Medicare Financial Status: In Brief




Medicare Financial Status: In Brief
Updated June 9, 2020
Congressional Research Service
https://crsreports.congress.gov
R43122




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Contents
Overview of the Medicare Program.................................................................................... 1
Four Parts of Medicare ............................................................................................... 1
Beneficiary Costs ...................................................................................................... 2
Provider and Plan Payments ........................................................................................ 2

Medicare Trust Funds and Sources of Revenue .................................................................... 2
Hospital Insurance Trust Fund ..................................................................................... 3
Sources of HI Revenue.......................................................................................... 3
HI Trust Fund Mechanics ...................................................................................... 3

Supplementary Medical Insurance Trust Fund ................................................................ 5
Sources of SMI Revenue ....................................................................................... 5
SMI Trust Fund Mechanics .................................................................................... 5

Medicare Spending in 2019 .............................................................................................. 5
2019 HI Operations.................................................................................................... 6
2019 SMI Operations ................................................................................................. 6

Estimated Date of HI Trust Fund Insolvency ....................................................................... 7
Projected Medicare Spending Growth ................................................................................ 8
Growth in Medicare Expenditures Relative to GDP ........................................................ 9
Unfunded and General Revenue Obligations ................................................................ 10
Comparison to Prior-Year Estimates ........................................................................... 11
Alternative Projections ............................................................................................. 12

Figures
Figure 1. Sources of Medicare Revenues: 2019.................................................................... 4
Figure 2. Projected Number of Years Until Hospital Insurance Insolvency ............................... 7
Figure 3. Historical and Projected Medicare Expenditures ..................................................... 8
Figure 4. Medicare Cost and Non-interest Income, by Source as a Percentage of GDP .............. 9
Figure 5. Comparison of 2019 and 2020 Medicare Expenditure Projections ........................... 11
Figure 6. Comparison of Medicare Expenditure Projections Based on Current Law and
an Alternative Scenario ............................................................................................... 12

Tables
Table 1. Medicare Expenditures and Enrollment: CY2019 ..................................................... 6
Table 2. Current Value of Estimated Medicare Unfunded Obligations and General
Revenue Spending ...................................................................................................... 10

Contacts
Author Information ....................................................................................................... 13

Congressional Research Service

Medicare Financial Status: In Brief

Overview of the Medicare Program
Medicare, administered by the Centers for Medicare and Medicaid Services (CMS), is the
nation’s federal insurance program that pays for covered health services for most persons aged 65
years and older and for most permanently disabled individuals under the age of 65.1 As a health
insurance program, Medicare reimburses health care providers and suppliers, such as hospitals,
physicians, and medical equipment companies, for the services and products they provide to
Medicare beneficiaries. Medicare is prohibited by law from interfering in the practice of medicine
or controlling the manner in which medical services are provided. It also is required to pay for
covered services provided to eligible persons so long as specific criteria are met. As such, the
growth in per person Medicare expenditures largely reflects the medical practices, use of
technology, and underlying costs in the broader health care system. Spending under the program
(except for a portion of administrative costs) is considered mandatory spending and is not subject
to the appropriations process. Thus, there general y are no limits on annual Medicare spending.
Since its enactment in 1965, the Medicare program has undergone considerable change. Because
of its rapid growth, both in terms of aggregate dollars and as a share of the federal budget, the
Medicare program has been a major focus of deficit reduction legislation passed by Congress.2
With a few exceptions, reductions in program spending have been achieved largely through
freezes or reductions in payments to providers, primarily hospitals and physicians, and by making
changes to beneficiary premiums and other cost-sharing requirements. For example, the Patient
Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) made numerous changes to
the Medicare program that modify provider reimbursements, provide incentives to improve the
quality and efficiency of care, and enhance certain Medicare benefits.3
Four Parts of Medicare
Medicare consists of four distinct parts, A through D:
Part A covers inpatient hospital services, skil ed nursing care, hospice care, and
some home health services. Most persons aged 65 and older are automatical y
entitled to premium-free Part A because they or their spouse paid Medicare
payroll taxes for at least 40 quarters (10 years) on earnings covered by either the
Social Security or the Railroad Retirement systems.
Part B covers a broad range of medical services, including physician services,
laboratory services, durable medical equipment, and outpatient hospital services.
Enrollment in Part B is optional; however, most beneficiaries with Part A also
enroll in Part B.
Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries
that covers al Parts A and B services, except hospice. Individuals choosing to

