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Medicare health insurance trust fund to deplete by 2026: RPT

Bill Hoagland, Senior Vice President, Bipartisan Policy Center, joins Yahoo Finance Live to discuss reforming the Medicare health insurance trust fund and outlook on health insurance.

Video Transcript

KRISTIN MYERS: There is a crisis brewing in the health care industry. Medicare's hospital insurance trust fund which pays for services like hospital visits and nursing home facilities is expected to be depleted by 2026. That's just five years from now.

Joining us to talk about it is Bill Hoagland. He is senior vice president of the Bipartisan Policy Center. Bill, this is disturbing to say the least. And I know there's a bipartisan coalition that has introduced legislation to keep that fund and Medicare solvent. Can you just paint the picture and tell us where that stands right now?

BILL HOAGLAND: Well, thank you. Sorry for the delay in getting on. The bottom line here is that the program, as you have pointed out, is the Medicare HI Trust Fund. This is a portion of the Medicare program. This is not the entire Medicare program. This is only that portion of the program that deals with hospital insurance. And that program is funded, as you know, through payroll taxes, 2.9% payroll tax, 1.4% for the individual and 1.4% for the employer.

And that has been helping to fund the HI, the Part A Medicare fund. And as has happened with the demographics and changing demographics, what's happening is, of course, that the aging of the population, more people qualifying for Medicare is resulting in expenditures in the Medicare program, in the hospital insurance program, far exceeding the revenues coming in. And that trust fund therefore, as you highlighted, runs out in 2026. Current estimates today.

Estimates could change. We're waiting for the administration to issue its public trustees report that it puts out. The Social Security and Medicare trustees report should be coming. That'll give us some sense. But right now, you're absolutely correct at 2026.

Right now, I don't think there is anything happening in Congress, unfortunately. As you say, I think there's been attention finally being brought to this. But if we do not do something, technically-- well, not technically, literally, what would happen is, we would only be able to fund about 92% of the benefits in 2026, which means an 8% reduction in payments to providers, basically hospitals and doctors.

And so we have to do something. We have to act. We can't wait until five years from now and decide, well, we're going to fix it, because at that particular point, the decisions we'll have to make be pretty tough.

I believe that attention will be brought to this, more attention will be brought to it. The solutions are not simple, as it always is in the case of health care. You can reduce benefits. You can increase taxes. But those decisions have to be made if we're going to make sure that Medicare benefits continue to flow in five years.

KRISTIN MYERS: So Bill, just connect the dots for us quickly. What happens in 2026 when we only are able to fund, as you mentioned, that 92%? What does that 8% really mean? What is that impact?

BILL HOAGLAND: It means that benefits that people are receiving through their hospital insurance program when they go to the hospital, those doctors and hospitals are not going to get reimbursed at the rates that they are currently being reimbursed at in 2026. They'll be cut, effectively, 8% to 10%, at least in 2026. And that would be the immediate impact.

That will grow over time. The reductions will continue. Technically, the only way you can fund without making changes or infusing general revenues into the trust fund, it means that those particular beneficiaries, when they go to the hospital, they may get the benefits. But the doctors and the hospitals will see a reduction. And therefore, that will squeeze the benefits to the individuals who need hospital insurance or hospital care.

It's an issue that needs to be addressed and needs to be addressed quickly. Like I say, it can be fixed. And there are ways to do this. And that was the issuance of the paper that we put out today at the Bipartisan Policy Center. We focused on various alternatives.

And as always in the case of health care, the answers are not simple. As I say, you can raise the payroll tax. You can cut benefits now or slowly cut benefits. That would lower the rate of spending. You can increase the age of eligibility for Medicare over time.

But this is an issue that Congress is going to have to address. And I think they are going to have to address it in this administration, in the current Biden administration four years. You can't wait in 2026 and make these decisions. They have to be done now, I think, and phased in over time.

ALEXIS CHRISTOFOUROS: All right, we're going to leave it there. There is plenty of work to be done, for sure. Bill Hoagland, senior VP of the Bipartisan Policy Center, thanks for being with us. And a reminder that Funding Our Future is an alliance of organizations dedicated to making a secure retirement possible for all Americans.