Medicare funding outlook improves slightly

The financial outlook for Medicare improved in the past year, and the program’s funding to pay all the costs for hospital services of older and disabled beneficiaries won’t run out until 2028, two years later than last year’s estimated date.

Once the program’s reserves are depleted, it would only be able to cover 90 percent of the expected costs, according to the annual report from Social Security and Medicare trustees released Thursday.

According to the report, the COVID-19 pandemic has had significant effects on the short-term financing and spending of Medicare, but will not have any long-term impact on the solvency of Medicare.

“What we’ve experienced so far through the pandemic is that there’s been an additional cost associated with the identification and treatment of COVID related costs. But at the same time, more than offsetting those increases in costs have been a reduction in the use of services,” a senior administration official said during a briefing with reporters. 

The long-term expectation is that the COVID-19 treatments will effectively become part of the standard care that’s being provided to Medicare beneficiaries, the official said.

Medicare beneficiaries who died due to complications of COVID-19 ended up reducing costs because their medical bills were much higher than the average Medicare beneficiary prior to the onset of the pandemic. 

The surviving Medicare population had a lower morbidity and reduced costs by 1.5 percent in 2020 and 2.9 percent in 2021.

This morbidity effect is expected to continue over the next few years but is assumed to decrease over time before ending in 2028.

Still, the program is not on sound financial footing, and the trustees warned that Congress needs to take action.

“Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers,” the trustees warned.

“The sooner solutions are enacted, the more flexible and gradual they can be. The early introduction of reforms increases the time available for affected individuals and organizations — including health care providers, beneficiaries, and taxpayers — to adjust their expectations and behavior.”

In 2021, Medicare covered 63.8 million people: 55.5 million aged 65 and older, and 8.3 million disabled.

The trustees’ annual reports have repeatedly warned about the encroaching insolvency of Medicare, but efforts to pare down spending, transfer savings or even strengthen the program have not found legislative success.