Covid-19 Pushes Medicare Trust Closer to Insolvency

Jul 28, 2020 / Amanda Chase, Horsesmouth Assistant Editor

Government projections show Medicare’s expenditures will continue to outpace revenue growth. This reflects the increasing demand for healthcare services not being fully offset by payroll tax revenues. The most recent projections for the Medicare program show funding for the program to be depleted by 2026. This latest projection, prepared by Board of the Federal Health Insurance Trust, was submitted to Congress on April 22, 2020, utilizing data through calendar year 2019. That was all before Covid-19 hit. Therefore the data used in these Congressional reports was examined prior to the impact of the pandemic. With the recent downturn of the economy, and subsequent job losses, contributions to the Medicare Hospital Trust Fund from payroll taxes will be significantly reduced.

By looking at the 2007-2009 recession, we can get some idea of how job losses may impact Medicare funding. Unemployment peaked in February 2010, with 8.8 million people having lost their jobs. Medicare funding from payroll decreased 8.5% from 199 billion in 2008 to 182 billion in 2010. Perhaps the most important lesson from this time was that it took until 2012 for Medicare funding from payroll taxes to return to pre-recession levels.

Borrowing on the lessons of the last recession, it is reasonable to assume that it may take four years for payroll taxes to recover to pre-COVID levels. In our projection, we assume that 2019 pre-COVID tax revenues won’t be achieved until 2023. With the resulting reduction in payroll taxes from job losses, the Medicare Trust Fund will become insolvent in 2022. This is four years earlier than had recently been reported to Congress.

With the insolvency of the Medicare Trust Fund now potentially as soon as 2022, or possibly 2023, we are facing an unprecedented healthcare financing challenge. Time is running short to identify the necessary financing strategies and reforms needed to sustain the healthcare system. Much like the current pandemic, solving the problem of Medicare and Medicaid financing is going to require public and private collaborations with both government and industry wide attention to identify workable solutions to prevent the collapse of our health system.

You can find the full blog post and projections here.

 

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