Medicare: Insolvency Projections

May 4, 2006 – October 25, 2021 RS20946

Medicare: Insolvency Projections
Updated October 25, 2021
Congressional Research Service
https://crsreports.congress.gov
RS20946

Medicare: Insolvency Projections

Summary
Medicare is the nation’s health insurance program for persons aged 65 and older and certain
disabled persons. Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI);
Part B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or MA); and
Part D (the outpatient prescription drug benefit).
The Part A program is financed primarily through payroll taxes levied on current workers and
their employers; these taxes are credited to the HI trust fund. The Part B program is financed
through a combination of monthly premiums paid by current enrollees and general revenues.
Income from these sources is credited to the SMI trust fund. As an alternative, beneficiaries can
choose to receive al their Medicare services through private health plans under the MA program;
payment is made on beneficiaries’ behalf in appropriate parts from the HI and SMI trust funds.
The Part D drug benefit is funded through a separate account in the SMI trust fund and is
financed through general revenues, state contributions, and beneficiary premiums. The HI and
SMI trust funds are overseen by the Medicare Board of Trustees, which makes an annual report to
Congress concerning the financial status of the funds.
Since the inception of Medicare in 1966, the HI trust fund has always faced a projected shortfal .
The insolvency date has been postponed a number of times, for example, through legislative
changes that have had the effect of restraining growth in program spending. The 2021 Medicare
Trustees Report projects that, under intermediate assumptions, the HI trust fund wil become
insolvent in 2026, the same year as estimated in the prior three years’ reports.
Congressional Research Service

Medicare: Insolvency Projections

Introduction
Medicare is a federal insurance program that pays for covered health care services of qualified
beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act as a federal
entitlement program to provide health insurance to individuals aged 65 and older, and it has been
expanded over the years to include permanently disabled individuals under the age of 65.
Medicare consists of four distinct parts, A through D. Part A covers hospital services, skil ed
nursing facility (SNF) services, home health visits, and hospice services. Most persons aged 65
and older are automatical y entitled to premium-free Part A because they or their spouse paid
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 voluntary; however, most beneficiaries with Part A also enroll in
Part B. Part C, Medicare Advantage (MA), provides private plan options, such as managed care,
for beneficiaries who are enrolled in both Part A and Part B. Part D provides optional outpatient
prescription drug coverage.1
Medicare expenditures are driven by various factors, including the level of enrollment, provider
payment rates, the quantity and complexity of medical services provided, health care inflation,
and life expectancy. In 2020, Medicare provided benefits to about 63 mil ion persons at an
estimated total cost of $926 bil ion.2
The Medicare program has two separate trust funds—the Hospital Insurance (HI) trust fund and
the Supplementary Medical Insurance (SMI) Trust fund. The Part A program, which is financed
mainly through payroll taxes levied on current workers, is accounted for through the HI trust
fund. The Part B and Part D programs, which are funded primarily through general revenue and
beneficiary premiums, are accounted for through the SMI trust fund.3 Both funds are maintained
by the Department of the Treasury and overseen by the Medicare Board of Trustees, which
reports annual y to Congress concerning the funds’ financial status.4 Financial projections are
made using economic assumptions based on current law, including estimates of consumer price
index, workforce size, wage increases, and life expectancy.
From its inception, the HI trust fund has faced a projected shortfal and eventual insolvency.
Because of the way it is financed, the SMI trust fund cannot become insolvent; however, the
Medicare trustees continue to express concerns about the rapid growth in SMI costs.5

1 For additional information on the Medicare program, see CRS Report R40425, Medicare Primer.
2 Boards of T rustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance T rust Funds, 2021
Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplem entary Medical
Insurance Trust Funds, August 31, 2021, T able II.B1, at https://www.cms.gov/files/document/2021-medicare-trustees-
report.pdf (hereinafter, 2021 Report of the Medicare T rustees).
3 Payments are made for beneficiaries enrolled in Part C from the Hospital Insurance (HI) and Supplementary Medical
Insurance (SMI) trust funds based on estimates of HI and SMI spending under Part C.
4 Medicare T rustees Reports from 1966 through 1994 may be found on the Social Security History webpage at
https://www.ssa.gov/history/reports/trust/trustyears.html. More recent reports may be found on the CMS webpage,
“T rustees Report & T rust Funds,” at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-T rends-
and-Reports/ReportsT rustFunds.
5 For further information on Medicare financing, see CRS Report R43122, Medicare Financial Status: In Brief.
Congressional Research Service