1 For additional information on the Medicare program, see CRS Report R40425, Medicare Primer.
2 For a brief history of changes to the Medicare program, see CRS Report R40425, Medicare Primer.
3 For details on individual Medicare provisions in the Patient Protection and Affordable Care Act (ACA; 111 -148, as
amended), see CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA):
Sum m ary and Tim eline
.
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Medicare Financial Status: In Brief

enroll in Part C must be eligible for Part A and also must enroll in Part B. About
one-third of Medicare beneficiaries are enrolled in MA.4
Part D covers outpatient prescription drug benefits. This portion of the program
is optional. About 77% of Medicare beneficiaries are enrolled in Medicare Part D
or have coverage through an employer retiree plan subsidized by Medicare.5
Beneficiary Costs
In addition to paying premiums for Medicare Parts B and D,6 beneficiaries may pay other out-of-
pocket costs, such as deductibles and coinsurance, for services provided under al parts of the
Medicare program. There is no limit on beneficiary out-of-pocket spending, and most
beneficiaries have some form of supplemental insurance through private Medigap plans,
employer-sponsored retiree plans, or Medicaid to help cover a portion of their Medicare
premiums and/or deductibles and coinsurance.
Provider and Plan Payments
Under traditional Medicare, Parts A and B, the government general y pays providers directly for
services on a fee-for-service basis using different prospective payment systems, or fee schedules.7
Under Parts C and D, Medicare pays private insurers a monthly capitated per person amount to
provide coverage to enrollees. The capitated payments are adjusted to reflect differences in the
relative cost of sicker beneficiaries with different risk factors including age, disability, or end-
stage renal disease.
Medicare Trust Funds and Sources of Revenue
The Medicare program has two separate trust funds—the Hospital Insurance (HI) Trust Fund for
Part A and the Supplementary Medical Insurance (SMI) Trust Fund for Parts B and D.8 (For
beneficiaries enrolled in MA [Part C], payments are made on their behalf in appropriate portions
from the HI and SMI Trust Funds based on CMS estimates of spending for Part A and Part B

