CBO estimates Medicare Trust Fund will run out in 2040
The Congressional Budget Office (CBO) has updated its estimates around the Medicare Trust Fund and now expects the fund to run dry in 2040.
The CBO said in a blog post Monday that the trust fund's balance is set to grow each year through 2031, but, after that, spending will begin to overtake revenue until it eventually runs out in 2040. This marks a significant change from the organization's 2025 estimates, cutting 12 years off of the lifespan of the fund compared to previous projections.
The Medicare Trust Fund is used to cover benefits under Part A, or the traditional program, including inpatient hospital services, skilled nursing, home health and hospice services. It's funded by multiple sources, with the bulk (about three-quarters) of the fund's income over the next 30 years deriving from the Medicare payroll tax.
The organization cites changes made in the One Big Beautiful Bill Act, or H.R. 1, as playing a role in worsening the outlook for the trust fund. Under that massive reconciliation bill, the feds lowered tax rates and added a new tax deduction for taxpayers aged 65 and up, which is decreasing revenue from Social Security taxes.
In addition, the CBO estimates that revenue from payroll taxes will be lower due to lower earnings projections.The estimate also accounts for accelerating medical cost and spending in both traditional Medicare and Medicare Advantage (MA), which is set to drive up per-enrollee spending and drain the trust fund more quickly.
"Those changes are driven largely by projections of less income to the fund," per the CBO blog. "Projections of greater spending also contribute to the changes." The CBO notes that its expectations around Medicare spending come from both fee-for-service data for the 2025 plan year as well as 2026 bids from MA plans, which were both higher than its previous estimates.