1

Medicare: Insolvency Projections

Medicare Hospital Insurance Financing
Similar to the Social Security program, the HI portion of Medicare was designed to be self-
supporting and is financed through dedicated sources of income, rather than relying on general
tax revenues. The primary source of income credited to the HI trust fund is payroll taxes paid by
employees and employers; each pays a tax of 1.45% on earnings. The self-employed pay 2.9%.
Unlike Social Security, there is no upper limit on earnings subject to the tax.6 The Patient
Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) imposes an additional tax
of 0.9% on high-income workers with wages over $200,000 for single filers and $250,000 for
joint filers, effective for taxable years beginning in 2013.7
Additional income to the HI trust fund consists of premiums paid by voluntary enrollees who are
not entitled to premium-free Medicare Part A through their (or their spouse’s) work in covered
employment, a portion of the federal income taxes paid on Social Security benefits,8 and interest
on federal securities held by the HI trust fund.
What Is the HI Trust Fund?
The HI trust fund is a financial account in the U.S. Treasury into which al income to the Part A
portion of the Medicare program is credited and from which al benefits and associated
administrative costs of the Part A program are paid. The trust fund is solely an accounting
mechanism—no actual money is transferred into or out of the fund.9
HI operates on a “pay-as-you-go” basis, meaning the annual revenues to the HI trust fund,
primarily 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 (e.g.,
payroll taxes), income is credited by the Treasury to the appropriate trust fund in the form of
special issue interest-bearing government securities.10 (Interest on these securities is also 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 Fund of the Treasury and a corresponding amount
of securities is deleted from (written off) the HI trust fund.
In years in which the HI trust fund spends less than it receives in income, the fund has a cash-flow
surplus. When this occurs, the HI trust fund securities exchanged for any income in excess of
spending show up as assets on the trust fund’s financial accounting balance sheets and are

6 Prior to 1991, the upper limit on taxable earnings was the same as for Social Security. T he Omnibus Budget
Reconciliation Act of 1990 (OBRA 90; P.L. 101-508) raised the limit in 1991 to $125,000. Under automatic indexing
provisions, the maximum was increased to $130,200 in 1992 and $135,000 in 1993. T he Omnibus Budget
Reconciliation Act of 1993 (OBRA 93; P.L. 103-66) eliminated the upper limit entirely beginning in 1994.
7 For additional detail, see CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and
Affordable Care Act (ACA).
8 Since 1994, the HI trust fund has had an additional funding source; OBRA 93 increased the maximum amount of
Social Security benefits subject to income tax from 50% to 85% and provided that the additional revenues would be
credited to the HI trust fund.
9 T here are about 200 federal trust funds. For additional information on how federal trust funds operate within the
context of the federal budget , see CRS Report R41328, Federal Trust Funds and the Budget.
10 Unlike marketable securities, special issues can be redeemed at any time at face value. Investment in special issues
gives the trust funds the same flexibility as holding cash.
Congressional Research Service

2

link to page 11 link to page 6 link to page 7 link to page 13 link to page 14

Medicare: Insolvency Projections

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.11
If, in a given year, the HI trust fund spends more than it receives in income, the fund has a cash-
flow deficit. In deficit years, Medicare can redeem any securities accumulated in previous years
(including interest). When the securities are redeemed, the government must raise the resources
necessary to pay for the securities and the monies are transferred from the Treasury’s General
Fund to the HI trust fund. When the assets credited to the trust fund reach zero, the fund is
deemed insolvent. (See Appendix A for a discussion of recent and projected HI cash flows and
for data on historical and projected HI operations through 2030.)
History of HI Trust Fund Solvency Projections
The HI trust fund has never become insolvent. The Medicare Board of Trustees projected
insolvency for the HI trust fund beginning with the 1970 report, at which time the trust fund was
expected to become insolvent in only two years. (See Figure 1 and Table 1.) The insolvency date
has been postponed a number of times since the beginning of Medicare through various methods.
For example, Congress has periodical y adjusted the payroll tax rate to maintain the financial
adequacy of the HI trust fund. Other legislative changes also have been made at various times to
slow the growth in HI program spending; general y, these measures have been part of larger
budget reconciliation laws that attempted to restrain overal federal spending. (See Appendix B
for historical payroll tax rates and Appendix C for an overview of legislative, economic, and
methodological changes that impacted 1997-2020 insolvency projections.)
Figure 1. Projected Number of Years Until Medicare HI Trust Fund Insolvency

Sources: Intermediate projections of various Medicare Trustees Reports, 1970-2021.
Note: No specific estimates were provided by the Medicare trustees for years 1973-1977 and 1989.

