Social Security is one of the most important programs helping seniors achieve financial security, so there's no wonder there are ample warnings about the program's funding shortfall.
But Social Security isn't the only essential retirement benefit that's in trouble -- Medicare is too. And, in fact, Medicare's funding could actually be depleted before Social Security's, as the trust fund for Part A could run out of money as soon as 2023.
Here's why Medicare is in financial trouble
First things first: There are different parts of Medicare and only one is at risk of running out of money -- Medicare Part A. This is the Medicare coverage that pays for hospital services for seniors and it's actually faced a projected shortfall since Medicare was created in 1966. However, legislative actions have resulted in the insolvency date continually being pushed back.
Now, the 2020 Medicare Trustee's report is warning that Medicare Part A is in danger of becoming insolvent in 2026. While this date is unchanged from the prior two years, that report was prepared before the COVID-19 pandemic, so things could actually be worse. In fact, under a "high-cost scenario," that looks increasingly likely due to coronavirus, funding could be depleted as early as 2023.
If and when the trust fund becomes insolvent, payroll tax income will continue to come in to support the program. However, it won't be enough to pay for all promised benefits. In fact, the Trustees warned that if the fund were to run dry in 2026, payroll taxes would cover only 89% of Medicare Part A's expenses. And things would get worse from there, with Medicare able to cover only around 78% of benefits by 2043.
Sadly, there's no statutory authority to use general tax revenue to fund Part A services if there's a financial shortfall. That means the trust fund's insolvency could lead to a crisis when Medicare Part A has no way pay to provide payment for care covered seniors need.
There are some possible fixes, but they'd be painful
Medicare has faced insolvency before and lawmakers have always taken steps to shore up the program. It's likely this will happen again, but the steps lawmakers may have to take might not be pleasant.
Some of the options on the table could involve increasing payroll taxes to provide additional funding, passing more cost onto beneficiaries, raising the Medicare eligibility age, or reducing pay to Medicare providers, which could affect availability of services. Sadly, each of these options could come at a high cost to vulnerable seniors who rely on the program for their most essential medical services.
Seniors already face substantial out-of-pocket healthcare costs, so a future in which Medicare is actually allowed to become insolvent isn't one that most retirees can cope with.