Findings from 2022 Medicare and Social Security Trustees Report

Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds came out with their annual report on the state of Social Security and Medicare. First a few takeaways on the Medicare side.

Overview of Medicare Part A and B Finances

The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028, two years later than reported last year. At that time, the fund’s reserves will become depleted and continuing total program income will be sufficient to pay 90 percent of total scheduled benefits.

The Supplemental Medical Insurance (SMI) Trust Fund is adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs. Due to these funding provisions and the rapid growth of its costs, SMI will place steadily increasing demands on both taxpayers and beneficiaries.

The financial projections have lead the Trustees to issue a “Medicare funding warning” as Medicare funds are projected to fall below 55% of projected annual outlays for the upcoming 7 years.

These numbers actually represent somewhat of an improvement relative to last year’s report. One reason for this, however, is not for a good reason. The Hill reports that:

“What we’ve experienced so far through the pandemic is that there’s been an additional cost associated with the identification and treatment of COVID related costs. But at the same time, more than offsetting those increases in costs have been a reduction in the use of services,” a senior administration official said during a briefing with reporters. 

The long-term expectation is that the COVID-19 treatments will effectively become part of the standard care that’s being provided to Medicare beneficiaries, the official said.

Medicare beneficiaries who died due to complications of COVID-19 ended up reducing costs because their medical bills were much higher than the average Medicare beneficiary prior to the onset of the pandemic. The surviving Medicare population had a lower morbidity and reduced costs by 1.5 percent in 2020 and 2.9 percent in 2021.

Medicare Part D

There were 48.9 million individuals enrolled in Medicare Part D in 2021, of whom 13.2 million were eligible for low-income subsidy and 1.0 million were eligible for retiree drug subsidy (RDS). Total Medicare Part D spending (on behalf of the federal government) was $110.8 billion.

The report also notes that there is growth in enrollment for Part D but almost entirely through Medicare Advantage Part D (MA-PD) plans.

The vast majority of the enrollment increases have occurred in Medicare Advantage Prescription Drug Plans (MA-PDs). MA-PD EGWP [employer/union-only group waiver plan] enrollment has grown from approximately 1.8 million in 2014 to a projected 3.0 million in 2022; for Prescription Drug Plans (PDPs), on the other hand, the number of enrollees has decreased from approximately 4.7 million to a projected 4.3 million over the same timeframe…

In 2011, MA-PD beneficiaries accounted for 36.7 percent of the enrollment in Part D plans. This ratio grew to 50.6 percent in 2021 and is projected to increase to 53.7 percent in 2022 before reaching 61.2 percent by 2031.

Medicare estimates that national health expenditures and drugs will increase about 5% per year over the next decade with NHE for drugs increasing by only 3.2% in 2022.

Currently, Medicare Part D makes up 0.48% of GDP in the US, but the Trustees Report’s projection is for Part D spending to grow to 0.54% in 2030, 0.64% in 2050 and 0.84% of GDP in 2095 Medicare’s general projection assumed that national health expenditures on drugs will increase about 5% per year over the next decade.

Social Security

How is Social Security doing? The ability to fund the retirement of baby boomers looks a bit perilous. First, let’s look at the scope of the issue:

At the end of 2021, the OASDI program was providing benefit payments to about 65 million people: 50 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 9 million disabled workers and dependents of disabled workers…The total cost of the program in 2021 was $1,145 billion.

On the positive side, we do see that the Old-Age and Survivors Insurance Trust Fund and Disability Insurance (DI) Trust Fund appear to be in a slightly better shape than the previous year.

OASI depletion date: 2034 (last year’s report estimated 2033) DI depletion date: Will not be depleted (last year’s report estimated 2057)

Full report links