Why Medicare is running out of money — and time

Why is Medicare slated to run out of money, and what does that really mean?Let’s take a look — and while we are there, let’s take a look at how Medicare’s looming bankruptcy could impact physician payment going forward.

A quick history lesson

Medicare Part A, which is the hospital insurance component of Medicare, was signed into law by President Lyndon B. Johnson on July 30, 1965, as part of the Social Security Amendments of 1965. Its intent was to provide hospital insurance for seniors via a mandatory, payroll-funded tax contributed into the Medicare Trust Fund. Primary funding was a 1.45% payroll tax of both employers and employees; thus, a $1,000 in wages resulted in the employee and the employer each contributing $14.50.

The 2025 annual Social Security and Medicare trustees report expects the trust fund to be depleted in 2033, a scant seven years from now. It further estimates payroll tax revenues will cover only 89% of projected benefits. As if that isn’t scary enough, consider that the 2024 report estimated the trust fund would not be depleted until 2036.

Medicare Part A was set up as a ‘pay it forward’ program, with each generation funding the previous generation’s Medicare. That’s a critical point. When you and your employer each contribute 1.45% of your wages to Medicare, that money is being used to pay for the care current Medicare enrollees are receiving.

I would be remiss if I did not point out that physicians are paid under Medicare Part B and not Part A. I will address physician payment later in this column, and how funding of Part A creates a problem for Part B.

Why is Medicare running out of money?

Here are three primary reasons Medicare is going insolvent:

1. Life expectancy
2. Baby boomers
3. Technology

Life expectancy

U.S. life expectancy was 70.2 years when Medicare Part A was created in 1965. The 1.45% tax on employers and employees was calculated to cover 5.2 years of hospital care (i.e., 70.2 years less 65 years). U.S. Life Expectancy was 79.0 years in 2024. That’s a modest 12.5% more than it was in 1965 . However, “Medicare” years have increased 169.2%, from 5.2 to 14.0 years. The math no longer works.

Baby boomers

There’s a compounding effect with my generation, the Baby Boomers. We are joining Medicare at a rate of 10,000-11,000 every day of every year between 2011 and 2030. The percent of US citizens in Medicare has grown from 9.5% in 1965 to 19.2% in 2024.

Recall that Medicare Part A is a ‘pay it forward’ plan. In 1965, there were 4.5 workers contributing payroll taxes for each Medicare enrollee. Today, we are at 2.4 workers per Medicare enrollee — a 46.7% reduction.

The math doesn’t work.

Technology

We have technologies and treatments that weren’t around in 1965. To wit: 1) the first community-based CT came about in the mid-70s, followed by community-based MRI in the mid-80’s and community-based PET CT at the turn of the century; 2) the first effective disease-modifying treatment for MS was approved in 1993; and 3) the first treatment to offer long-term mucosal healing for Crohn’s Disease was approved in 1998.

This list of advancements could go on for pages. My point is that these diagnostic and treatment improvements are expensive.

Physician payment

The Social Security Amendments of 1965 also created Medicare Part B (referred to as Medical Insurance) from which physician services and outpatient care would be paid. Medicare enrollees paid $3/month for Part B coverage. Premiums were intended to cover about 25% of Part B’s cost, with the balance being covered by the Federal government through general revenues.

Over time, Medicare Part B has expanded to cover ESRD, home health, hospice, preventative care and (as of 2023) immunosuppressive drugs.

Congress has continued to set premiums to cover about 25% of program costs. The Part B premium for a Medicare enrollee has gone from $3.00/month in 1965 to $202.90/month in 2026. That means the government share has gone from $9.00/enrollee/month to $608.70/enrollee/month. That is a staggering 6,663.33% increase.

When we ask for increases to the Medicare physician fee schedule, we are fighting an uphill battle. Physicians are competing for the general fund revenues with most everything else the government funds. I would argue physicians have played a lesser role in the rising costs of health care.

If anything, we have saved the government and patients millions upon millions of dollars by providing services on an outpatient basis. I would argue at least a nickel (and probably a dime) of every health care dollar is driven by defensive medicine and consumer-driven health care. But my beliefs and logic carry no weight.

So what happens now?

Most members of Congress see Medicare as one big bucket of money. When Medicare Part A runs short in the next decade, Congress should increase payroll taxes to cover the shortfall.

But they won’t. They lack the courage.

We have known Medicare Part A is gasping for breath for years. Congress showed no courage then, either. That puts Part B funds at increased risk in Congress’s never-ending shell game. The cowardly way out is to shift Part B funds to Part A, and the Wizard of Oz has not blessed Congress with courage.

We need Congress to understand why the costs of Medicare have increased, and we need them to understand physicians are not to blame. That’s essential. We need them to understand the demographic math that has driven us to this cliff. We need them to educate their constituents on the demographic math.

And, let’s be honest. All of us — doctors, patients, Congress — need to address the fact that the 60-year-old formula for funding Medicare is obsolete and inadequate. We need a long-term funding solution, be it a payroll tax increase or something else. I see the waterfall ahead, and I am tired of swimming against this broken current.

I don’t have the answer, but we need one now more than ever.

Lucien W. Roberts, III, MHA, FACMPE, is a mostly retired practice administrator and long-time Physicians Practice contributor.