4 Boards of T rustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance T rust Funds, The
2020 Annual Report of the Boards of Trustees of the Fed eral Hospital Insurance and Federal Supplem entary Medical
Insurance Trust Funds
, April 22, 2020 (hereinafter, the 2020 Report of the Medicare T rustees), T able V.B3.
5 Ibid.
6 Beneficiaries enrolled in a Medicare Advantage (MA; Part C) plan must pay Part B premiums as well as any
additional premium required by the MA plan.
7 Under a prospective payment system (PPS), Medicare payments are made using a predetermined, fixed amount based
on the classification system for a particular service. T he Centers for Medicare & Medicaid Services (CMS) uses
separate PPSs to reimburse acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments,
inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities.
A fee schedule is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedules are used
to pay for physician services; ambulance services; clinical laboratory services; and durable medical equipment,
prosthetics, orthotics, and supplies in certain locations.
8 Many government programs are financed through trust funds. Despite the name, federal trust funds are not the same
as private-sector trust funds. A trust in the private sector is a fiduciary relationship in which one person (the trustee)
holds property for the benefit of another (the beneficiary). T he trustee must follow the express terms of the trust
instrument and administer the trust for the benefit of the beneficiary. Most federal trust funds are not based on a legal
fiduciary relationship. Congress creates trust funds that involve a commitment to use monies for a specific purpose, but
it can alter the terms (e.g., receipts, outlays, or purpose) of the trust fund at any time. For additional information, see
CRS Report R41328, Federal Trust Funds and the Budget.
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services.) Both the HI and SMI Trust Funds are maintained by the Department of the Treasury
and overseen by a Medicare Board of Trustees that reports annual y to Congress concerning the
funds’ financial status.9 Financial projections are made using economic assumptions based on
current law, including estimates of consumer price index (CPI), workforce size, wage increases,
and life expectancy.
The Medicare trust funds are financial accounts in the U.S. Treasury into which al income to the
program is credited and from which al benefits and associated administrative costs of the
program are paid. The trust funds are solely accounting mechanisms—there is no actual transfer
of money into and out of the funds. As long as a trust fund has a balance, the Department of the
Treasury is authorized to make payments for it from the U.S. Treasury.
Hospital Insurance Trust Fund
The Part A portion of Medicare is financed through the HI Trust Fund.
Sources of HI Revenue
The HI Trust Fund is funded primarily by a dedicated payroll tax of 2.9% of earnings, shared
equal y between employers and workers. (See Figure 1.) Unlike Social Security, there is no upper
limit on wages subject to Medicare payroll taxes. Beginning in 2013, the ACA has imposed an
additional tax of 0.9% on high-income workers with wages over $200,000 for single tax filers and
over $250,000 for joint filers.10 Other sources of income to the HI Trust Fund include premiums
paid by voluntary enrollees who are not entitled to premium-free Medicare Part A, a portion of
the federal income taxes paid on Social Security benefits, and interest on federal securities held
by the trust fund.
HI Trust Fund Mechanics
HI operates on a pay-as-you-go basis; the taxes paid by current workers and their employers are
used to pay Part A benefits for today’s Medicare beneficiaries. When the government receives
Medicare revenues (payroll taxes), income is credited by the Treasury to the HI Trust Fund in the
form of special-issue interest-bearing government securities.11 (Interest on these securities also is
credited to the trust fund.) The tax income exchanged for these securities then goes into the
general fund of the Treasury and is indistinguishable from other cash in the general fund; this
cash may be used for any government spending purpose. When payments for Medicare Part A
services are made, the payments are paid out of the general treasury and a corresponding amount
of securities is deleted from (written off) the HI Trust Fund.

9 T hese reports may be found at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-T rends-and-
Reports/ReportsT rustFunds/index.html.
10 See CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act
(ACA)
, for more detail.
11 Unlike marketable securities, special issues can be redeemed at any time at face value. I nvestment in special issues
gives the trust funds the same flexibility as holding cash.
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Medicare Financial Status: In Brief

Figure 1. Sources of Medicare Revenues: 2019

Source: 2020 Report of the Medicare Trustees, April 22, 2020, Table II.B1.
Notes: Totals may not add to 100% due to rounding. HI = Hospital Insurance; SMI = Supplementary Medical
Insurance. In 2019, Part B premiums represented over 25% of Part B income due, in part, to a $3.00 per month
Part B premium surcharge imposed by the Bipartisan Budget Act of 2015 (P.L. 114-74).
In years in which the trust fund spends less than the income it receives, the trust fund securities
exchanged for any income in excess of spending show up as assets on the financial accounting
balance sheets and are available to the system to meet future obligations. The trust fund surpluses
are not reserved for future Medicare benefits but are simply bookkeeping entries that indicate
how much Medicare has lent to the Treasury (or alternatively, what is owed to Medicare by the
Treasury). From a unified budget perspective, these assets represent future budget obligations and
are treated as liabilities. If the HI Trust Fund is not able to pay al current expenses out of current
income and accumulated trust fund assets, it is considered to be insolvent.12

