The Medicare trust fund that pays for Part A, which includes inpatient hospital stays, will be unable to meet all of its projected costs after the second quarter of 2033, according to the 2026 Social Security and Medicare Trustees’ annual report released Tuesday.
That’s three months earlier than last year’s projection, and three years earlier than forecast only two years ago.
Social Security’s reserves could run out at the end of 2032 — one quarter earlier than projected last year. At that point, if no adjustments are made, the entitlement program’s Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay out roughly 80% of benefits to seniors.
In general, Medicare Part A helps pay for the inpatient care you get in hospitals, rural hospitals, and skilled nursing facilities. It also helps cover hospice care and some home care.
Read more: What is a healthcare FSA? How to save on medical costs.
‘Not going bankrupt’
The coverage won’t disappear. At that time, there would be an automatic 11% spending cut, growing as high as 16%, which could reduce access to care, according to an analysis by the Committee for a Responsible Federal Budget.
“This is a really dense report,” Juliette Cubanski, vice president and director of the Program on Medicare Policy at KFF, told Yahoo Finance about the trustee report.
“The one number that people fixate on among all the numbers here is when the hospital insurance trust fund is projected to run out of money, and things aren’t getting better as far as the financial outlook is concerned,” she said.
One key point for hand-wringers: This shortfall has nothing to do with the financial status of Medicare Part B, which covers physician services and other outpatient services, nor Part D, which covers the prescription drug benefit.
Read more: How much can you contribute to your 401(k) in 2026?
“Medicare is not going bankrupt,” Cubanski said. For starters, there is no mismatch between expected spending and revenues for those services, because seniors enrolled in Medicare Part B and Part D pay annual premiums to help fund roughly 25% of those services, she said.
Every year, the program’s spending is calculated for the next year, and those premiums are recalculated.
Medicare Health Insurance Card ·Bill Oxford via .
The problem with the Part A portion is that it relies solely on payroll taxes for funding. “There will still be money flowing into part A in the form of payroll taxes,” Cubanski said. “It’s just that there won’t be enough to cover the full amount of benefits that we’re spending money on.”
The projected shortfall for this portion of Medicare coverage — which covers 69.3 million people, including those age 65 and older and disabled Americans — largely stems from rising healthcare costs for inpatient hospital stays and hospice care.
“Getting more life out of Medicare’s Part A trust fund would mean cuts to Part A spending (benefit or payments cuts), more revenues (payroll taxes or other revenues), or a bit of both, but either could be painful choices from the perspective of taxpayers and beneficiaries,” Cubanski added.
The tax rate for Medicare in 2026 is 1.45% for the employer and 1.45% for the employee, for a total of 2.9%. There is no wage cap for Medicare. And employers are responsible for withholding 0.9% additional Medicare tax on an individual’s wages paid in excess of $200,000.
Self-employed workers pay both halves, up to 2.9%, plus 0.9% at the top end.
A young female doctor in a white coat and eyeglasses is seen gesturing during a conversation with an elderly patient in a doctor’s office. The bright and airy room, with a large window showing a view of trees, suggests a friendly and open atmosphere. ·Tom Werner via .
The double-whammy: Demographics and escalating healthcare costs
Costs for both Social Security and Medicare programs are bearing the brunt of baby boomers reaching retirement age, lower birth rates, and reduced immigration, which cuts the number of people paying payroll taxes moving forward.
Payroll taxes collected from workers now fund benefits for current recipients. Part of the problem is that people are living longer and the birth rate is falling, so the ratio of workers to beneficiaries is shrinking.
Demographics have certainly been a factor, Cubanski said. “We don’t have as many younger people paying in payroll taxes as we have older adults who are drawing down the funds in the form of the benefits that they’re using.”
The trustees note that projections of Medicare costs are “highly uncertain,” stemming from potential scientific advances that will “make new interventions, procedures, and therapies possible,” they wrote.
“While most healthcare technological advances to date have increased expenditures, the healthcare landscape is shifting,” the trustees wrote. “No one knows whether future developments will increase or decrease costs.”
And of course, in this year’s annual report, the trustees pressed the case for Congress to get on with dealing with the possible gap in coverage for seniors “in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust their expectations and behavior.”
They’ve got that right. “We’re getting to the point where we can’t just sort of cross our fingers and hope that this issue goes away on its own,” Cubanski said. “Congress has been able to get away with that in the past, but we can’t keep ignoring this situation much longer.”
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X.
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