11 For additional information, see the 2021 Report of the Medicare T rustees, Appendix F.
Congressional Research Service

3

Medicare: Insolvency Projections

Table 1. Year of Projected Insolvency of the Hospital Insurance (HI) Trust Fund in
Past and Current Trustees Reports
Year of
Year of
Year of
Year of
Year of
Year of
Trustees
Projected
Trustees
Projected
Trustees
Projected
Report
Insolvency
Report
Insolvency
Report
Insolvency
1970
1972
1987
2002
2005
2020
1971
1973
1988
2005
2006
2018
1972
1976
1989
None Indicated
2007
2019
1973
None Indicated
1990
2003
2008
2019
1974
None Indicated
1991
2005
2009
2017
1975
Late 1990s
1992
2002
2010
2029
1976
Early 1990s
1993
1999
2011
2024
1977
Late 1980s
1994
2001
2012
2024
1978
1990
1995
2002
2013
2026
1979
1992
1996
2001
2014
2030
1980
1994
1997
2001
2015
2030
1981
1991
1998
2008
2016
2028
1982
1987
1999
2015
2017
2029
1983
1990
2000
2025
2018
2026
1984
1991
2001
2029
2019
2026
1985
1998
2002
2030
2020
2026
1986
1996
2003
2026
2021
2026
1986
1998
2004
2019
—
—
(amended)
Sources: Intermediate projections of various Medicare Trustees Reports, 1970-2021.
Current Insolvency Projections
In their 2021 report,12 the Medicare trustees project the same date of insolvency (2026) as in their
2018, 2019, and 2020 reports. Although the Coronavirus Disease 2019 (COVID-19) pandemic
has affected Medicare’s short-term financing and spending, the trustees do not expect it to have
much effect on the financial status of the HI trust fund beyond 2024.13 Specifical y, although near-
term payroll tax income is projected to be lower than previously estimated due to the economic
effects of the pandemic on labor markets, expenditures also are expected to be lower because of
lower-than-expected provider payment updates and changes in the trustees’ projection
methodology.14 The trustees therefore attribute the consistency of their current 2026 insolvency
date estimate with that in last year’s report to the offsetting effects of lower income and

12 2021 Report of the Medicare T rustees.
13 2021 Report of the Medicare T rustees, p. 2.
14 Methodological changes include modifications of the time-to-death demographic factors used for projections. Details
may be found in “T ime-to-Death Demographic Factors,” at https://www.cms.gov/research-statistics-data-systems/
trustees-report -trust-funds/time-death-demographic-factors.
Congressional Research Service

4

link to page 11 link to page 9 Medicare: Insolvency Projections

expenditures in the HI trust fund in the near term and their expectation that the pandemic’s effects
wil last only a few years.
Starting in 2008, expenditures in the HI trust fund exceeded income each year through 2015.
Although the Medicare trustees reported smal surpluses in 2016 and 2017, the HI trust fund
again experienced deficits in 2018 and 2019. (See Table A-1.) In 2020, the HI trust fund
experienced a larger deficit, primarily due to accelerated and advance payments made to health
care providers during the COVID-19 pandemic.15 The trustees projected these payments would be
repaid in 2021 and 2022, resulting in a smal er deficit in 2021 and a surplus in 2022. (HI spending
in 2020 also was affected by the provision of COVID-19-related treatments, as wel as by a
number of regulatory and statutory changes made during the COVID-19 public health
emergency;16 however, these increases were more than offset by a decline in spending on non-
COVID-related care compared with both actual spending in 2019 and expected spending in
2020.)
In al future years beyond 2022, expenditure growth is projected to continue to outpace growth in
income. Trust fund assets are expected to be used to make up the difference between income and
expenditures until the assets are depleted in 2026. (See Figure 2.)
Each year, beginning in 2010, the Centers for Medicare & Medicaid Services (CMS) actuaries
have issued an il ustrative alternative scenario that assumes certain ACA changes that reduce Part
A provider reimbursements would be phased out gradual y.17 As the 2021 alternative scenario
assumes this phaseout would begin in 2028 (i.e., after the projected 2026 HI insolvency date), this
alternative analysis assumes the same 2026 date of insolvency.