12 From time to time, it is reported that Medicare is on the verge of bankruptcy; however, in the context of federal trust
funds, this term is not meaningful. Although a federal trust fund’s spending can be greater than its income and trust
funds can have a zero balance, unlike private businesses, the federal government is not in danger of “ going out of
business” or having its assets seized by creditors.
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Supplementary Medical Insurance Trust Fund
The SMI Trust Fund consists of two accounts: Part B and Part D.
Sources of SMI Revenue
Unlike the HI portion of Medicare, the SMI program was not intended to be supported through
dedicated sources of income. Instead, it relies primarily on general tax revenues and beneficiary
premiums as revenue sources.13
The Part B portion of SMI is funded mainly through beneficiary premiums (set at 25% of
estimated program costs for the aged)14 and general revenues (most of the remaining amount). In
2020, the standard monthly Part B premium is $144.60. However, certain low-income enrollees
receive assistance with their premiums from Medicaid (joint federal-state funding), and, since
2007, high-income enrollees pay higher premiums. Beginning in 2011, additional revenues from
an annual fee imposed on certain manufacturers and importers of branded prescription drugs also
are credited to the SMI Trust Fund.15
Part D is financed through a combination of beneficiary premiums (set at 25.5% of the estimated
cost of the standard benefit), general revenues, and state transfer payments (to cover a portion of
the costs of beneficiaries enrolled in both Medicare and Medicaid—the dual-eligibles). Actual
Part D premiums may vary depending on which plan the enrollee selects. Low-income enrollees
may receive premium assistance through the Part D low-income subsidy (al federal funding),
and, starting in 2011, higher income enrollees pay higher premiums.
SMI Trust Fund Mechanics
The level of SMI funding is automatical y updated each year to cover expenditures in the
upcoming year. If actual costs exceed those estimated when the funding was set, the amount of
financing in the next year (i.e., general revenues and beneficiary premiums) may be adjusted to
recover the shortfal . Similarly, if actual costs are less than expected in a given year, income
levels needed for the next year may be adjusted downward. Because of these automatic
adjustments, the SMI Trust Fund is always kept in balance and cannot become insolvent.
Medicare Spending in 201916
In CY2019, Medicare provided benefits to about 61.2 mil ion people (52.6 mil ion people aged
65 and older and 8.7 mil ion disabled people under the age of 65) at an estimated total cost of
$796 bil ion.17 Most of that amount, about $786 bil ion (99%), was spent on program benefits,
with the remaining amount used for program administration. (See Table 1.)

13 T here have been reports that Medicare beneficiaries receive more from the program than what they have paid
throughout their working years in payroll taxes; however, as noted, unlike Part A, the costs of Medicare Parts B and D
were designed in the original statute to be subsidized by the government and not through dedicated taxes.
14 For additional information, CRS Report R40082, Medicare Part B: Enrollment and Premiums.
15 T his revenue source is included in “Interest and Other” for Part B in Figure 1. For additional detail, see CRS Report
R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act (ACA) .
16 Data is from the 2020 Report of the Medicare T rustees, T able II.B1.
17 T his amount reflects Medicare total spending regardless of revenue source; it does not net out nonfederal income
(e.g., premiums, state transfers). By law, the Medicare T rustees Report focuses on the financial status of the program’s
trust funds and does not examine the impact of Medicare spending on the overall federal budget.
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Table 1. Medicare Expenditures and Enrollment: CY2019
HI
SMI

Part A
Part B
Part D
Total
Expenditures (bil ions)




