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Medicare Hospitalization Program Posts First Gain Since 2007

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Solid payroll tax revenue growth helped the Medicare hospitalization trust fund do better in 2016 the fund’s trustees were predicting a year ago.

The trust fund is reporting a $5.4 billion operating gain for 2016 on $291 billion in revenue, compared with a $3.5 billion operating loss on $275 billion in 2015.

(Related: Medicare Trustees Look Ahead to the Year 2090)

The operating gain is the first the trust fund has generated since 2007.

Program payroll tax revenue increased 5.1% between 2015 and 2016, to $253.5 billion, and benefit payments increased just 2.6%, to $280.5 billion.

The fund provides hospitalization coverage for 56.8 million people.

Program trustees reported Medicare hospitalization trust fund results for 2016 in their latest trustees report.

Managers of Medicare are supposed to put assets in a trust fund to prefund hospitalization benefits, and that trust fund faces long-range financing and solvency projection concerns.

The trustees are predicting that, if all current programs, rules and trends continue as expected, the hospitalization trust fund will run out of cash in 2029. That’s one year later than the trustees were predicting a year ago. If the Medicare hospitalization trust fund ran dry, program revenue could still cover about 88% of the benefits promised, the trustees estimate.

Medicare managers are supposed to operate the Medicare Part B physician and outpatient services programs, Medicare Advantage and other Medicare Part C programs, and the Medicare Part D prescription drug plan program on a “pay as you go” basis. Those programs have their own trust fund, but managers are able to keep that trust fund solvent by adjusting the premiums every year.

All Medicare programs combined generated a gain of $31.5 billion in 2016 on $710 billion in revenue, compared with a $3.2 billion operating loss on $644 billion in revenue in 2015.

Every year, the trustees make long-range projections. The longest-range projections in the current report extend to 2091.

The United States will generate about $19 trillion in “gross domestic product,” or revenue, this year, and the U.S. federal government will spend a total of about $4 trillion. Medicare program 2016 revenue amounted to about 3.7% of U.S. gross domestic product.

The Medicare program trustees have posted copies of the latest trust fund report and related documents here.

— Read Trustees: Medicare About 22% Short on ThinkAdvisor.

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