An Update on Medicare's Finances

The headline from the 2018 Medicare Trustees Report was that the program’s Hospital Insurance trust fund will run out of money in 2026, three years earlier than was estimated last year. That headline suggests that Medicare is facing increasing financial troubles. In fact, the outlook for program costs is considerably more favorable than it was a decade ago, and that picture persists even under an alternative scenario in the Trustees Report that assumes that Congress phases out some of the cost controls in recent legislation. This brief summarizes the current state of Medicare’s finances. The discussion proceeds as follows. The first section provides a brief overview of Medicare financing. The second section describes the 2018 Trustees Report projections that use current-law assumptions. The third section explains why observers think some of the cost control provisions in recent legislation are not sustainable. The fourth section compares the current-law projections to an alternative scenario prepared by Medicare’s Office of the Actuary. The fifth section tries to put the relatively sanguine assessment of Medicare finances in perspective. The final section concludes that while Medicare’s finances – even under the alternative assumptions – have been improving considerably, Medicare operates in a country with extraordinarily high health care costs; its out-of-pocket expenses absorb a large and growing share of Social Security benefits; and it has some serious gaps in protection.