Benefits
$322.8
$365.7
$97.1
$785.6
Hospital
147.3
59.6

206.9
Skil ed Nursing
27.6


27.6
Home Health Care
7.0
11.4

18.4
Physician Services

74.2

74.2
Private Plans (Part C)
119.1
154.7

273.8
Prescription Drugs


97.1
97.1
Other
21.9
65.8

87.7
Administrative Expenses
5.5
4.6
0.5
10.6
Total Expenditures
$328.3
$370.3
$97.6
$796.2
Enrollment (mil ions)




Aged
52.2
48.2
40.2
52.6a
Disabled
8.7
7.9
7.0
8.7
Total Enrol ment
60.9
56.1
47.2
61.2
Average expenditures
$5,305
$6,517
$2,057
$13,879
per enrollee
Source: 2020 Report of the Medicare Trustees, Table II.B1.
Notes:
Totals do not necessarily equal the sums of rounded components.
a. Number of beneficiaries with HI and/or SMI coverage.
2019 HI Operations
At the beginning of CY2019, the HI Trust Fund had an asset balance of $200.4 bil ion. During
2019, Part A expenditures reached $328.3 bil ion; about $285.1 bil ion of that amount was funded
by payroll taxes and $37.3 bil ion by interest income and other sources. (See “Sources of HI
Revenue.
”) Because expenditures exceeded revenue income, $5.8 bil ion was drawn out of the HI
Trust Fund to cover the shortfal . At the end of 2019, the HI Trust Fund had an asset balance of
$194.6 bil ion. This means that if or when HI spending exceeds income in future years, the trust
fund wil be able to spend a total of $194.6 bil ion in addition to what it receives in income.
2019 SMI Operations
In CY2019, total spending for Part B was $370.3 bil ion, with general revenues financing $268.2
bil ion of that amount and premiums covering most of the remainder. Total spending for Part D
reached $97.6 bil ion in 2019, with $70.2 bil ion of that amount paid for by general revenues. In
addition, $15.8 bil ion was covered by beneficiary premiums and $12.3 bil ion was covered by
state transfer payments. Although beneficiary premiums are set at a rate to cover 25.5% of the
costs of standard Part D benefits, the program pays for the premiums of about one-third of
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Medicare Financial Status: In Brief

enrollees because these enrollees qualify for low-income assistance. As a result, Part D premiums
represented about 16% of Part D revenues in 2019. (See Figure 1.)
Estimated Date of HI Trust Fund Insolvency
From 2008 to 2015, Part A expenditures exceeded HI income each year, and the assets credited to
the trust fund were drawn down to make up the deficit. In 2016 and 2017, the HI Trust Fund ran a
smal surplus;18 however, the Medicare trustees reported a return to deficits in 2018 and 2019 and
project a continuation of deficits in al following years until the HI Trust Fund becomes depleted
(insolvent) in 2026. At that time, there would no longer be sufficient funds to fully cover Part A
expenditures; although HI would continue to receive tax income, the funds would cover only 90%
of Part A expenses. The trustees suggest that, under these circumstances, beneficiary access to
Part A services “could rapidly be curtailed.”19 (Note: the 2020 Medicare Trustees Report
projections discussed in this report do not take into account the potential effects of the COVID-19
pandemic on Medicare financing or expenditures.)20
Almost from its inception, the HI Trust Fund has faced a projected shortfal and eventual
insolvency (see Figure 2), with insolvency dates ranging from 2 years to 28 years from the year
of the projection. However, to date, the HI Trust Fund has never become insolvent. There are no
provisions in the Social Security Act that govern what would happen if that were to occur; for
example, there is no authority in law for the program to use general revenues to fund Part A
services in the event of such a shortfal . Unless action is taken prior to the expected date of
insolvency to increase HI revenues or decrease expenditures, Congress may face a decision
regarding the provision of additional funding to make up for these deficits and to al ow for full
and on-time payments to Part A providers.
Figure 2. Projected Number of Years Until Hospital Insurance Insolvency

Source: Intermediate projections of various Medicare Trustees Reports, 1970-2020.
Notes: No specific estimates were provided by the trustees for years 1973-1977 and 1989. The 2020 projection
does not reflect potential effects of the COVID-19 pandemic on Hospital Insurance financing or expenditures.

