Medicare’s Solvency Projection Worsens

The Congressional Budget Office (CBO) recently released a report predicting that the Medicare Health Insurance trust fund will no longer be able to cover the program’s expenses starting in 2024. The report attributes the sudden worsening of the fund’s finances to added expenses from the ongoing COVID-19 pandemic, as well as decreased revenue from plummeting payroll taxes amid the economic recession. Recent legislative changes to lower taxes including the “Cadillac Tax” have further hit revenues. 

The trust fund has reached a similar state in the past, such as in 1997 and 2009. Legislative patches extended solvency both times, but the program’s funding continues to fluctuate heavily depending on a variety of political and economic factors. The CBO calculated that a failure to act will result in the program being unable to meet 5% of its payment responsibilities in 2024, and 20% thereafter. Such an event would likely throw the healthcare system into chaos. 

History shows this outcome is unlikely as Congress has never allowed the program to dip into insolvency. Once again, they will have to act in the near future to stabilize the program. The nature of any changes will largely depend on the 2020 election results. Either way, some combination of tax increases and spending reductions appears likely. The Trump administration has already moved in this direction with a recent executive order to lower Medicare payments on select prescription drug costs via a soon-to-be developed payment model that would benchmark drug payments based on rates other industrialized nations pay. 

Outside of a major economic boom in the near future, providers should do what they can to prepare for possible spending cuts or reduced annual increases in Medicare payments. Such preparations will obviously prove challenging as this threat merely piles on to what has already been an incredibly difficult year for many in the healthcare industry.