Simply put, because Medicare is going broke. Fast. Based on the projections in the 2019 Medicare Trustee’s report, the Medicare Hospital Insurance (Part A) trust fund will be depleted in 2026. No, that wasn’t a typo: 2026 (that’s 7 years from now).
What is a Medicare Set-Aside?
First things first. If you’re new to this blog, a Medicare Set-Aside Arrangement (“MSA”) is a financial agreement that allocates a portion of a workers’ compensation settlement to pay for future medical services related to the workers’ compensation injury or disease. These funds must be depleted before Medicare will pay for treatment related to the injury or disease. For more information, see this link from the Center for Medicare and Medicaid Services, which enforces the MSA requirements.
If a Medicare Set-Aside is not created, and Medicare learns of the settlement, it can request repayment of all amounts paid out under the claim from either party or from their representatives, as well as imposing civil penalties. For more about this see Medicare Set-Aside Facts and Fiction; Medicare Set-Aside Facts and Fiction-Part II.
What do Medicare Set-Aside Agreements have to do with Medicare’s insolvency?
Directly, nothing. However, increasing enforcement of the rules requiring Medicare Set-Asides, civil monetary penalties, and a greater emphasis on conditional payment recovery is the lowest hanging fruit for Washington insiders. Washington insiders like low hanging fruit.
Washington insiders definitely prefer low hanging fruit to bitter pills. The bitter pills that would be needed to deal with Medicare’s shortfall are reducing benefits, increasing payroll taxes, or increasing the Medicare requirement age. According to the 2019 Trustee’s report it would take a payroll tax increase of 0.91% to fully address its shortfall or a 19% cut in spending. Those pills might be too bitter for Washington to swallow whole.
Will Medicare be completely eliminated in 2026?
Absolutely not. Medicare has considerable ongoing income. According to the Trustee’s report in 2026 dedicated revenues will be sufficient to pay 89 percent of hospital insurance costs. The projection is that the percentage of hospital insurance costs that can be financed with dedicated revenues will decline slowly to 77 percent in 2046, and will then rise gradually to 83 percent in 2093. However, that still leaves an 11% shortfall in 7 years that politicians will have to address.
Those of us involved in workers’ compensation claim settlements should be planning for increased enforcement in the near future. Probably that, and planning on working a lot longer before becoming Medicare eligible (sigh).
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