Since its beginning back in 1965 when President Lyndon Johnson made Medicare a law, millions of Americans age 65 and over have relied on this program as their primary source of health insurance coverage.
Medicare covers a broad spectrum of benefits, from hospitalization costs and outpatient surgery, to doctors’ visits, and necessary medical supplies and equipment. But over the past couple of decades, the future of Medicare – as well as its counterpart, Social Security – have been in question in terms of their financial stability.
With that in mind, will Medicare’s benefits still be here when you need them in the future?
The funding for Medicare comes predominantly from general revenues, as well as from payroll tax revenues that are paid by both workers and their employers. Medicare enrollees must also pay a monthly premium for Part B coverage (and in some cases, for Part A coverage, too), as well as for Medicare Part D, which coverage prescription medications.
In addition, there are various other sources of funding for Medicare Part A benefits, such as:
Income taxes that are paid on Social Security benefits, and interest that is earned on the Social Security / Medicare trust fund investments.
Yet, while Medicare Part A has several streams of incoming funds, the latest Medicare Trustees Report foresees a troubled future for this program – even going so far as to estimate the insolvency of Medicare Part A by the year 2026.
According to the mid-2018 report from Medicare’s Board of Trustees, as Medicare’s spending continues to outgrow the Hospital Insurance Trust, resources are anticipated to be depleted in less than a decade.
As an example of the program’s financial woes, just between 2017 and 2018 alone, the income for the hospital insurance trust fund fell by 6% – from roughly $306 billion to $299 billion – while at the same time, its expenses increased by $1 billion. During this same time period, the trust fund’s $10 billion surplus fell by 70%, or $7 billion, just this year.
Going forward, it is estimated by the Medicare Board of Trustees that Medicare’s hospital insurance trust will only grow at half the pace of Medicare’s rising costs – a situation that can only be sustained for so long.
So, if you are enrolled in Medicare, what can you expect in terms of benefits in the future?
One probable outcome is that Medicare itself will likely require more out-of-pocket cost responsibility from its enrollees. These costs could come in the form of deductibles, coinsurance, and / or copayments. The Original Medicare program (which consists of Medicare Part A and Part B) may also cover a shorter list of items.
In addition, Medicare’s spending factors have also continued to shift, as the program has gradually moved from primarily covering inpatient costs to a broader range of services7, as is evidenced with Medicare Advantage plans.
Most people who are Medicare-eligible have the option of enrolling in Medicare Advantage plans (also known as Medicare Part C). Medicare Advantage offers an alternative way of obtaining one’s Medicare coverage. These plans provide the same services as Medicare Part A and Part B. They will oftentimes also offer additional benefits, too, such as dental, vision, and / or wellness coverage.
Over the past several years, more Medicare beneficiaries have chosen to obtain their Medicare benefits via a private Medicare Advantage plan. In fact, this number has increased significantly, from under 13% of enrollees in 2004, to roughly 34% of Medicare enrollees going with Medicare Part C in 2017.
There is some good news on the horizon, though – at least in terms of Medicare Parts B (doctors’ services and medical equipment coverage) and D (prescription drug coverage). These Medicare components pay out benefits from the Supplementary Medicare Insurance, or SMI, Trust fund, and like Medicare Part A, they are also funded in a number of different ways, including:
Here, it is anticipated by Medicare’s Board of Trustees, that the accounts in the Medicare trust fund will continue to be adequately financed. This is due in large part to the fact that premium income, as well as general revenue income, are reset each year in order to cover these programs’ expected expenses.
1. How is Medicare funded? Medicare.gov.
2. Unstable Future Predicted for Medicare, Depletion by 2016. Public Payers News.
3. 2018 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medicare Insurance Trust Funds.
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Author Bio: Ben started Prepare for Medicare in 2014 to help people help people get objective answers to questions about Medicare. He’s held leadership roles at numerous Fortune 500 Medicare health insurers in product development, sales, marketing and strategy for over 20 years.