Medicare researchers are ringing warning bells that time is running out for Congress to find a long-term solution to Medicare's fiscal woes, which run much deeper than looming insolvency for the trust fund that finances Medicare's hospital benefit.

"Overall, not surprisingly, the picture is quite troubling," Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget, said on a June 6 webinar about the recent Medicare trustees’ report, which forecast that the the Hospital Insurance Trust Fund will go broke in 2028.

That’s two years later than last year’s estimate of 2026. But “while we may have gained a year or two in solvency, we’ve lost a year by failing to act. So we’re pretty much where we were before," Goldwein said.

Additionally, the report’s economic assumptions are outdated and likely rosier than the true picture, according to the Committee for a Responsible Federal Budget.

As a result, the additional trust fund wiggle room could be an exaggeration.

Though “it’s tempting to interpret this as good news,” while people focus on the health insurance trust fund, Medicare’s fiscal challenges are not limited to Part A, said Erica Socker. Socker, an investor at Arnold Ventures who previously developed cost estimates for Medicare legislation at the Congressional Budget Office, spoke Tuesday at a Bipartisan Policy Center panel.

The report, which is issued annually by Medicare’s trustees, found spending is projected to grow substantially in all the program’s buckets — Parts A, B and D — as a percentage of gross domestic product over the next few decades.

This means higher premiums and more general revenue will be required over time to fund the program, straining the federal budget and the pocketbooks of Medicare beneficiaries themselves.

Lawmakers can’t wait until insolvency is around the corner before making corrections, academics said in a series of panels last week. Instead, the more quickly politicians act to increase revenue or decrease spending, the better for the health of the Medicare program and its 64 million members.

“There is a real cost to waiting,” Oliver Kim, BPC’s health policy director, said.

Dour outlook

While the specific date for HI trust fund insolvency has moved out slightly, Medicare still faces significant spending challenges.

That’s largely due to underlying demographic shifts in the U.S., said Jeannie Fuglesten Biniek, a senior policy analyst for Medicare at the Kaiser Family Foundation, on the webinar hosted by the CRFB.

“The demographic problem is really what’s driving our challenges in the future,” Fuglesten Biniek said.

The number of Americans at the qualification age for Medicare is projected to reach 95 million by 2060, rising from 16% of the total population in 2018 to 23% at that time, according to the Census Bureau.

As a result, more beneficiaries will come onto the insurance program, while the number of workers paying into the trust fund will be reduced.

In 2000, there were four workers per Medicare beneficiary. In 2060, that’s projected to fall to about 2.25, according to the trustees report.

The trust fund’s income will then become inadequate to fund Part A medical benefits. And costs to another fund that pays Parts B and D, called the Supplementary Medical Insurance trust fund, are also climbing, increasing pressure on beneficiary budgets and the federal budget.

One major driver of spending is Medicare Advantage, which is making up a rising share of costs, researchers said.

Backers of MA, where the government pays private plans to administer Medicare benefits, claim the program is more efficient than traditional Medicare. But MA has never yielded savings for Medicare, paying between 1.5% and 14% above fee-for-service Medicare between 2004 and 2020, according to the Medicare Payment Advisory Committee.

Yet MA is increasingly popular among beneficiaries attracted by its lower cost-sharing and extra benefits, like dental and vision. The program is projected to grow to cover half of all Medicare beneficiaries by 2026.

MA doesn’t have its own trust fund. Instead, it covers benefits from both Part A and B and is financed through both the HI and SMI trust funds.

“While spending per beneficiary is projected to grow in traditional Medicare as well, its projected to grow faster in Medicare Advantage,” KFF’s Fuglesten Biniek said, due to more beneficiaries selecting the program along with the cost of extra benefits.

The report projects the HI fund will run deficits of $530 billion over the next decade. Over 75 years — the length of the projection period — trustees project a shortfall of 0.7% of payroll, or 0.3% of the gross domestic product.

