Medicare funding projections sharpen concerns over access and payment rates

The latest annual report on the state of Medicare funding reflects a conundrum for healthcare industry stakeholders.

Medicare spending on healthcare services is on an increasingly difficult fiscal track, projected to rise from $1.2 trillion in 2025 to $2 trillion in 2035. Yet as acknowledged in the report issued this month by the Medicare trustees, efforts to rein in that spending could make it more challenging to sustain care access.

“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 healthcare received by Medicare beneficiaries will, under current law, fall over time compared to that received by those with private health insurance,” the report states.

HI Trust Fund depletion moves earlier in 2033

The trustees project that the Hospital Insurance (HI) Trust Fund, which pays for Medicare Part A services, will be depleted in 2033 based on current trends. The report puts the window in Q2 of that year, three months earlier than the projection in the 2025 report.

In 2025, the fund’s balance stood at nearly $256 billion. A yearly surplus of $18.2 billion is projected to drop to $6.2 billion in 2026, then to a deficit of $10.5 billion in 2027. By 2030, the annual shortfall is projected at $44 billion.

A factor accelerating insolvency is the One Big Beautiful Bill Act, which included permanent tax cuts that reduce the amount of revenue going into the HI fund, the trustees noted.

Upon depletion, unless Congress intervenes, Medicare could make payments only using incoming revenue, which the trustees say would allow the program to pay 89% of scheduled benefits.

If policymakers take steps to ensure the trust fund remains solvent, primary options would be to increase the Medicare payroll tax by roughly 0.5 percentage points across the board (to 3.46%) or to cut Part A benefits by 12% for all beneficiaries, the trustees wrote. Changes would need to be more substantial the closer the trust fund gets to depletion.

Hospital spending growth collides with Medicare payment restraints

With Medicare Part A expenditures reaching $444 billion in 2025, spending on inpatient hospital services amounted to nearly 36% of that total ($159 billion).

The trustees estimate spending will increase by an average of 7% annually between 2026 and 2035, largely as a result of general healthcare inflation (3.2%), increased service volume and intensity (2%), and greater numbers of beneficiaries entering Medicare (1.5%).

A restraint on spending is the productivity adjustment that’s applied to the annual Medicare payment updates, as required by the Affordable Care Act. The adjustment is projected to trim Medicare per capita cost growth by 0.9% per year through 2035 and 1% annually thereafter.

Over a 25-year period, the productivity adjustment will lower Part A provider payment rates by 20%, according to the report.

“Over time, unless providers could alter their use of inputs to reduce their cost per service correspondingly, Medicare’s payments for health services would fall increasingly below providers’ costs,” the report states. “Providers could not sustain continuing negative margins and would have to withdraw from serving Medicare beneficiaries or (if total facility margins remained positive) shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid payers.

“Under such circumstances, lawmakers might feel substantial pressure to override the productivity adjustments, much as they did to prevent reductions in physician payment rates while the sustainable growth rate (SGR) system was in effect.”

If Congress chooses to ease payment restraints, (e.g., by eliminating the productivity adjustment), Part A spending by the turn of the next century would reach 9.8% of GDP (compared with 7.5% if current law remains in place) and the HI Trust Fund actuarial deficit would be 1.38% of payroll (compared with 0.56%).

Part B and Part D growth add pressure beyond trust fund solvency

Fund depletion is not an issue for Medicare Parts B and D, which are subsidized by beneficiary premiums and federal revenues. But spending growth in those segments increasingly is becoming a policy concern. In 2025, Part B spending totaled $584 billion ($140 billion more than Part A), and the trustees project average annual growth between 2026 and 2030 of 8.5% for Part B and 9.4% for Part D.

Among the components of the projected Part B spending growth, increases in volume and intensity are estimated to spur a 4.4% rise. Such numbers may lead to increased momentum around arguments for site-neutral payment policy, especially as policymakers consider the link between increases in spending and the ongoing rise in Part B and Part D premiums.

For example, Part B premiums rose by nearly 10% for 2026, to $206 per month, and are anticipated to reach roughly $270 by 2030 and $350 by 2035. Similarly, taxpayers are on the hook for greater amounts as additional federal revenues get directed to cover Medicare spending.

The trustees called out increased utilization of GLP-1 drugs, along with expensive specialty drugs, as cost drivers in Part D. GLP-1 use can be expected to rise further among Medicare beneficiaries in upcoming months amid slashed costs, with the program temporarily subsidizing the drugs at an out-of-pocket expense of $50 per month.

Broader health and productivity goals enter the Medicare debate

At HFMA’s 2026 Annual Conference in National Harbor, Maryland, Mehmet Oz, MD, the CMS administrator, described efforts by policymakers to develop “big breakthrough ideas” that could ease the pressures described in the trustees’ report. Higher fertility rates and improved productivity of working Americans would bring stabilizing medium- and long-term revenues to Medicare and other programs in the social safety net, Oz said.

Better population health is the path to better productivity, he added.

“One more year of productivity in the workforce [for each American] is worth a trillion dollars,” Oz said. “That generates hundreds of billions of dollars in taxes. That puts a lot of our social programs back on firm footing. It generates a huge amount of money for the GDP. It reduces our debt. All this is part of the value of the healthcare system if used correctly.”