15 Under this program, health care providers were able to receive accelerated or advance payments for services
provided or to be provided in the future; in 2020, about $67.1 billion was paid out of the HI trust fund for such
payments. For additional information on this program, see CRS Report R46698, Medicare Accelerated and Advance
Paym ents and COVID-19: Frequently Asked Questions.
16 T hese include waiving the prior three-day inpatient stay requirement for skilled nursing facility services, increasing
payments for COVID-19-related hospital stays by 20%, and suspending the 2% provider payment reductions under
sequestration. For additional information, see CRS Report R46334, Selected Health Provisions in Title III of the
CARES Act (P.L. 116-136); CRS Report R45106, Medicare and Budget Sequestration; and CMS, “ COVID-19
Emergency Declaration Blanket Waivers for Health Care Providers,” at https://www.cms.gov/files/document/covid-19-
emergency-declaration-waivers.pdf.
17 Memo from John D. Shatto and M. Kent Clemens, “ Projected Medicare Expenditures Under an Illustrative Scenario
with Alternative Payment Updates to Medicare Providers,” August 31, 2021, at https://www.cms.gov/files/document/
illustrative-alternative-scenario-2021.pdf.
Congressional Research Service

5

Medicare: Insolvency Projections

Figure 2. HI Trust Fund Assets at Beginning of Year as a
Percentage of Annual Expenditures
(estimates from selected 2009-2021 Medicare Trustees Reports)

Sources: Data from the Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds, 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and the Federal
Supplementary Medical Insurance Trust Funds, Table II.E1, and Summaries of the applicable 2011 through 2021
Annual Reports of the Social Security and Medicare Boards of Trustees, Chart D (2011) and Chart E (201 3,
2015-2021).
Notes: The 2010 estimated insolvency date was 2029. The 2012 insolvency date estimate was the same as the
date projected in the 2011 report (2024). The 2014 insolvency date estimate was the same as that in the 2015
report (2030). The 2016 insolvency date was 2028, and the 2018 insolvency date was the same as projected in
the 2019 and 2021 reports (2026). The 2020 projections were almost identical to those in 2019; the 2020
projections did not, however, reflect potential effects of the COVID-19 pandemic on the Medicare program.
What Would Happen If the HI Trust Fund Became
Insolvent?
The practical function of the HI trust fund is to permit the continued payment of bil s in the event
of a temporary financial strain (e.g., lower income or higher costs than expected) without
requiring legislative action. As long as the HI trust fund has a balance (i.e., securities are credited
to the fund), the Treasury Department is authorized to make payments for Medicare Part A
services. If the HI trust fund is not able to pay al current expenses out of current income and
accumulated trust fund assets, the HI trust fund is considered to be insolvent.18
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 insolvency were to occur. For example, the
program has no statutory authority to use general revenues to fund Part A services in the event of

18 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. It is true that a trust fund’s outgo can be greater than its income and that trust
funds can have a zero balance, but , unlike private businesses, the federal government is not in danger of “ going out of
business” or having its assets seized by creditors. As noted, Congress has often taken actions to increase the trust fund’s
revenues or reduce its outgo when the Medicare HI trust fund has faced imminent insolvency.
Congressional Research Service

6

Medicare: Insolvency Projections

such a shortfal ; transfers from the general fund of the Treasury could not be made for this
purpose without new legislation.
In their 2021 report, the Medicare trustees project the HI trust fund wil be exhausted in 2026. At
that time, there wil no longer be sufficient funds to fully cover Part A expenditures; although the
trust fund would continue to receive tax and other income, those funds would cover only 91% of
Part A expenses. The Medicare trustees have suggested that in the event of HI trust fund
insolvency, there could initial y be delays in payments to plans and providers and,19 following
soon after, beneficiary access to Part A services could “rapidly be curtailed.”20 However, as the
Social Security Act does not specify what would happen if the HI trust fund were to become
insolvent, it is unclear what actions CMS might under this circumstance.21 CMS could choose to
pay full benefits on a delayed schedule or, alternatively, to make timely but reduced payments.
Unless action is taken prior to the date of insolvency to increase revenues or to decrease
expenditures (or some combination of the two), Congress may face a legislative decision
regarding whether, and how, to provide for another source of funding to make up for the HI trust
fund deficits.
Medicare Financing Issues
Much of the concern about Medicare’s financial status tends to focus on the HI trust fund date of
insolvency, when Medicare would no longer have the authority to pay for Part A health care
services in full. This focus can, however, detract from larger issues confronting the Medicare
program as a whole and from the program’s current and future impact on the federal budget and
on taxpayers. When viewed from the perspective of the entire federal budget, as the number of
beneficiaries and per capita health care costs continue to grow, total Medicare spending
obligations (HI and SMI spending combined) are expected to place increasing demands on
federal budgetary resources.
As noted earlier, because of the way it is financed, the SMI (Parts B and D) portion of Medicare
cannot become insolvent. However, a continuing shift from providing care in inpatient (Part A)
settings to outpatient (Parts B and D) settings has resulted in a greater portion of Medicare
spending being covered by beneficiary premiums and general revenues than by dedicated payroll
taxes.22 In the future, the Medicare trustees estimate the portion of personal and corporate income
taxes needed to fund SMI wil increase from about 19.6% in 2020 to about 23.6% in 2030 and
32.5% in 2095.23

