The Medicare Hospital Insurance Trust Fund supplies payment for hospital, nursing facility, home health, and hospice services provided under traditional Medicare and Medicare Advantage plans. The Congressional Budget Office projects that this fund, which is mainly funded through payroll taxes and taxation of Social Security benefits, will become insolvent in 2024.

In a JAMA viewpoint, Margaret T. Morris Professor of Health Economics Richard G. Frank, PhD, and senior vice president of the Henry J. Kaiser Family Foundation Tricia Neuman, ScD, outline policy options that could extend the solvency of the Medicare Hospital Insurance Trust Fund.

Previous legislation has both positively and negatively affected the financial status of the Medicare Hospital Insurance Trust Fund. Some legislation has cut spending growth for hospitals, postacute care, and other health care entities, including Medicare Advantage plans. Legislation such as the Affordable Care Act has increased revenues and decreased payments for care. Other legislation, such as the Tax Cut and Jobs Act of 2017, decreased revenue into the trust fund. The depletion of the trust fund has been accelerated by the economic fallout due to the COVID-19 pandemic.

Frank and Neuman suggest a combination of spending reductions and revenue increases to address the shortfall but avoid increased financial stress on beneficiaries. One way to address the shortfall would be shifting revenues from existing Net Investment Income Tax into the Medicare Hospital Insurance Trust Fund. Medicare payroll taxes for high earners could also be increased, and Medicare payments to Medicare Advantage plans could be reduced.

Coding intensity, where plans code their enrollees’ diagnoses in a way that increases plan revenues, leading to overpayment to Medicare Advantage plans, could be more strictly addressed. Across-the-board reductions in benchmarks or changing how Medicare Advantage plans are paid may reduce Medicare spending, although this option runs the risk of some plans exiting the marketplace or offering fewer extra benefits if they are unable to compete profitably.

The authors estimate that eliminating the shortfall over the next decade to extend the solvency of the trust fund could require savings or new revenues that total as much as $750 billion. Reaching this target through spending reductions alone would be difficult, and new revenues will most likely be required.