All Eyes Are on Social Security's Financial Woes. But Medicare Is in Trouble, Too.

Social Security benefits may not be part of your daily life right now, but chances are, you've recently heard at least a bit about the program's struggles. The latest Trustees Report estimates that its trust funds will be depleted in 2032. Beneficiaries could see their checks shrink by 22% at this point unless the government intervenes.

It's a scary stat, but it's only part of the challenge facing today's workers and seniors. Medicare is on a similar timeline to trust fund depletion, and far fewer people are aware of the challenges this could bring.

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Medicare's trust funds are expected to be depleted in 2033

Medicare will continue as usual for the next seven years. But its Hospital Insurance (HI) trust fund is expected to be depleted by the second quarter of 2033, according to the latest Medicare Trustees Report. This is a quarter earlier than last year's report predicted.

After the trust fund is depleted, projected income from Medicare taxes will be enough to pay out only 89% of scheduled Part A benefits. This covers inpatient hospital stays, skilled nursing facility care, hospice care, and nursing home care, among other things.

Without government intervention, seniors would have to pay more out of pocket for their Part A-covered services. Or Medicare would have to scale back what Part A covers. This could be devastating for seniors, particularly if Social Security benefits drop by 22% around the same time. The good news is that this worst-case scenario is pretty unlikely.

Why an 11% Medicare cut is unlikely

While it may not make headlines in the same way that Social Security does, the government is aware of Medicare's predicament, and it's unlikely to sit idly by while millions of seniors on fixed incomes watch their medical bills skyrocket overnight. Medicare has faced financial challenges in the past, and Washington intervened to avoid cuts. It will almost certainly do the same thing again.

What's less certain is what the fix will look like or when it will occur. It'll likely happen alongside Social Security reforms, but those could still be a few years away. And those changes could involve raising payroll taxes on workers, which is likely to be unpopular.

When the government announces its plan to fix Medicare, you'll need to review your budget and your health insurance policies. If you don't already have some, you may need to purchase supplementary policies to fill in some of the gaps in Original Medicare so that a large medical expense doesn't completely drain your savings.

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