19 1998 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund , p. 16, at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-T rends-and-Reports/ReportsT rustFunds/
T rusteesReports.
20 2021 Report of the Medicare T rustees, p. 27.
21 Neither CMS nor the Medicare trustees have provided details on what would happen in such an event.
22 See Medicare Payment Advisory Commission, Figure 1-6, “T he HI T rust Fund Covers a Declining Share of T otal
Medicare Spending,” in Report to Congress: Medicare Paym ent Policy, March 2021, p. 17, at
mar21_medpac_report_t o_the_congress_secv2.pdf.
23 2021 Report of the Medicare T rustees, T able II.F3. T his amount is separate from and in addition to the payroll taxes
used to fund the Part A (HI) portion of the program. For an overview of the federal tax system, see CRS Report
R45145, Overview of the Federal Tax System in 2020 .
Congressional Research Service

7

link to page 7 link to page 7 link to page 11 link to page 12 Medicare: Insolvency Projections

Appendix A. Operation of the Hospital Insurance
Trust Fund
In 2004, Medicare Part A expenditures began to exceed tax income (from payroll taxes and from
the taxation of Social Security benefits). In 2008, expenditures began to exceed total income (tax
income plus al other sources of revenue) and Hospital Insurance (HI) assets (the balance of the
HI trust fund at the beginning of the year) were used to meet the portion of expenditures that
exceeded income. Expenditures exceeded income every year from 2008 through 2015. In 2016
and 2017, the HI trust fund ran a smal surplus, but in 2018 and 2019, the fund again experienced
deficits. In 2020, the HI trust fund experienced a larger-than-normal deficit because of accelerated
and advance payments made to providers during the COVID-19 pandemic. (See “Current
Insolvency Projections.”) The trustees project these payments wil be repaid in 2021 and 2022,
resulting in a smal er deficit in 2021 and a surplus in 2022. In al future years beyond 2022,
expenditure growth is expected to continue to outpace growth in income, and trust fund assets
wil be used to make up the difference between income and expenditures until the assets are
depleted in 2026. At that time, the HI trust fund wil no longer have sufficient funds to al ow for
the full payment of Part A expenditures. (See Table A-1, below, for historical and projected
Medicare financial data through 2030).
Table A-1. Operation of the Hospital Insurance Trust Fund, CY1970-CY2030
(in bil ions of dol ars)
Income
Expenditures
Trust Fund
Net
Interest,
Change
Balance at
Payroll
Transfers,
Benefit
Admin.
from Prior
End of
Year
Taxes
Othera
Total
Payments
Expenses
Total
Year
Year
Historical Data
1970
$4.9
$1.2
$6.0
$5.1
$0.2
$5.3
$0.7
$3.2
1975
11.5
1.4
13.0
11.3
0.3
11.6
1.4
10.5
1980
23.8
2.1
26.1
25.1
0.5
25.6
0.5
13.7
1985
47.6
3.9
51.4
47.6
0.8
48.4
4.8
20.5
1990
72.0
8.4
80.4
66.2
0.8
67.0
13.4
98.9
1995
98.4
16.7
115.0
116.4
1.2
117.6
-2.6
130.3
2000
144.4
22.9
167.2
128.5
2.6
131.1
36.1
177.5
2005
171.4
28.0
199.4
180.0
2.9
182.9
16.4
285.8
2006
181.3
30.2
211.5
189.0
2.9
191.9
19.6
305.4
2007
191.9
31.9
223.7
200.2
2.9
203.1
20.7
326.0
2008
198.7
32.0
230.8
232.3
3.3
235.6
-4.7
321.3
2009
190.9
34.5
225.4
239.3
3.2
242.5
-17.1
304.2
2010
182.0
33.6
215.6
244.5
3.5
247.9
-32.3
271.9
2011
195.6
33.4
228.9
252.9
3.8
256.7
-27.7
244.2
2012
205.7
37.3
243.0
262.9
3.9
266.8
-23.8
220.4
Congressional Research Service

