Medicare: History of Part A Trust Fund Insolvency Projections
Prepared for Members and Committees of Congress
Medicare is the nation’s health insurance program for persons age 65 and older and certain
disabled persons. Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI); Part
B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or MA); and Part D
(the new prescription drug benefit added by the Medicare, Prescription Drug, and Modernization
Act of 2003, or MMA). The Part A program is financed primarily through payroll taxes levied on
current workers and their employers; these are credited to the HI trust fund. The Part B program
is financed through a combination of monthly premiums paid by current enrollees and general
revenues. Income from these sources is credited to the SMI trust fund. Beneficiaries can choose
to receive all their Medicare services through managed care plans under the MA program;
payment is made on their behalf in appropriate parts from the HI and SMI trust funds. A separate
account in the SMI trust fund accounts for the Part D drug benefit; Part D is financed through
general revenues and beneficiary premiums. The HI and SMI trust funds are overseen by a board
of trustees that makes an annual report to Congress concerning their financial status.
Almost from its inception, the HI trust fund has faced a projected shortfall. The insolvency date
has been postponed a number of times, primarily due to legislative changes which had the effect
of restraining growth in program spending. The 2008 report projects that, under intermediate
assumptions, the HI trust fund will become insolvent in 2019, the same year projected in the 2007
report. The 2007 projection is seven years earlier than that projected in 2003, prior to the
enactment of MMA. That law added to HI costs, primarily through higher payments to rural
hospitals and to private plans under the MA program. This report is a supplement to CRS Report
RS20173, Medicare: Financing the Part A Hospital Insurance Program, by Jennifer O’Sullivan,
That report discusses the findings from the 2008 trustees’ report. Both reports will be updated
upon receipt of the trustees’ 2009 report.
Medicare consists of four distinct parts: Part A (Hospital Insurance [HI]); Part B (Supplementary
Medical Insurance [SMI]); Part C (Medicare Advantage [MA]); and Part D (the new prescription
drug benefit added by the Medicare, Prescription Drug, and Modernization Act of 2003 [MMA,
P.L. 108-173]). The Part A program is financed primarily through payroll taxes levied on current
workers and their employers; these are credited to the HI trust fund. The Part B program is
financed through a combination of monthly premiums paid by current enrollees and general
revenues. Financial operations for Part A are accounted for through the HI trust fund while those
for Part B (and Part D) are accounted for through the SMI trust fund. Both funds are maintained 1
by the Department of the Treasury. Each fund is overseen by a board of trustees that reports
annually to Congress concerning the funds’ financial status.
Almost from its inception, the HI trust fund has faced a projected shortfall. When observers refer
to the impending insolvency of Medicare they are actually referring to the pending insolvency of
the HI trust fund. The SMI trust fund does not face exhaustion because of the way it is financed.
However, the SMI trustees continue to voice concern about the rapid growth in program costs.
The board of trustees projected insolvency for the HI fund beginning with the 1970 report (which
was less than four years after the program went into effect). The insolvency date was postponed a
number of times, primarily due to legislative changes which had the effect of restraining the
growth in program spending. (see Table 1) The lower growth rates were achieved largely through
reductions in payments to providers, primarily hospitals and physicians. Generally, these
measures were part of larger budget reconciliation laws which attempted to restrain overall
Efforts to curtail program spending intensified as Congress considered legislation to bring the
entire federal budget into balance and culminated in the passage of the Balanced Budget Act of
1997 (BBA 97, P.L. 105-33). This legislation achieved significant savings in Medicare and
extended the solvency of the Part A trust fund. A number of observers contended that the savings
achieved through the enactment of BBA 97 were greater than intended at the time of enactment
and had unintended consequences for health care providers. As a result of these concerns,
Congress subsequently enacted two measures (the Balanced Budget Refinement Act of 1999
[BBRA 99, P.L. 106-113] and the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 [BIPA 2000, P.L. 106-554]). These measures were designed to restore
some of the BBA 97 spending reductions.
In early 1997, the trustees had projected that the Part A fund would become insolvent in 2001.
Following enactment of BBA 97, significant improvements were recorded in the short-term
projections. The new projections reflected a number of factors including BBA 97 and strong
economic growth which generated more revenues to the trust fund from payroll taxes. Despite
enactment of both BBRA 99 and BIPA 2000, which increased program spending, the 2001 and
2002 trustees’ reports continued to delay the projected insolvency date. However, the 2003 report
1 The trust funds are an accounting mechanism; there is no actual transfer of money into and out of the fund.
shifted direction again. Its projected insolvency date was 2026, four years earlier than the 2030
date projected in the 2002 report. The revision was due to lower than expected HI-taxable payroll
and higher than expected hospital expenditures.
The 2004 report projected that, under intermediate assumptions, the HI trust fund would become
insolvent in 2019, seven years earlier than projected in 2003. The revision of the projected
insolvency date was due to a number of factors including slow wage growth (on which payroll
taxes are based) and faster growth in inpatient hospital benefits. The enactment of MMA added
significantly to HI costs, primarily through higher payments to rural hospitals and to private plans
under the MA program.
The 2005 report projected that, under intermediate assumptions, the HI trust fund would become
insolvent in 2020, one year later than projected in 2004. The revision reflected slightly higher
income and slightly lower costs in 2004 than previously estimated. The 2006 report moved the
insolvency date forward again. Under the trustees’ intermediate assumptions, the HI trust fund
would become insolvent in 2018. The revision reflected slightly higher costs and an upward
revision in short-range assumptions about utilization of HI services.
Both the 2007 and 2008 reports project a 2019 insolvency date, though the 2008 report indicates
it would occur earlier in the year.
Table 1. Year in Which the Hospital Insurance Trust Fund Was Projected to Become
Insolvent in Past Trustees’ Reports
Year of Year of Year of Year of Year of Year of
trustees’ insolvency trustees’ insolvency trustees’ insolvency
report report report
1970 1972 1984 1991 1997 2001
1971 1973 1985 1998 1998 2008
1972 1976 1986 1996 1999 2015
1973 none indicated 1986 amended 1998 2000 2025
1974 none indicated 1987 2002 2001 2029
1975 late 1990s 1988 2005 2002 2030
1976 early 1990s 1989 —a 2003 2026
1977 late 1980s 1990 2003 2004 2019
1978 1990 1991 2005 2005 2020
1979 1992 1992 2002 2006 2018
1980 1994 1993 1999 2007 2019
1981 1991 1994 2001 2008 2019
1982 1987 1995 2002
1983 1990 1996 2001
Source: Intermediate projections of various HI trustees’ reports, 1970-2008.
a. Contained no long-range projections.
Payments cannot be made from the HI fund unless there are sufficient monies credited to it.
Neither the Social Security trust fund nor the Medicare trust fund has ever run out of money and
there are no provisions in the Social Security Act governing what would happen in such an event.
There is no authority in law for a general revenue funding of the shortfall. Of course, the fund
would continue to have payroll taxes credited to it though these would be insufficient to pay all
the pending claims.
The projected insolvency date is only one measure of the financial soundness of the Part A
program. The 2008 trustees’ report states that the fund fails to meet both the short and long-range
tests for financial adequacy. Further, they contend that the financial soundness of the entire
Medicare program must be addressed. For a further discussion of this issue, see CRS Report
RS20173, Medicare: Financing the Part A Hospital Insurance Program, by Jennifer O'Sullivan