Medicare's annual health checkup: 5 things you need to know

Dan Caplinger, The Motley Fool Published 7:30 a.m. ET May 1, 2019

Nearly every American 65 or older relies on Medicare to meet a big portion of their health care needs. The program is one of the largest that the federal government runs, and Medicare plays a key role in how pharmaceutical companies and hospitals operate as well as what ordinary people need to do to have their medical needs met. Yet Medicare relies on funding that comes partly from payroll taxes and partly from general government outlays, and for a while now, Medicare's financial future has come into question as health care costs rise.

Like Social Security, Medicare has trust funds that hold the money the federal government raises to support the program. Every year, the Centers for Medicare and Medicaid Services release a report that discusses the financial condition of Medicare's trust funds, and just this past week, the 2019 report came out. At 249 pages, the full Medicare Trustees Report makes for a long read – but below, you'll find some of the key facts you should know about where Medicare stands right now.

1. Medicare is still taking in enough money to cover its overall costs

In 2018, Medicare covered nearly 60 million people, split roughly 85% to 15% between those 65 or older and those who were disabled. To do so, Medicare spent a total of $740.6 billion, or roughly $12,400 per person.

Yet Medicare's revenue exceeded what it paid out. A total of $755.7 billion came into Medicare's coffers during 2018, including $9.8 billion in interest on trust fund balances. That led to a surplus of $15.1 billion, boosting the total assets of the funds to $304.7 billion.

2. Hospital benefits under Medicare Part A are at risk

The most alarming part of the report is that the hospital insurance (HI) trust fund, which provides the funding for Medicare Part A hospital and inpatient benefits, is expected to run out of money in 2026. That's the same as what the trustees projected last year, and during 2018, the HI trust fund paid out $1.6 billion more than it brought in. That brought the balance of that fund down to $200.4 billion, which is enough to meet only about 62% of a typical year's expenditures.

Initially, Medicare will have enough income to pay about 89% of expenditures starting in 2026. However, that's projected to decline to as low as 78% in 2043 before bouncing back into the 80s by the end of the 75-year period covered by the report.

3. Medical benefits under Medicare Part B should be safe – but more costly

The trustees report has more favorable things to say about Medicare Part B coverage for doctor visits and other outpatient medical needs. The Supplementary Medical Insurance (SMI) trust fund, which includes the money collected for Part B expenses, is considered adequately funded for the next decade and beyond.

But that's only because Part B gets its revenue from monthly premiums and from general government spending. With cost growth for part B over the next five years expected to average 8.3%, participants can expect substantial increases in their premium costs, and the federal government will see big increases in what it's required to contribute toward the program.

4. Prescription drug benefits under Medicare Part D are in a similar situation

Like Part B, prescription drug coverage under Medicare Part D is financed by monthly premiums and general expenditures. As part of the SMI trust fund, Part D's finances are considered adequate, but growth rates of 7.3% over the next five years could cause premiums to rise and require bigger contributions from the federal government.

5. Uncertainty over the Affordable Care Act could affect projections

Finally, the trustees have assumed that the Affordable Care Act (ACA) and the Medicare Access and CHIP Reauthorization Act (MACRA) will lead to slower growth rates in medical expenses. However, the Trump administration has called for the repeal of the ACA, also known as Obamacare. Furthermore, it's uncertain whether the provisions of MACRA will survive in their current form. The trustees can't account for what would happen under a different set of laws, but they expressed concern that changes could result in higher growth in medical expenses.

Making changes

Given the immediate concerns about the HI trust fund, Medicare's trustees believe that immediate action is necessary to preserve the financial stability of Medicare Part A. Without quick action, the hospital and skilled nursing benefits that millions of Americans rely on could be at risk.

The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

https://www.usatoday.com/story/money/2019/05/01/2019-medicare-trustees-report/39398603/?utm_source=feedblitz&utm_medium=FeedBlitzRss&utm_campaign=usatodaycommoney-topstories