8

link to page 12 Medicare: Insolvency Projections

Income
Expenditures
Trust Fund
Net
Interest,
Change
Balance at
Payroll
Transfers,
Benefit
Admin.
from Prior
End of
Year
Taxes
Othera
Total
Payments
Expenses
Total
Year
Year
2013
220.8
30.3
251.1
261.9
4.3
266.2
-15.0
205.4
2014
227.4
33.9
261.2
264.9
4.5
269.3
-8.1
197.3
2015
241.1
34.3
275.4
273.4
5.5
278.9
-3.5
193.8
2016
253.5
37.3
290.8
280.5
4.9
285.4
5.4
199.1
2017
261.5
37.8
299.4
293.3
3.2
296.5
2.8
202.0
2018
268.3
38.3
306.6
303.0
5.2
308.2
-1.6
200.4
2019
285.1
37.4
322.5
322.8
5.4
328.3
-5.8
194.6
2020
303.3
38.4
341.7
397.7
4.5
402.2
-60.4
134.1
Intermediate Estimates
2021
298.5
35.5
334.1
340.6
4.7
345.3
-11.2
122.9
2022
330.7
41.9
372.6
359.1
4.6
363.7
8.9
131.8
2023
344.2
44.8
389.1
412.6
4.8
417.4
-28.3
103.5
2024
359.4
47.8
407.0
435.4
5.0
440.5
-33.5
70.0
2025
374.9
50.8
425.6
463.0
5.3
468.2
-42.6
27.4
2026
391.0
57.4
448.5
492.3
5.6
497.8
-49.3
-22.0
2027
407.0
64.6
471.6
523.6
5.8
529.4
-57.7
-79.7
2028
424.4
67.4
491.8
556.8
6.1
562.9
-71.2
-150.9
2029
442.3
69.7
512.0
591.2
6.4
597.5
-85.5
-236.4
2030
460.3
71.4
531.7
623.6
6.8
630.4
-98.6
-335.0
Source: Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds, 2021 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, August 31, 2021 (hereinafter, 2021 Medicare Trustees Report), Table III.B4.
Notes: Sums may not equal totals due to rounding. CY = calendar year.
a. Includes income from the taxation of Social Security benefits, Railroad Retirement account transfers,
premiums paid by voluntary enrol ees, and interest.

Congressional Research Service

9

link to page 13 Medicare: Insolvency Projections

Appendix B. Historical Payroll Tax Rates
Table B-1. Tax Rates and Maximum Tax Bases
Tax Rate (percentage of taxable earnings)
Employees and
Calendar Year
Maximum Tax Base
Employers, Each
Self-Employed
1966
$6,600
0.35%
0.35%
1967
6,600
0.50
0.50
1968-1971
7,800
0.60
0.60
1972
9,000
0.60
0.60
1973
10,800
1.00
1.00
1974
13,200
0.90
0.90
1975
14,100
0.90
0.90
1976
15,300
0.90
0.90
1977
16,500
0.90
0.90
1978
17,700
1.00
1.00
1979
22,900
1.05
1.05
1980
25,900
1.05
1.05
1981
29,700
1.30
1.30
1982
32,400
1.30
1.30
1983
35,700
1.30
1.30
1984
37,800
1.30
2.60
1985
39,600
1.35
2.70
1986
42,000
1.45
2.90
1987
43,800
1.45
2.90
1988
45,000
1.45
2.90
1989
48,000
1.45
2.90
1990
51,300
1.45
2.90
1991
125,000
1.45
2.90
1992
130,200
1.45
2.90
1993
135,000
1.45
2.90
1994-2012
No limit
1.45
2.90
2013 and latera
No limit
1.45
2.90
Source: 2021 Medicare Trustees Report, Table III.B2.
a. Beginning in 2013, workers pay an additional 0.9% of their earnings above $200,000 (those who file
individual tax returns) or $250,000 (those who file joint tax returns).