18 T he trustees attributed this period of surplus to low spending growth for Part A services, to a strengthening economy,
and to the continued sequestration of 2% of Medicare benefit spending.
19 T he 2020 Report of the Medicare T rustees, p. 25.
20 For a discussion of potential COVID-19 related impacts on Medicare revenues and spending that could affect HI
solvency, see CRS Report RS20946, Medicare: Insolvency Projections.
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Because income (general revenue and premiums) to the SMI Trust Fund is updated automatical y
each year to ensure that the program has enough money to continue operating, the SMI Trust
Fund is kept in balance and is always solvent. However, the Medicare trustees continue to express
concerns about the rapid growth in SMI (Parts B and D) costs.
Projected Medicare Spending Growth
Although the 2020 Medicare Trustees Report notes a slowing in the growth of U.S. national
health expenditures since 2008,21 the trustees stil project that U.S. health care expenditures,
including Medicare spending, wil grow faster than gross domestic product (GDP) in most future
years. For Medicare, the projected growth in the prices of health services plus anticipated
increases in utilization rates and in the complexity of services provided are expected to contribute
to rising costs of Medicare relative to GDP. The aging of the baby boom population is also
expected to contribute to significant increases in benefit expenditures.22
Over the next 10 years, the Medicare trustees estimate that total Medicare expenditures wil
increase from $796 bil ion in 2019 to close to $1.6 tril ion in 2029.23 Of the $1.6 tril ion, about
$597 bil ion is expected to be spent on Part A services, $810 bil ion on Part B services, and $190
bil ion on Part D services. (See Figure 3.)
Figure 3. Historical and Projected Medicare Expenditures

Sources: 2020 Report of the Medicare Trustees, Expanded and Supplementary Tables (historical data); and
Report Tables III.B4; III.C4; and III.D3 (projected data).
Note: The projections do not reflect potential effects of the COVID-19 pandemic on Medicare expenditures.

21 T he trustees are uncertain whether this slowing is of limited duration (e.g., due to cyclical economic factors) or
whether it may be a longer-term trend due to structural changes in the health care industry.
22 When Medicare first began in 1966, there were about 19 million beneficiaries. T his number has grown to almost 63
million enrollees in 2020 and is expected to increase to about 78 million in 2030 and close to 113 million in 2094. 2020
Report of the Medicare T rustees, T able V.B3, p. 176.
23 In nominal dollars.
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Growth in Medicare Expenditures Relative to GDP
A comparison of Medicare expenditures (for Medicare Parts A through D, combined) to GDP
provides a measure of the amount of financial resources that wil be necessary to pay for
Medicare services relative to the output of the U.S. economy. Under current law, the trustees
expect total Medicare expenditures to increase from 3.9% of GDP in 2020 to about 6.0% of GDP
by 2045, mainly due to the rapid growth in the number of beneficiaries, and then to about 6.5% of
GDP in 2094, with growth in health care cost per beneficiary becoming the more significant
factor in those years. (See Figure 4.)
Over the next 75 years, general revenues and beneficiary premiums are expected to play an
increasing role in financing the program. For example, the level of general revenues needed to
fund SMI is expected to increase from 1.7% of GDP in 2020 to an estimated 3.1% in 2094 under
current law.24 Similarly, income from beneficiary premiums is expected to increase from 0.6% of
GDP in 2020 to 1.2% in 2094. The Medicare trustees estimate that about 15.8% of federal
personal and corporate income taxes collected in 2020 wil be used to fund the general revenue
portion of SMI, and they project that this portion wil increase to 22.1% in 2030 and to 30.1% in
2094. This amount is in addition to the payroll taxes used to fund the Part A (HI) portion of the
program.
Figure 4. Medicare Cost and Non-interest Income,
by Source as a Percentage of GDP

Source: Summary of the 2020 Annual Reports of the Social Security and Medicare Boards of Trustees, Chart C,
at http://www.ssa.gov/oact/TRSUM/index.html.
Note: The projections do not reflect potential effects of the COVID-19 pandemic on GDP or on Medicare
financing and expenditures.


