Medicare Payment and Reimbursement

With insolvency looming for the Medicare Hospital Insurance Trust Fund, provider payments could be impacted

March 8, 2021 9:50 pm
  • The Medicare Hospital Insurance Trust Fund, used to pay for Part A hospital care, is on track to become insolvent as soon as 2024.
  • When the fund is depleted of assets, Medicare may be able to cover only 90% of its expenditures via incoming revenue.
  • Insolvency thus could lead to delays in payments to providers and adversely affect patient access.

Hospital revenues and revenue cycle processes could be significantly affected if the trust fund used to make Medicare Part A payments to hospitals becomes insolvent over the next few years as projected, industry experts say.

Some of the latest data, including from the Congressional Budget Office, indicates the Medicare Hospital Insurance Trust Fund, which is funded by payroll taxes, will run out of assets in 2024. Other sources project 2026 as the depletion date. The uncertainty in the estimates stems from factors such as the lingering effect of the economic downturn on payroll taxes and any ongoing impact of deferred care on Medicare spending.

Regardless of the exact timeline, insolvency “is really just right around the corner,” Cori Uccello, senior health fellow with the American Academy of Actuaries, said during a recent briefing hosted by the Alliance for Health Policy. Whenever it happens, there won’t be enough money coming into the fund to cover the benefits going out.

Extending solvency by 10 years would require legislative policy changes that reduce Medicare Part A spending — or increase revenue — by $600 billion, said Jonathan Blum, vice president for federal policy and managing director for Medicare with Health Management Associates (HMA).

“The dollar size to these changes is much bigger than we’ve really considered before,” Blum said.

Gauging what insolvency means for providers

The short-term impact of insolvency would directly affect hospitals, health systems and other industry stakeholders more so than Medicare beneficiaries.

“If the trust fund does go insolvent, there are real consequences to how hospitals get paid, how post- acute care providers get paid,” Blum said. Health plans that participate in Medicare Advantage (MA) also get paid through the fund.

No statutory mechanism exists to guide payment policy if the fund becomes insolvent.

“The law is silent as to what happens when the trust fund runs out,” Blum said. “There’s no playbook that would describe the operational procedures. I think we can only speculate what would happen if funds weren’t there to pay current benefits.”

A 2020 report from the Medicare Boards of Trustees estimates that with no money in the trust fund, incoming payroll taxes would cover only 90% of Medicare expenditures.

“What it means is that providers would be delayed in getting their payments,” Uccello said. “People could go to the doctor, but [for] the provider, it might take a little while because they have to wait for the payroll tax revenue to come in” to be paid.

Indirect impacts could be felt across the system of care, Uccello added. “Do people then face delays in getting care because providers are getting delayed in their payments? If that’s the case, it’s the people who have higher health needs that are going to face more problems.”

Such a scenario could exacerbate access-related issues that already affect some demographics and locales.

“One risk would be that providers may decide not to take Medicare patients, or to really kind of backlog care,” Blum said. “Health plans may choose not to participate within the [MA] program.”

Examining a potential policy solution

In coordination with The Commonwealth Fund, Blum helped design a tool for evaluating the wide-ranging consequences of policies that could shore up the trust fund. The goal is to assess how changes would affect beneficiaries and other stakeholders, including those hospitals for which changes could have an especially big impact (e.g., disproportionate share hospitals, rural hospitals).

One proposal would implement a new payment system for MA plans by tying county-level payment benchmarks much more closely to bids submitted by plans as opposed to using the current formula, which also incorporates other factors.

Such a change would be only a partial solution to the insolvency issue, delaying fund depletion by two years. Medicare revenue likely would not decrease for providers, according to Blum’s model, which assumes MA plans pay the same as Medicare fee-for-service (FFS).

“The real impact happens to Medicare beneficiaries,” Blum said. With fewer plans likely choosing to participate in the program, beneficiaries would be at risk of losing the cost-sharing protections that are offered by MA plans but not by Medicare FFS.

In fact, average cost-sharing responsibility could increase by $1,200 by 2027.

“More beneficiaries will be served by traditional Medicare, and those that have poor health and have greater healthcare needs will tend to pay more,” Blum said.

Looking at the big picture

Subject-matter experts noted the importance of focusing on the strength of the overall Medicare program, not just the Part A trust fund.

For example, the fund that covers Part B and Part D Medicare coverage, known as the Supplemental Medical Insurance Fund, is supported through beneficiary premiums and general tax revenue. That fund is not in danger of becoming insolvent because its financing is reset each year to ensure revenues match expenditures.

However, the ongoing rise in Part B and Part D expenditures will require corresponding increases in beneficiary premiums or other revenue sources. Spending is growing even faster in Part B than in Part A, Blum said.

Said Adaeze Enekwechi, PhD, research associate professor of health policy and management at the George Washington University: “It’s hard to me to see Medicare long-term in its current structure as more people age into the program and people live longer with more serious chronic conditions. The current financing structure — it just doesn’t seem like it’s structurally sound.”

Such concerns hint at why there may not be a rush to entrench the past year’s telehealth coverage expansion as permanent policy.

“Even on the commercial side, there’s very little interest in paying for yet another way to add to care that has no demonstrable impact on health outcomes,” Enekwechi said. “That’s sort of the definition of waste.

“While we believe in the value of opening up access points to care that should be less expensive — at least, the costs over time should be coming down — I think providers grapple less with the program integrity questions. [Those are] a problem for policymakers. That’s probably the main reason for the reticence in the Medicare program around opening up the gates to telehealth.”


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