Aggressive incrementalism

Congress has historically responded to looming Medicare insolvency by deploying various policy levers, including adding risk to the fee-for-service program, or upping revenue by increasing payroll taxes. But many historic steps won’t work, as they don’t address demographic factors that are driving the brunt of growing spending, Brian Miller, an American Enterprise Institute fellow, said on a June 6 webinar.

”The Medicare of 2022 is really different than the Medicare of 1965,” Miller said.

Besides larger fixes to the nation’s increasingly lopsided demographics, like growing the fertility rate or increasing immigration, there are more targeted solutions for policymakers to consider, academics said.

Legislators need to either find new revenues to address the shortfall by raising taxes — “historically, not a great way for members to get reelected next term,” Miller said — or cut spending.

If Congress wanted to immediately eliminate Medicare’s projected deficit, it would take a roughly 24% increase in the payroll tax rate, or a 15% spending cut, to ensure solvency — or some combination of the two, according to CRFB.

But “putting things off would require more severe changes,” said Cori Uccello, a senior health fellow at the American Academy of Actuaries.

When it comes to programmatic reform, slowing the growth in MA payments is a particularly ripe area of opportunity, researchers said.

One strategy would be to revamp how MA payments are calculated.

Currently, MA plans submit bids for the next plan year that include estimated revenue needed to cover Medicare benefits in Part A and Part B. That’s then compared against a benchmark based on fee-for-service spending in the plan’s geographic region. The benchmark can shift based on the plan’s quality, and can result in overpayments to MA plans.

The Medicare Payment Advisory Commission has floated a new model calculating MA payments by blending local and national spending.

Benchmark bidding based on the fee-for-service benchmark “doesn’t work in all geographies,” AEI’s Miller said. “We need to have some serious thoughts about modernizing the program for the future since it is going to be the majority.”

Congress should also require more data from MA plans, like encounter data, appeals and denials, and the value of extra benefits, according to KFF’s Fuglesten Biniek.

“We really don’t know what’s going on under the hood” of MA, Fuglesten Biniek said. That makes it difficult to know what policies and reforms would be successful.

If payments in MA were just 2% lower each year, the program would save $125 billion through 2031, according to a KFF analysis. If MA’s per-enrollee payments grew at the same rate as in traditional Medicare, the program would save $264 billion through 2031.

Miller also suggested policymakers could implement competitive bidding for the entire Medicare program, including fee-for-service, to try to drive down costs.

“I think we can solve these problems” with aggressive, targeted and incremental reforms focused around program design, Miller said.

Political will

Researchers said they’re not sure politicians understand the severity of Medicare’s situation. That, on top of growing polarization and a host of other pressing issues, including inflation, Russia’s invasion of Ukraine, a baby formula shortage, ever-present gun violence and the ongoing pandemic, has set Medicare reform largely on the back burner.

“I feel like there’s not as much talk on the Hill as there used to be about comprehensive solutions,” CRFB’s Gordon said.

There has been some movement. The TRUST Act, which would set up bipartisan “rescue committees” for shrinking major federal trust funds, was reintroduced in Congress by a bipartisan group of senators last spring.

But Chuck Blahous, who was a Social Security trustee from 2010 through 2015, said on CRFB’s panel, “I’m skeptical as to the potential benefits of it. I don’t think process reforms are what we need right now.”

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

The ripple effects would spread to other aspects of the program. MA, which is partially funded by the HI trust fund, would also see its finances disrupted. Payments to plans would be delayed or cut, though its unclear how that would affect MA payments to providers or beneficiary care, Uccello said.

The more imminent the trust fund depletion date, the fewer options policymakers will have available. Structural changes can take several years to implement. Even more straightforward changes to provider or MA payments can take about two years to enact and see through, academics said.

Addressing the issue will only get harder and more challenging if policymakers fail to act. According to Arnold Venture’s Socker, if Congress waits much longer to step in, saving Medicare may “require more disruptive changes.”