CRR: Medicare Dilemma Deserves Better Attention

The depletion of Social Security trust funds often makes headlines, but Medicare spending also poses a huge, growing problem, according to the Center for Retirement Research at Boston College.

Medicare, the largest public health program in the U.S., accounts for 21% of national healthcare spending and 14% of the federal budget, the CRR stated in its July 14 issue brief “Medicare Finances: A Perspective on the 2026 Trustees Report.” In 11 years, the U.S. is slated to pay more for Medicare than Social Security—yet the 2026 “Medicare Trustees Report” likely underestimated future costs, the CRR report found.

As Medicare reimbursements for hospital and physician services decline, threatening to prevent Medicare beneficiaries from accessing care, the report stated that Congress may find it necessary to revise the calculation of Medicare reimbursements. Therefore, according to the CRR, focusing attention on the pricier, more problematic components of Medicare can serve as a step in the right direction.

Part A Misconception

When Medicare receives attention, it is usually about the exhaustion date of the Hospital Insurance Trust Fund connected to Medicare Part A, which covers inpatient hospital services, skilled nursing facilities, home healthcare and hospice care. By the second quarter of 2033, the Hospital Insurance Trust Fund is expected to be depleted. The exhaustion date moved up one quarter from last year’s projection due to lower taxation of Social Security benefits resulting from the One Big Beautiful Bill Act.

However, hospital insurance accounts for only 37% of all Medicare expenditures today and is projected to decline further, the report stated. Alicia Munnell, the founder of and current senior adviser at the Center for Retirement Research, contended that the hospital insurance issue deserves less attention than Part B, the increasingly costly Medicare program which covers physician and outpatient hospital services, which places enormous pressures on general revenues and the beneficiary. Part B currently comprises 48% of Medicare expenditures.

“HI is only about one-third of Medicare, as much care shifts to outpatient services,” Munnell wrote in an emailed response. “It is funded with dedicated revenues—payroll tax revenues and some revenues from taxing Social Security benefits. Its financial status is evaluated on an annual basis and its deficits are identified and measured.”

Concerns Over Parts B, D

In contrast to HI, the rest of Medicare, including Parts B and D, is not subject to HI’s structured financing arrangement—and deserves more attention, Munnell explained. Part B—as well as Part D, which covers prescription drugs—has “no obvious expenditure limits, nor deficits,” she wrote.

Part B will always be fully financed, by definition, because general revenues will automatically cover any increase in outlays, Munnell wrote. However, higher taxes and high premiums can place a burden upon the U.S. fiscal system and on taxpayers and retirees, she cautioned.

Parts B and D were each found to equal a higher share of U.S. gross domestic product through 2100 than was projected in last year’s Medicare trustees report. Part B’s increase was due primarily to faster projected growth over the long-run for Part B drugs. For Part D, the jump stemmed from higher costs due to increases in the use of glucagon-like peptide-1 medications and expensive specialty drugs.

Actuaries’ Projections Under Alternative Assumptions

Congress may deem it necessary to use alternative assumptions for updating the amounts that Medicare can pay to hospitals and physicians, according to the CCR’s analysis of an alternative scenario prepared by Medicare’s Office of the Actuary.

“By 2025, Medicare prices for hospital services had declined to 55 percent of those covered by private insurance, and for physician services to 64 percent,” the CRR report stated. “If this percentage continues to decline, doctors and hospitals may pull back from providing care for Medicare beneficiaries.”

To signal the magnitude of the issue, the CRR recommended that Congress consider higher productivity adjustments and physician payments in its actuarial measurements.

The payments for services covered by Medicare require annual increases to reflect the rising costs of equipment, wages and overhead expenses, such as utilities and rent, the report stated.

In addition, current cost-saving restrictions also limit the annual payment updates for physicians. The alternative scenarios in the Trustees Report will transition physicians’ payments from 2028 through 2042 change to those based on the Medicare Economic Index, a measure of practice cost inflation.

“With these relaxations of cost-saving provisions in current law, expenditures under Parts A and B increase noticeably as a percentage of GDP,” the report stated.

The CRR research calculated that by 2100, the total cost of Medicare is expected to be 2.3% of GDP higher under the alternative than under the current-law actuarial assumptions.