24 T otal Part B outlays are expected to be about 1.8% of GDP in 2020, and the Medicare trustees project they will grow
to about 3.5% of GDP by 2094. T he t rustees also estimate that total Part D outlays will increase from about 0.5% of
GDP in 2020 to close to 1.0% of GDP in 2094.
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Unfunded and General Revenue Obligations
The Medicare Trustees Report provides estimates of the present value of the HI deficit—the
unfunded obligation—over both a 75-year horizon and an “infinite” horizon.25 (See Table 2.) This
unfunded obligation represents the dollar amount by which expenditures would need to be
reduced or revenue increased to maintain the financial soundness of the program over a period of
time. The trustees estimate that the current value of funding needed to cover the expected
difference between income to the HI Trust Fund and expenditures over the next 75 years is $4.6
tril ion. The trustees note that this financial imbalance could be addressed by immediately
increasing payroll taxes to 3.66% (from the current 2.9%), or by immediately decreasing
expenditures by 16%, or by some combination of the two. From a budgetary standpoint, the
accumulated assets in the trust fund are considered liabilities, as the redemption of the assets
represents a formal budget commitment. Therefore, the starting balance of about $0.2 tril ion in
the HI Trust Fund needs to be added to the unfunded obligation of $4.6 tril ion for a present value
of $4.8 tril ion shortfal in dedicated revenues.
The Trustees Report also provides estimates of the present value of future SMI spending.
Although SMI is funded automatical y and does not face a shortfal , the general revenue portion
represents obligated federal spending. The present value of expected general revenues needed to
pay for Medicare Parts B and D over the next 75 years is $40.9 tril ion. Adding the HI unfunded
obligation estimate and the present value of future SMI spending for the 75-year period yields a
total of $45.7 tril ion.26 In other words, it would take about $45.7 tril ion in current dollars to
cover the cost of Medicare not funded through dedicated sources over the next 75 years.
Table 2. Current Value of Estimated Medicare Unfunded Obligations and General
Revenue Spending
Present Value of HI Deficit
Present Value of SMI General Revenues

Part A

Part B
Part D
Total
Unfunded obligations
$4.8 tril iona
General revenue
$33.1 tril ion
$7.8 tril ion
$45.7 tril ion
through 2094
contributions through
2094
Unfunded obligations
-$8.0 tril iona
General revenue
$79.6 tril ion
$26.0 tril ion
$97.6 tril ion
through infinite horizon
contributions through
infinite horizon
Source: 2020 Report of the Medicare Trustees, Tables V.F2, V.G1, V.G3, V.G5.
a. Budgetary and trust fund accounting rules differ in the treatment of trust fund assets. From a budgetary
standpoint, the accumulated assets in the trust fund are considered liabilities, as the redemption of the
assets represents a formal budget commitment. The starting balance of $0.2 tril ion in the HI Trust Fund is
thus included in this figure. Under trust fund accounting methods, which exclude the asset balance, the
unfunded HI obligation for the 75-year projection period would be $4.6 tril ion and -$8.2 tril ion for the
infinite projection period. (The projections do not reflect potential effects of the COVID-19 pandemic on
Medicare expenditures or financing.)

25 T he trustees note that using a 75-year timeframe can understate the magnitude of the long-range unfunded obligation.
While the full amount of the payroll taxes paid by the next two or three generations of workers is reflected in this
summary measure, the full amount of their expected benefits is not. Extending the projection horizon indefinitely
allows both projected revenues and costs after the first 75 years to be reflected in the unfunded obligation estimate.
26 T he trustees note that while SMI general revenue transfers represent formal budget commitments under current law,
no provision exists for covering the HI T rust Fund once assets are depleted.
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Medicare Financial Status: In Brief