Congressional Research Service

10

link to page 13 Medicare: Insolvency Projections

Appendix C. Changes in HI Trust Fund Insolvency
Projections: 1997-2020
The HI trust fund has faced insolvency since its inception; however, it has never become
insolvent. The insolvency date has been postponed a number of times since the beginning of
Medicare through various methods. For example, in early years of the program, the payroll tax
rate was adjusted periodical y to maintain the financial adequacy of the HI trust fund. (See
Appendix B for historical payroll tax rates.)
Other legislative changes have been made at various times to slow the growth in HI program
spending, primarily by adjusting Part C plan and Part A provider reimbursement methodologies.
General y, these measures have been part of larger budget reconciliation laws that attempted to
restrain overal federal spending. For example, in early 1997, the Medicare trustees projected the
HI trust fund would become insolvent within four years—in 2001.24 However, following
enactment of the Balanced Budget Act of 1997 (BBA 97; P.L. 105-33), significant improvements
were made in the insolvency projections over the next few years. The new projections reflected a
number of factors, including lower expected expenditures as a result of changes made by BBA 97
(primarily resulting from modifications in Medicare Part C payments and the establishment of
prospective payment systems for certain Part A providers);25 continued efforts to combat fraud
and abuse; and strong economic growth, which was expected to generate more revenues to the
trust fund from payroll taxes.
There were concerns, however, that the savings achieved through the enactment of BBA 97 were
greater than intended at the time of enactment and had unintended consequences for health care
providers. As a result of these concerns, Congress enacted two measures: the Balanced Budget
Refinement Act of 1999 (BBRA 99; P.L. 106-113) and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection Act of 2000 (BIPA 2000; P.L. 106-554). These measures
were designed to reverse some of the BBA 97 spending reductions. Despite enactment of BBRA
99 and BIPA 2000, which increased program spending, the 2001 and 2002 Medicare Trustees
Reports continued to delay the projected insolvency date. These improvements in solvency
projections reflected both stronger-than-expected economic growth and lower-than-expected
program costs due to lower projected enrollment in Medicare Part C, heightened antifraud and
abuse initiatives, and lower-than-expected increases in health care costs.
The 2003 report projections, however, shifted direction. The projected insolvency date was 2026,
four years earlier than the 2030 date projected in the 2002 report. The revision was due to lower-
than-expected HI-taxable payroll and higher-than-expected hospital expenditures.26 In the next
year, the 2004 report projected that the HI trust fund would become insolvent in 2019, seven
years earlier than projected in 2003. A number of factors contributed to the revision of the
projected insolvency date, including slow wage growth (on which payroll taxes are based) and
faster growth in inpatient hospital benefits. In addition, the enactment of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173) added

24 Medicare T rustees reports may be found on the CMS webpage, “T rustees Report & T rust Funds,” at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-T rends-and-Reports/ReportsT rustFunds.
25 T he Balanced Budget Act of 1997 (BBA 97; P.L. 105-33) established the Medicare + Choice program under Part C.
Medicare Part C was changed to Medicare Advantage by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA; P.L. 108-173).
26 T he lower projection of payroll taxes was primarily due to a revision by the Bureau of Economic Analysis in national
wages and salaries for 2001 and 2002.
Congressional Research Service

11

link to page 5 Medicare: Insolvency Projections

significantly to HI costs, primarily through higher payments to rural hospitals and to private plans
under the MA program.27
The 2005 Medicare Trustees Report projected that the HI trust fund would become insolvent one
year later than projected in 2004, in 2020. The revision reflected slightly higher income and
slightly lower costs in 2004 than previously estimated. The 2006 report moved the insolvency
date forward again, to 2018. The revision reflected expectations of slightly higher costs and
increased utilization of HI services. Both the 2007 and 2008 reports projected a 2019 insolvency
date, although the 2008 report indicated that insolvency would occur earlier in the year. The 2009
report moved the insolvency date forward to 2017, due primarily to lower payroll tax income
resulting from the December 2007 to June 2009 economic recession (the “Great Recession”).
The 2010 Medicare Trustees Report, issued subsequent to the enactment of the ACA, estimated
that the combination of lower Part A costs and higher payroll-tax revenues expected to result
from the ACA would postpone depletion of the HI trust fund’s assets until 2029, 12 years later
than the date projected in the 2009 report.28 However, the 2011 report projected that the HI trust
fund would become insolvent in 2024, five years earlier than projected in the 2010 report. The
worsening financial outlook was primarily due to lower-than-expected payroll taxes stemming
from higher-than-expected unemployment, and slow wage growth in 2010 caused by the
continuing effects of the 2007-2009 economic recession. The 2012 Medicare Trustees Report
projected the same 2024 insolvency date. Although income from payroll taxes was expected to
increase at a faster rate than expenditures through 2018 due to the projected economic recovery,
the application of an additional 0.9% HI payroll tax for high-income workers beginning in 2013,29
and the 2% reduction in spending required by the Budget Control Act of 2011 (BCA; P.L. 112-25)
from 2013 through 2021,30 income was stil expected to be insufficient to fully cover projected HI
expenses during that period.
In their 2013 report, the Medicare trustees projected a somewhat better short-term outlook for the
HI trust fund. They moved the insolvency date two years later than their 2012 estimate, to 2026.
The improved projections were primarily due to lower-than-expected expenditures in 2012, the
base year used to project future expenditures, and a larger-than-estimated impact of ACA
payment methodology changes on MA costs.31 In their 2014 report, the Medicare trustees
reported some improvement in Medicare’s financial outlook and therefore moved the insolvency
date four years later than their 2013 estimate, to 2030. This improvement was mainly due to
lower expected utilization of and/or spending for certain Part A services, including inpatient
hospital, skil ed nursing, and home health care. The 2015 Trustees Report projected a similar
short-term financial outlook and maintained the 2030 insolvency date estimate.
The 2016 Medicare Trustees Report projected a slightly worsened short-term outlook for the HI
trust fund and therefore moved the insolvency date two years earlier than their 2015 estimate, to

