COVID-19 Accelerates Medicare Trust Fund Troubles

The Medicare trust fund was facing financial instability before the coronavirus (COVID-19) outbreak. The pandemic is accelerating some of those financial problems.

Published July 24, 2020

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The COVID-19 pandemic is accelerating the depletion of the Medicare trust fund. 

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The trust fund, which finances health services for beneficiaries of Medicare Part A hospital insurance, has already been forecasted to start running out of money by 2026.

The strain of COVID-19 on the program’s tax revenue coupled with increased reimbursements has pushed the potential date of insolvency for the Medicare trust fund as early as 2022. This projection was made by Dr. David Shulkin, senior fellow at the Leonard Davis Institute of Health Economics at the University of Pennsylvania, who previously served in the Department of Veterans Affairs under both President Obama and President Trump. 

Economic slowdown and COVID-19 costs are speeding up Medicare insolvency

Medicare Part A is provided without monthly premiums for most eligible beneficiaries. It is funded by a 3% payroll tax that is evenly split between employees and their employers. With millions of Americans pushed out of work this summer due to the coronavirus-related economic shutdown, there less money from payroll taxes coming in to support the trust fund. 

The pandemic could also increase Medicare spending from $38 billion to $115 billion over the next year alone.

While COVID-19 testing is covered in full by Medicare and a vaccine will likely be covered in full as well, hospitalizations and treatments for symptoms remain covered as normal. Medicare beneficiaries are the most likely population to experience symptoms and utilize health care services as a result of a positive test. 

Less money coming in and more money going out is reason enough for Shulkin to raise concern. 

“I think we have a real, impending health care crisis,” he said in an interview with NPR. “I think this is something that needs more immediate attention.”

Medicare insolvency could come as soon as 2023

Shulkin’s findings were closely mirrored by those from the Committee for a Responsible Federal Budget, which estimated that the pandemic could cause the trust fund to become unable to pay all of its bills by late 2023 or early 2024. 

At least $60 billion of the funding provided by the recent CARES Act to assist hospitals during COVID-19 came from the Medicare trust fund. That money is supposed to be paid back through a reduction in future payments, but some are calling for the loan to be relieved.

President Trump has signaled his desire to implement a payroll tax cut as part of a possible second COVID-19 relief package, which would also slash into Medicare revenue. 

The Medicare trust fund has never before become insolvent.

Christian

About the author

Christian Worstell is a licensed insurance agent and a Senior Staff Writer for MedicareAdvantage.com. He is passionate about helping people navigate the complexities of Medicare and understand their coverage options.

His work has been featured in outlets such as Vox, MSN, and The Washington Post, and he is a frequent contributor to health care and finance blogs.

Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism. He currently lives in Raleigh, NC.

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