Medicare out by 2033, other takeaways from the Trustees Report

What changed in this year's report?

The trustees cited several reasons for their latest projections on Medicare's insolvency.

First, HI expenditures during the period are expected to be higher than last year's estimates due to "higher-than-anticipated 2024 expenditures and higher projected spending for inpatient hospital and hospice services," the trustees said.

HI tax income simply isn't keeping pace with incurred expenditures, according to the report. The HI trust fund is primarily financed through payroll taxes from employees and employers, who pay 1.45% of workers' wages. Other sources of funding include some of the federal income taxes from certain Social Security recipients and interest earned on securities in the HI trust fund.

The trustees estimate that tax income and other non-interest income will not meet HI expenditures by 2027.

Consequently, the HI trust fund "does not meet either the Trustees' test of short-range financial adequacy," the report stated. The trustees also do not expect an actuarial balance in the long term.

Second, the trustees reported higher expected spending for inpatient hospital and hospice services, resulting in an earlier depletion date for the HI trust fund. The report did not go into extensive details about the magnitude of the increased utilization estimates, but it did point to those specific services as key drivers of earlier depletion of the HI trust fund.

The projected increase in inpatient hospital and hospice services, combined with other factors like a rapidly aging population, is putting Medicare's HI trust fund on a faster track to bankruptcy.

What about Medicare Parts B and D?

Medicare Parts B and D are financed separately from Part A. These parts are funded through the Supplementary Medical Insurance trust fund (SMI). The trustees expect the SMI trust fund to be adequately financed for the next 10 years and beyond.

The SMI trust fund relies on income from premiums and federal contributions. These are reset each year, the trustees explained, to cover expected costs and ensure a reserve for Part B.

The standard monthly Part B premium increased to $185.00 in 2025 from $174.70 in 2024, representing a 5.9% increase. However, premiums will need more drastic increases to cover rising costs.

After a more minor projected increase to $186.90 in 2026, the estimated amount grows to nearly by 2033, according to the report.

Meanwhile, Part D premiums are slated to decrease by $7.45 in 2025 to $46.50 a month. The annual deductible, however, will increase from $545 in 2024 to $590 in 2025.

Additionally, the trustees reported fewer out-of-pocket prescription drug costs for Medicare Part D beneficiaries. This is a result of the Inflation Reduction Act's redesign of the Part D benefit structure in 2025.

Still, both Parts B and D have experienced significant cost growth, with an average annual growth rate of 8.4% over the last five years. This is in comparison to the gross domestic product (GDP) growth rate of 6.1%.

The trustees expect cost growth to continue at a rate of 8.8% over the next five years for Part B and 7.1% for Part D, both of which are faster than the projected average annual GDP growth rate of 4.2% during the period.

The report did not provide an actuarial analysis of Part C because it is primarily funded by private plans with government assistance.

Sounding the alarm

The Medicare trustees are ringing the alarm bells based on the latest projections for Medicare.

The report stated that this year's determinations have triggered a "Medicare funding warning," which requires the President to submit to Congress proposed legislation in response to the warning within 15 days after the budget submission for the 2027 fiscal year. Congress must also consider legislation on an expedited basis.

However, this is the eighth consecutive year that trustees have issued a Medicare funding warning.

The trustees called for increased efficiency within healthcare to buy Medicare more time.

"If the health sector cannot transition to more efficient care delivery and if the provider reimbursement rates paid by commercial insurers continue to be based on the same negotiated process, then the availability, particularly with respect to physician services, and quality of health care received by Medicare beneficiaries will, under current law, fall over time compared to that received by those with private health insurance," they warned.

Access and quality may also fall as physician payment rates under Medicare B fail to keep up with the costs of running a practice, they added.

"These amounts do not vary based on underlying economic conditions, and they are not expected to keep pace with the average rate of physician cost increases," the report stated.

"These rate updates could be an issue in years when levels of inflation are high and would be problematic when the cumulative gap between the price updates and physician costs becomes large."

Medicare payments to physicians have declined by 33% from 2001 through 2025, when adjusted for practice cost inflation, according to data from the American Medical Association. This year, the payment rates were also cut by another 2.8%.

“Medicare provides essential coverage for millions of American seniors, but this year’s report underscores the urgent need for serious, sustained reform to secure its long-term future,” Mehmet Oz, MD, who heads Medicare as CMS Administrator, said in a statement. 

Oz reiterated the Trump Administration's commitment to protecting Medicare "through responsible policies that preserve access to high-quality, affordable, patient-centered care," particularly through reductions in fraud, waste and abuse within the program.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.