27 T he Part D outpatient prescription drug program, which was created by the MMA, is funded under SMI; the
increased expenditures associated with this new benefit therefore had little impact on projections of Medicare (HI)
solvency.
28 T he expected reductions were primarily due to productivity adjustments to Part A provider payment updates and
reduced payments to Medicare Advantage plans.
29 T he high-income payroll tax was added by the ACA. See “ Medicare Hospital Insurance Financing.”
30 Subsequent legislation extended the reductions for an additional nine years, through FY2030. For additional
information on the Budget Control Act of 2011 (BCA; P.L. 112-25) and required Medicare spending reductions, see
archived CRS Report R41965, The Budget Control Act of 2011, CRS Report R40425, Medicare Prim er, and CRS
Report R45106, Medicare and Budget Sequestration.
31 See archived CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act
(PPACA): Sum m ary and Tim eline.
Congressional Research Service

12

link to page 7 Medicare: Insolvency Projections

2028. This change was primarily due to lower-than-expected payroll-tax income in 2015 and to
assumptions of a slowing in real wage growth. In their 2017 report, the Medicare trustees
projected a slightly improved short-term outlook for the HI trust fund and therefore moved the
insolvency date one year later than their 2016 estimate, to 2029. This change was primarily due to
lower-than-expected HI expenditures in 2016 (which reduced the projection base) and lower
projected future utilization of inpatient hospital services.
The 2018 Medicare Trustees Report projected a worsened short-term outlook for the HI trust
fund, and therefore moved the insolvency date three years earlier than their 2017 estimate, to
2026 (from 2029 in the 2017 report). This shift was primarily due to changes in estimates
affecting HI revenues, including a reduction in projected income from payroll taxes due to lower-
than-expected wages in 2017 and projections of slower gross domestic product growth, as wel as
expectations of reduced income from taxes on Social Security benefits as a result of 2017
legislation that lowered individual income taxes through 2025.
In their 2019 report, the Medicare trustees projected the same date of insolvency (2026) as in
their 2018 report. However, HI income was projected to be lower than estimated in the 2018
report due to lower-than-expected payroll tax revenue and reduced income from the taxation of
Social Security benefits. Additional y, although expenditures were expected to be slightly higher
than the prior year’s estimates because of higher-than-projected 2018 HI expenditures and higher
projected updates to provider payments, these updated spending estimates were mostly offset by
an expectation of lower future utilization of skil ed nursing facility services.
In their 2020 report,32 the Medicare trustees again projected the same date of insolvency (2026) as
in their 2018 and 2019 reports. Although HI income was projected to be lower than estimated in
the 2019 report due to expected lower payroll tax revenue, expenditures also were expected to be
lower than the 2019 estimates, because of lower-than-expected 2019 HI expenditures, lower-than-
expected provider payment updates, and a change in the trustees’ projection methodology. Higher
projected spending growth for Medicare Advantage was expected to partial y offset the projected
decrease in HI expenditures. (See “Current Insolvency Projections” for the 2021 Medicare
Trustees Report projections.)

Author Information

Patricia A. Davis

Specialist in Health Care Financing

Acknowledgments
Isaac A. Nicchitta, CRS Research Assistant, contributed to this report update.

32 T he 2020 Report of the Medicare T rustees, April 22, 2020, did not reflect potential economic and healthcare impacts
of the COVID-19 pandemic on the Medicare program.
Congressional Research Service

13

Medicare: Insolvency Projections

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
RS20946 · VERSION 29 · UPDATED
14

Download PDF

Download EPUB

Revision History

Oct. 25, 2021

HTML · PDF

May. 29, 2020

HTML · PDF

Jul. 3, 2019

HTML · PDF

2% changed

Jun. 18, 2018

HTML · PDF