Medicare Hospital Trust Fund Will Be Insolvent by 2040, Report Says

Today, only 2.8 workers support each Medicare beneficiary, compared with four in 1965. And the ratio will continue to shrink through 2040.

A man walks through a hospital in Irvine, Calif., Oct. 11, 2016. John Fredricks/The Epoch Times

The Medicare Hospital Insurance Trust Fund is projected to be exhausted by 2040, 12 years earlier than estimated in March 2025, according to the Congressional Budget Office’s February projection.

If the balance of the fund reaches zero and the fund’s spending continues to surpass its income, total benefits under Medicaid Part A would be reduced by 8 percent in 2040. The reduction would rise to 10 percent by 2056.

The trust fund is used to cover Medicare Part A benefits, which include inpatient hospital services, skilled nursing, home health care, and hospice care.

The fund had a balance of $375.9 billion at the beginning of 2026, which will grow over the next five years. But by 2032, expenses will exceed income, draining the account by 2040 according to the estimate.

The fund operates like a checking account.

Most of the account’s income (about 75 percent) is derived from a 2.9 percent payroll tax, with half paid by employers and half by employees. Another portion, roughly 13 percent, comes from taxes on Social Security benefits.

Other sources of revenue include interest income on the fund balance.

The fund will decline for four reasons, according to the budget office.

First, revenue from the tax on Social Security benefits is now expected to be lower than previous forecasts. That’s because the One Big Beautiful Bill Act lowered tax rates and created a temporary deduction ($6,000 per individual) for taxpayers age 65 or older from 2025 through 2028.

Second, payroll tax revenue is expected to decrease.

Third, as the fund balance diminishes, it will generate less interest income.

Finally, Medicare spending per enrollee has increased.

In 2025, for every $100 of wages that workers earn nationwide, Medicare Part A spent about $3.40 on hospital costs. By 2050, that spending is projected to rise to $4.60 per $100 of wages.

That’s roughly a 35 percent increase in the cost burden relative to the wage base over the next 25 years.

Rising health care prices and the aging baby boom population are driving Medicare costs, according to a June 2025 Medicare Trustees report.

That report also reckoned that the depletion of the hospital insurance trust fund would occur sooner than previously thought, by three years.

When the fund is depleted, income will cover only 89 percent of Part A benefits.

When Medicare launched in 1965, four workers helped pay for every beneficiary. Today, only 2.8 workers support each beneficiary—and that ratio will continue to shrink through 2040.