Is Medicare Going Broke?

Q. I was reading the news online, as I do every morning, and saw the headline, “Medicare to go broke three years earlier than expected, trustees say”. This is alarming to me. Is it true?

A. Earlier this month, the Medicare Board of Trustees issued its annual financial review of the program. Since its release, the Medicare Trustees Report has triggered some pretty alarming headlines, such as the one you mentioned from Politico. In addition, dozens of news reports have aired about Medicare’s worsening financial outlook.

The “go broke” headline you referred to is focused on the report’s projection that the trust fund that pays for hospital services, called the Hospital Insurance (or Part A) trust fund, will be depleted in 2026, three years earlier than projected in 2017. This sounds alarming, but it’s not as bad as it sounds.

Let’s set the record straight: First, we’ll start with some of the challenges in the report. Then, I’ll explain why the situation isn’t as bleak as it seems.

Challenges include:

  • As mentioned, the Hospital Insurance trust fund is set to run out of money three years sooner than expected. According to last year’s trustees report, Medicare was expected to run out of money in the hospital insurance trust fund by 2029, and that date has been moved up to 2026.
  • Medicare faces a long-term financial challenge due to the large increase in the number of beneficiaries as baby boomers reach age 65. With Americans living longer lives, the average beneficiary is collecting benefits for a longer period of time.
  • The massive baby boomer generation is reaching retirement age, and will continue to do so over the next decade or so. Combined with the longer life expectancies, the effect will be more beneficiaries utilizing Medicare and fewer workers paying into the Medicare’s Hospital Insurance trust fund.

These are some of the reasons it’s not as bad as it seems:

  • In 22 of the annual reports issued since 1970, six of these predicted that the trust fund would be ‘broke’ within five years or less, yet it hasn’t happened.
  • Medicare hospital insurance ran a surplus in 2017. The program took in $299.4 billion during the year, mostly in the form of payroll taxes, and the total expenditures of the program were $296.5 billion, for a surplus of nearly $3 billion.
  • Even if the Hospital Insurance trust fund were to be depleted, Medicare would still be able to meet 91% of its obligations for hospital services.
  • Hospital services are just one part of the larger Medicare program. Medicare also includes coverage for physician services (Part B) and prescription drugs (Part D). Parts B and D are both funded through premiums and general revenues and are therefore not in trouble.
  • As it has done in the past, Medicare could make adjustments to address the remaining shortfall without resorting to drastic changes to the program or imposing large costs on people with Medicare.

According to AARP, we should not overreact to the recent Trustees Report. Instead, we should use it as a signal to “advance what’s working from current innovations and tackle unnecessary spending in Medicare and the broader health care system.”

U.S. Treasury Secretary, Steven Mnuchin, had the following to say about the findings in the Medicare Trustees Report:

“The programs remain secure. The Medicare Hospital Insurance program is on track to meet its obligations to beneficiaries well into the next decade. The Social Security Disability Insurance program is projected to pay full scheduled benefits into 2032, and the Social Security Old Age and Survivors Insurance program into 2034. However, certain long-term issues persist. Lackluster economic growth in previous years, coupled with an aging population, has contributed to the projected shortages for both Social Security and Medicare.

“The Administration’s economic agenda – tax cuts, regulatory reform, and improved trade agreements – will generate the long-term growth needed to help secure these programs and lead them to a more stable path.

“Social Security and Medicare are the federal government’s two largest programs, and millions of Americans heavily rely on their benefits. Robust economic growth will help to ensure their lasting stability.”

Remember, even if Medicare is stable, it Doesn’t Pay a Penny for Long-Term Care

Whether or not Medicare is viable in the future does not change the fact that it doesn’t cover long-term care . . . not one penny. Medicare and private health insurance ONLY pay for short-term therapy and skilled care in a nursing home for up to 100 days; they don’t pay for long-term care. For long-term care, the main government benefit is Medicaid, but Medicaid laws are the most complex laws in existence! There are strict financial requirements that must be met in order to qualify for Medicaid, including the requirement of having less almost no countable assets to your name. However, with proper Medicaid asset protection planning, almost everyone can qualify for Medicaid when needed, without having to be broke or to first spend down your life savings. If you or a loved one is nearing the need for long-term care or already receiving long-term care, please call us to make an appointment for an initial consultation:

Fairfax Medicaid Planning: 703-691-1888
Fredericksburg Medicaid Planning: 540-479-1435
Rockville Medicaid Planning: 301-519-8041
DC Medicaid Planning: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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