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Experts say it is time to change Medicare financing, even as large numbers of baby boomers continue to enroll in the program each year

Medicare’s fund for payment of inpatient hospital care is expected to be tapped out in 2028. That’s according to a new report from Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (2022 Medicare Trustees Report). That’s somewhat better than running out of money for inpatient care in 2026, which was what Medicare announced in last year’s Medicare Trustees Report.

Either way, if Medicare is allowed to run dry, millions of patients (most among the elderly) may be unable to receive critical care, including clinical laboratory testing and pathology.

“The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028, two years later than reported last year. At that time, the fund’s reserves will become depleted,” the 2022 Medicare Trustees Report states, which draws its data from a US Treasury Department fact sheet.

Catastrophe in the Making

Kerry Weems, Executive Chairman at Value Based Healthcare Investors Alliance and former Administrator for the Centers for Medicare and Medicaid Services (CMS) said federal lawmakers are apparently waiting to deal with a “catastrophe” in 2028 instead of a “crisis” in 2026. Weems shared his views in an article he penned for 4Sight Health, a Chicago-based healthcare strategy company, titled, “Dead Seniors Save Congress from Tough Decisions.”

“The progressively worse imbalance of expenditures versus revenues will exhaust the trust funds in 2028,” Weems wrote, adding that one of two payment scenarios will likely happen:

  • Medicare may pay bills on a “discounted basis,” which means if expected revenues are 85% of expenditures, then Medicare would pay bills at 85% of the amount, or
  • Medicare may put bills aside until it has the money from tax dollars.

“And then (Medicare would) pay them on a first-in-first-out basis,” Weems wrote, adding, “At the time of insolvency, that current Administration would have to pick its poison.”

For hospital clinical laboratory leaders and pathologists who provide care to Medicare beneficiaries, neither approach would be satisfactory. And a solution for funding Medicare Part A beyond 2028 needs to be crafted to ensure hospitals are paid on a timely basis.

But what should it be?

James Capretta, Senior Fellow at the American Enterprise Institute
“Medicare’s two-part insurance and trust fund design may have made sense in the mid-1960s, but it no longer does. Modern coverage is not bifurcated in this way and imposing stricter financial control over facility spending than clinician and outpatient services can distort the policy-making process, and thus also patient care,” wrote James Capretta (above), Senior Fellow at the American Enterprise Institute, in his analysis of the 2022 Medicare trustees report, published in Health Affairs. If Medicare truly does run out of money, millions of elderly people may lose access to critical healthcare services, including clinical laboratory testing. (Photo copyright: American Enterprise Institute.)

Medicare Funding Scheme is ‘Flawed’

According to the Kaiser Family Foundation (KFF), the amount of money Medicare needs to cover the deficit between 2028 through 2031 (the period studied in the trustees’ projections), is estimated at $247.4 billion.

Medicare is supported by employers and employees, who each pay a 1.45% tax on earnings, KFF explained. Balancing the fund supporting Medicare Part A requires either an increase of .70% of taxable payroll or a 15% reduction in benefits, KFF estimated.

“Medicare will not cease to operate if assets are fully depleted, because revenue will continue flowing into the fund from payroll taxes and other sources,” KFF noted.

However, the current set-up of Medicare trust funds (one for Part A and another funded differently for Medicare Part B, which includes outpatient coverage such as medical laboratory tests), is “flawed” and needs updating to enable reform.

That’s according to analysis written by James Capretta, a Senior Fellow at the American Enterprise Institute and Member of the Advisory Board of the National Institute for Health Care Management in Washington, DC, published in Health Affairs. He added that by dividing its coverage, Medicare may not be addressing the big picture in patient care.

Baby Boomers, COVID Challenge Medicare

Furthermore, Medicare faces challenges brought on by an aging population and increasing enrollees.

Baby Boomers (born between 1946 and 1964) will qualify for Medicare by 2030 and potentially leave the workforce, depleting their payroll tax contributions to the program, KFF pointed out.

Also, Medicare reform needs to reflect the impact of the COVID-19 pandemic. An analysis of 114,000 COVID-19-associated deaths from May to August 2020 showed 78% of the people were age 65 and older, according to the federal Centers for Disease Control and Prevention (CDC).

“Medicare beneficiaries whose deaths were identified as related to COVID-19 had costs that were much higher than the average Medicare beneficiary prior to the onset of the pandemic,” the 2022 Medicare Trustees report noted.

“The surviving Medicare population had lower morbidity, on average, reducing costs by an estimated 1.5% in 2020 and 2.9% 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.”

In his 4Sight Health article, Weems suggested that the Medicare reform deadline was bumped to 2028 from 2026 due to fewer people living and able to access Medicare in coming years.

“Let’s honor those seniors by using the time for real Medicare reform,” Weems wrote.

Hospital laboratory managers and pathologists will want to keep a watchful eye on Congress’ handling of the 2022 Medicare Trustees Report. Though it is unlikely the nation’s decision-makers will act on the report during an election year, pressure to develop a solution to meet the funding needs of Medicare Part A hospital care beyond 2028 will start to build in 2023.

Donna Marie Pocius

Related Information:

2022 Medicare Trustees Report

2021 Medicare Trustees Report

Fact Sheet: 2022 Social Security and Medicare Trustees Reports

Dead Seniors Save Congress from Tough Decisions

FAQs on Medicare Financing and Trust Fund Solvency

Medicare’s Supplementary Medical Insurance Fund: A Growing Burden on Taxpayers