Medicare’s trust fund gained an extra four years before it runs short of money, according to the Congressional Budget Office (CBO). The Budget and Economic Outlook: 2022 to 2032, published May 25, reports that Medicare’s Hospital Insurance (HI) trust fund will become insolvent in 2030.
This is a substantial improvement over last year, when the Medicare trustees projected that the trust fund would be exhausted in 2026. But it depends on a strong economy and moderate inflation, which seems increasingly unlikely.
CBO’s outlook for Medicare has improved over the past year, based on their estimate that revenue received by the HI trust fund would increase but spending would not. The February 2021 baseline projected that the HI revenue would total $4.7 trillion between 2021 and 2031, with spending coming to $5.4 trillion over the same period. Based on that, CBO assumed that the HI trust fund would be insolvent in 2026. CBO’s update in July 2021 reported the same level of spending but added $146 billion to revenue, pushing the insolvency date to 2027.
The latest estimate, released in May, reports no change in spending but increases revenue by $420 billion over the next decade compared with the February 2021 baseline. That is an 8.8 percent increase in trust fund revenue, almost entirely from higher payroll tax collections.
Larry Summers is skeptical. Summers, who was Treasury Secretary in the Clinton administration and Chair of the National Economic Council in the Obama administration, recently tweeted that CBO’s economic forecast is “highly implausible.” He had expected that CBO would revise its models “to recognize that the current labor market was unsustainably hot & that adverse supply shocks were likely.”
Instead, CBO projects nearly a 10 percent increase in wages and salaries in 2022 and 2023, compared with its February 2021 baseline. In subsequent years, the increase ranges from 7.3 to 8.8 percent. That is consistent with CBO’s projected increases in HI payroll tax revenue.
Let’s hope they are correct. CBO appears to have treated the 4.7 percent drop in real GDP between the fourth quarter of 2021 and the first quarter of 2022 as transitory rather than an early warning of a tightening economy. If we are headed into a recession, Medicare’s inadequate funding will become glaringly obvious.