Here's Why Medicare Isn't Actually Going To 'Run Out Of Money' In 2030

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Associated Press/ Nati Harnik

The general slow down in health spending means Medicare, the federal insurance program for Americans 65 and older, is doing better financially, but is still expected to run out of money in 2030. This marks a four-year increase from last year, when the Medicare Board of Trustees predicted the program would remain solvent through 2026.

The insolvency date of Medicare has fluctuated wildly since 1970, from "as close as two years away or pushed as far as 28 years into the future," according to the Center on Budget and Policy Priorities. And despite the impending financial doom, it is highly likely that the program will still be operational come 2030. That's because even if Medicare were to hit the point of "insolvency," it would still continue to function.

In 2013, the four Medicare programs: Parts A, B, C and D, covered 52.3 million people at a cost of $582.9 billion. Part A covers the cost of hospital care and is financed by a 2.9% payroll tax paid by employees and employers that goes into a trust fund. When the trustees talk about the "solvency" of the program, they are referring to the date through which the payroll tax will adequately cover the cost of hospital care for Medicare beneficiaries.

If Medicare is projected to remain solvent through 2030, this means that after 2030, the government wouldn't be able to finance the program 100%; however, the payroll tax would still be collected and the government could finance up to 85% of the cost. That percentage, though, would continue to decline into the future.

Parts B and D are considered supplementary medical insurance. Part B pays for physician services and Part D covers prescription drugs. (Part C is Medicare Advantage, and beneficiaries chose to have the program administered by a commercial health insurance plan.) Parts B and D are funded by a combination of premiums paid by the elderly enrolled in the programs and general revenue tax dollars, which are unallocated tax dollars. These programs are not affected by the solvency projections of Medicare Part A.

"Trustees’ reports have been projecting impending insolvency for four decades, but Medicare has always paid the benefits owed because Presidents and Congresses have taken steps to keep spending and resources in balance in the near term," Paul N. Van de Water of the Center on Budget and Policy Priorities wrote at this time last year.

Even so, policy analysts stress that the Medicare programs will need to undergo some changes as the Baby Boomers are growing older and living longer. "As the largest generation in American history enters retirement, the pressure on our social insurance programs has grown," Secretary of the Treasury Jack Lew said Monday. "We must make changes now, so we don’t need to make drastic changes later."



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