. Payments to plans will be delayed or reduced, although it is unclear how this will affect MA payments to providers or beneficiary care, Uccello said.

The closer the trust fund depletion date, the fewer options policymakers have. Structural reforms could take years to implement. Scholars say even more direct changes to provider or MA payments would take about two years to implement and see effects.

If policymakers do not act, solving this problem will only become more difficult and challenging. According to Arnold Ventures' Socker, if Congress waits too long to intervene, saving Medicare may "require more disruptive changes."