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Will Medicare Be Around When You Retire?

Yes, Medicare will most likely still be available when you retire at 65.

Medicare has provided health coverage for older Americans and those with disabilities since 1965. However, the fund that supports Medicare Part A may run out of money by 2028. While it is possible that there could be cuts to services or changes to premium-free Part A, Medicare will likely remain in some form. 

Keep reading to learn more about what this means for Medicare coverage, how it may impact beneficiaries, and what Medicare could look like when you retire.

Why Medicare May Become Insolvent

A CMS report predicted that in 2023, the hospital insurance trust fund would bring in $412.6 billion but spend $415.6 billion, resulting in a net loss of $3 billion. If this trend continues, estimates suggest that Medicare fund insolvency may happen in the next 5 to 8 years.

The Medicare trust fund is financed by a 2.9% Medicare payroll tax, which is split between employees and employers. There’s also an additional 0.9% tax on income over $200,000. However, given the increasing cost of healthcare services and the aging American population, the Medicare Part A fund is now spending more than it brings in. 

At the current rate of spending and the projected number of Medicare enrollees over the next decade, the Medicare Trustees report suggests that the fund will be depleted by 2028. Meanwhile, the Congressional Budget Office says the fund could stay solvent until 2030.

What Does Insolvency Mean for Beneficiaries?

If the Medicare trust fund becomes insolvent, the result could be service cuts for beneficiaries. 

The Congressional Budget Office suggests an 8% cut in spending for the first year to help keep the trust fund balanced. If this reduction is unsuccessful, further cuts might be required. For beneficiaries, the shortfall could mean reduced access to healthcare services. 

This is because service providers such as hospitals have operating and employment costs. Medicare Part A covers these costs for beneficiaries, allowing them to access health care at a fraction of its total cost. But if the trust fund becomes insolvent, Medicare Part A may not be able to cover all of these costs for all beneficiaries. As a result, beneficiaries may face higher costs for service or reduced access to healthcare. 

Note that insolvency does not mean that Medicare will no longer operate. This is because the program generates money every year through tax revenue. However, benefit cuts are one way to balance the budget if this revenue is outpaced by spending. 

Ways to Bolster the Medicare Trust Fund

There are several ways the government could bolster the trust fund and help reduce the risk of insolvency. 

Raising Medicare Payroll Taxes

One option is to raise the Medicare payroll tax rate. Most proposals suggest raising this rate for high earners — for example, the current rate for those earning more than $400,000 is 3.8%. Raising this to 5% could help close the gap. Congress could also choose to raise the basic Medicare tax rate, in turn generating more revenue across all employers and employees. 

Increasing the Medicare Enrollment Age

Another way to bolster the Medicare trust fund is increasing the Medicare enrollment age. In 2024, more than 4 million Americans will turn 65, with similar numbers expected each year through 2027. If the Medicare enrollment age were raised to 68, this would mean 12 million fewer enrollees over the next three years, reducing total costs.

While this option could help limit spending, there are concerns that a higher enrollment age could disproportionately impact lower-income Americans if they cannot afford private insurance in the interim.

Limiting the Addition of New Benefits

Congress might also choose to limit the addition of new benefits to Original Medicare. While the addition of new services is a benefit for policyholders, these new services also come with increased costs. Consider that in 2000, Medicare spending on cardiovascular procedures was $1.3 billion. In 2019, this number rose to $3 billion, in part because of payment codes for services added over the last 20 years. 

By limiting the number of new services added, Congress could reduce total Medicare spending and reduce the risk of insolvency. Proponents of this approach say it is less complicated than other alternatives since it does not require any reform. However, it slows the addition of new benefits that older Americans may need.

What This Means For You

Efforts to bolster Medicare funding may happen in tandem to give the program the best chance of maintaining coverage in the years to come. For example, the government might raise taxes and increase the enrollment age or slow the addition of new benefits while creating a premium support system. 

In all, Medicare will likely still be around in some form by the time you retire, though the specifics of eligibility, cost, and coverage may change as the program adapts to new challenges.

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