Comparison to Prior-Year Estimates
Projections of total Medicare spending in the 2020 Trustees Report are similar to those in the
2019 report. (See Figure 5.)
In the short term, the financial outlook for the HI Trust Fund is similar to estimates in last year’s
report and the estimated depletion date of the HI Trust Fund is 2026, the same as projected in the
2019 report. However, over the next 75 years, the estimated HI actuarial deficit (the amount that
would need to be added to the payroll tax to maintain HI solvency for this period) decreased by
0.15%—from 0.91% of taxable payroll in the 2019 report to 0.76% of taxable payroll in the 2020
report. Although HI income is expected to be lower due to lower expected revenues from payroll
taxes associated with the repeal of the health insurance excise tax,27 HI expenditures also are
expected to be lower due to lower than previously projected 2019 Part A expenditures, lower
projected provider payment updates, and a change in the projection methodology.
Projected Part B expenditures are higher than projected in the 2019 report due primarily to higher
spending for Part B drugs and higher spending for Medicare Advantage beneficiaries. Part D cost
projections, however, are lower than estimates in last year’s report, due to assumptions of higher
negotiated drug manufacturer and pharmacy rebates and slower overal drug price increases in the
short term.
Figure 5. Comparison of 2019 and 2020 Medicare Expenditure Projections
(Expenditures as a percentage of GDP)

Sources: 2019 and 2020 Medicare Trustees Reports, Supplementary Tables.
Note: The 2020 projections do not reflect potential effects of the COVID-19 pandemic on GDP or Medicare
expenditures.

27 T he Further Consolidated Appropriations Act, 2020 (P.L. 116-94) repealed the excise tax on employer-sponsored
group health insurance premiums above a given level, commonly referred to as the “ Cadillac tax.” In developing the
projections for their 2010-2019 reports, the trustees assumed that this tax would lead to a decrease in the average cost
of health insurance, thereby increasing the portion of employee compensation subject to the HI payroll tax, over both
the short - and long-range projection periods. In their 2020 report, the trustees assumed that the repeal of the Cadillac
tax would decrease the share of employee compensation subject to the HI payroll tax, and thereby lead to lower
expected payroll tax revenues compared to their prior estimates.

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Medicare Financial Status: In Brief

Alternative Projections
Throughout the 2020 report, the Medicare trustees caution that actual costs may be higher than
their intermediate projections. For example, because the trustees are required to base their
estimates on current law, their projections assume that physician payments wil be updated
according to levels set forth in the Medicare Access and CHIP Reauthorization Act of 2015
(MACRA; P.L. 114-10),28 and that the full ACA-required Medicare plan and provider payment
reductions wil be maintained.
Because of concerns about the accuracy of these projections, the Medicare trustees asked the
CMS Office of the Actuary to prepare an alternative projection based on the assumptions that
annual physician payment updates wil transition beginning in 2028 from current law to 2.05%
from 2028 to 2042, that the 5% bonuses for physicians in the advanced alternative payment
models (APM) and the $500 mil ion in additional payments to physicians in the merit-based
incentive system (MIPS) wil continue for 2025 and later, and that ACA provider payment
adjustments will be phased down beginning in 2028.29 Under this alternative scenario, long-term
Medicare costs are projected to reach about 8.6% of GDP in 2094, instead of 6.5% under the
trustees’ current-law projections. Additional y, under the alternative scenario, the HI actuarial
deficit would be 1.58% of taxable payroll (compared with 0.76% under the current-law
projection), which could be addressed by immediately increasing payroll taxes to 4.48% or by
immediately decreasing expenditures by 28% (compared with 3.66% and 19% under current law).
Because the differences in assumptions between current law and the alternative scenario do not
begin until 2028, the alternative scenario projects the same 2026 date of HI insolvency.
Figure 6. Comparison of Medicare Expenditure Projections Based on
Current Law and an Alternative Scenario
(expenditures as a percentage of GDP)

Source: 2020 Report of the Medicare Trustees, Supplementary Tables.
Note: The alternative scenario assumes phasing out certain MACRA and ACA provider payment reductions.
The projections do not reflect potential effects of the COVID-19 pandemic on GDP or Medicare expenditures.

28 See CRS Report R43962, The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114 -10).
29 John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures under an Illustrative Scenario with
Alternative Payment Updates to Medicare Providers,” April 22, 2020.
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Medicare Financial Status: In Brief


Author Information

Patricia A. Davis

Specialist in Health Care Financing



Disclaimer
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under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
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Congressional Research Service
R43122 · VERSION 27 · UPDATED
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