Medicare trustees release annual report on Medicare’s financial status

McDermott+ is pleased to bring you Regs & Eggs, a weekly Regulatory Affairs blog by Jeffrey Davis. Click here to subscribe to future blog posts.

June 18, 2026 – Every year, the Medicare trustees issue a comprehensive report outlining the financial outlook for the Medicare program in both the short term and the long term (i.e., the next 75 years). They issued the 2026 report last week, and to help me break it down, I’m bringing in my colleague Lynn Nonnemaker.

The basics

Before diving into the report, let’s cover some of the basics of the report and its use:

Who drafts the report?

The Medicare “trustees” are the secretaries of the US Departments of Health and Human Services, Labor, and the Treasury, as well the commissioner of the US Social Security Administration. There are also supposed to be two public trustees, but Congress has not voted on nominations for the past decade, so those seats sit vacant. While the trustees sign off on the report, the actuaries at the Centers for Medicare & Medicaid Services (CMS) conduct the analysis and draft the report itself.

What is the purpose of the report?

Researchers and health policy folks like us can use the report to identify spending trends and interesting patterns. The report also includes certain warnings in areas where policymakers, including Congress, may need to intervene to ensure that the Medicare program remains financially stable in the long run.

Key context: How Medicare is financed

To truly understand the significance of these warnings, it is important to know how Medicare is financed.

Medicare includes two trust funds:

The Federal Hospital Insurance (HI) Trust Fund funds Medicare Part A, which covers hospital inpatient services and certain other services delivered in facilities. The HI Trust Fund is funded mainly by a 2.9% payroll tax that employees and employers pay (high-income workers pay a slightly higher percentage).
The Federal Supplementary Medical Insurance (SMI) Trust Fund funds Medicare Parts B and D. Medicare Part B covers outpatient services, while Medicare Part D covers prescription drugs. SMI is mainly funded by premiums and supplemented by general revenue from the Treasury Department.

Funding for Medicare Advantage (Medicare administered by private health plans) comes from both the HI and SMI Trust Funds.

HI Trust Fund insolvency date

One of the key takeaways from the trustees report every year is its projection of when Medicare will become insolvent (you may also have heard it termed “going bankrupt”). This projection refers specifically to the financial status of the HI Trust Fund. As noted, the HI Trust Fund is financed by payroll taxes, and in some years, total Medicare spending under Medicare Part A is greater than the total amount of payroll taxes that HI Trust Fund collects as revenue. In this year’s report, the CMS actuaries projected that the HI Trust Fund will become insolvent in 2033, meaning that the HI Trust Fund won’t have enough money to pay for all Medicare Part A services. At that point, HI revenues are projected to cover 89% of incurred program costs. This projection is similar to the date projected in last year’s report, although we are obviously now a year closer.

It is unclear what would actually happen if insolvency comes to fruition. Congress may need to intervene to ensure that the HI Trust Fund is sufficiently replenished. The report says that in order to keep the HI Trust Fund solvent for 75 years, the standard 2.9% payroll tax could be immediately increased to 3.46%, or expenditures could be reduced immediately by 12%. It is difficult to foresee Congress or CMS enacting such significant policy changes going forward.

SMI Trust Fund warning

Part of the reason the HI Trust Fund is in danger of being exhausted is that other federal sources of income are not allowed to cover any revenue shortfalls. The SMI Trust Fund, on the other hand, doesn’t have this issue. By design, general revenue transfers from the Treasury ensure that the SMI Trust Fund can always cover all Medicare Part B and D expenditures. However, a sign of potential financial instability occurs when the SMI Trust Fund relies too heavily on general revenues to cover its expenditures and premiums, and other dedicated revenue sources aren’t covering enough. The trustees are required by law to issue a determination of projected excess general revenue Medicare funding when the difference between Medicare’s total expenditures and its dedicated financing sources is projected to exceed 45% of expenditures within seven years (in other words, when dedicated revenue will cover less than 55% of the expenditures and general revenue will cover more than 45%). This year’s report projects that the ratio will exceed 45% in fiscal year 2026, which is the first year of the actuaries’ projection. Since this determination was made last year as well, this year’s determination triggers a Medicare funding warning, which requires the following:

The president to submit to Congress proposed legislation to respond to the warning within 15 days after the fiscal year 2028 budget submission.
Congress to consider the legislation on an expedited basis.

This is the 10th consecutive year that a determination of excess general revenue Medicare funding has been issued, and the ninth consecutive year that a Medicare funding warning has been issued. However, the administration and Congress have not taken action in a way that would comply with the Medicare funding warning in the last nine years and may again choose not to act.

Other observations

There are some other interesting tidbits here that we can call out:

Shifting prediction of Part D spending. The report is full of predictions and assumptions about future spending and enrollment. These can shift considerably from year to year as the CMS actuaries acquire additional data and as Medicare policies change. In this year’s report, the actuaries substantially revised estimates of Part D spending. The report estimates that actual Part D spending for 2025 totaled $180.6 billion, which is 12% more than the 2025 report projected. This year’s report also projects that 2026 Part D spending will be 29% higher than the 2025 report projected.

This year’s report provides a good discussion of Part D spending trends in recent years. The actuaries offered several explanations for the rapid increases in government costs, including provisions of the Inflation Reduction Act that limit enrollee costs and may increase utilization, particularly for individuals who reach the catastrophic threshold, after which they are protected from additional out-of-pocket spending. The actuaries also pointed to increased use of GLP-1s and higher spending on specialty drugs. These trends suggest higher Part D costs will continue and will add to the burden Medicare spending puts on the larger federal budget going forward.

Higher outpatient spending. The report projects a continued shift away from inpatient spending toward outpatient care. This trend eases pressure on the Part A trust fund, but, like Part D, puts further pressure on the general revenue side of the federal budget and makes it important for policymakers to consider reforms to Part B (and D) as part of any Medicare reform. Since spending is increasing in Part B, the Part B premium (which covers roughly 25% of total expenditures) is expected to grow significantly over the next 10 years. The current Medicare Part B standard premium is $202.90. The report projects that Part B premiums will increase by 3% to 209.50 in 2027, and then significantly jump each year after that. The actuaries projected that the standard Part B premium in 2035 will be $360.60, 78% higher than it is now.
Lower Medicare revenues. The report includes significant revisions to projections of the size of the labor force and associated revenue going forward. The factors behind these downward revisions include falling fertility rates and lower immigration, both of which lead to a smaller labor force and lower tax revenues with which to finance the Medicare program. And the effects are both short term (the effects of lower immigration will be felt in lower revenues over the next decade) and long term (lower fertility rates presage a smaller labor force in the decades to come).
Insufficiency of Medicare physician payments. As discussed in last week’s blog post, the trustees expressed concern about the low annual updates under the Medicare Physician Fee Schedule established under the Medicare Access and CHIP Reauthorization Act and how they are not expected to keep pace with the average rate of physician cost increases. The report states: “Absent a change in the delivery system or level of update by subsequent legislation, the trustees expect access to Medicare-participating physicians to become a significant issue in the long term.” The trustees have included similar statements in past reports.

While the report landed without much fanfare, there are certainly aspects of the report that are worth paying attention to – and if the trends continue and the actuaries’ projections hold, Congress and CMS may need to step in eventually to either reduce spending or increase revenues in order to preserve the Medicare benefit as we know it today.

Until next week, this is Jeffrey (and Lynn) saying, enjoy reading regs with your eggs.

For more information, please contact Jeffrey Davis. To subscribe to Regs & Eggs, please CLICK HERE.

Medicare trustees release annual report on Medicare’s financial status