Congressional Budget Office (CBO) Director Phillip Swagel this week released a regular update to Congress on new projections of the Hospital Insurance (HI) Trust Fund's financial position, which showed a worsening state of affairs with the estimate reducing by 12 years the projected lifespan of the trust fund that pays for Medicare Part A.

The HI Trust Fund is experiencing a steep drop in projected income due to a few main factors, namely provisions in last year’s One Big Beautiful Bill Act (OBBA) that significantly cut the revenues the trust fund receives from taxing Social Security benefits. Early last year, before President Trump signed the bill into law, CBO projected the HI Trust Fund would have a lifespan until 2052.

According to analysis in Forbes, OBBA lowered tax rates and established a temporary deduction for taxpayers age 65 or older, which has squeezed the amount of funds coming into the trust fund. CBO also cited decreased projections for payroll tax revenues, and less interest income expected from a smaller trust fund balance.

CBO said over the next 30 years, about three-quarters of the HI Trust Fund annual income comes from the Medicare payroll tax and one-eighth from income taxes on Social Security benefits. The rest comes from other sources.

“We estimate that the HI trust fund's balance is exhausted in 2040. The balance generally increases through 2031, but spending begins to outstrip income in the following year,” Swagel said.

“If the balance of the fund was exhausted and the fund's spending continued to outstrip its income, total payments to health plans and providers for services covered under Part A would be limited by law to the amount of income credited to the fund. Total benefits would need to be reduced [in relation to the amounts in our baseline projections] by an amount that rises from 8 percent in 2040 to 10 percent in 2056, we estimate.”

He added that it is unclear what changes the Centers for Medicare and Medicaid Services would make to operate the Part A program under those circumstances.

Why the Slippage?

CBO said its projections of income to the HI trust fund are less this year than last year for three main reasons:

• First, revenues from taxing Social Security benefits are smaller in the current projections because of changes put in place by the 2025 reconciliation act (Public Law 119-21), which lowered tax rates and created a temporary deduction for taxpayers age 65 or older.
  

• Second, CBO decreased its projections of revenues from payroll taxes to account for projections of lower earnings.
  

• Finally, CBO now projects interest income credited to the trust fund to be smaller than estimated last year because of the smaller trust fund balances in this year's projections.

  
  

“Spending is projected to be greater mainly because of an increase in expected spending per enrollee,” Swagel said. “Per-enrollee spending in Medicare Part A's fee-for-service program in 2025 and bids in 2026 by providers of Medicare Advantage plans were both higher than we expected, leading to projections of greater per-enrollee spending in both programs.”

Questions or comments? Contact Patrick Connole at pconnole@parkplacelive.com.