If you depend on Medicare, you may be aware of the Medicare Trust Fund — and may understand that it’s the reason your health coverage exists. If you’re the inquisitive type, you may wonder where the money comes from, and if it’s your nature to worry, you may fret over whether the funding could disappear. After all, you often hear people wringing their hands over whether Social Security will run out. Could something similar happen to the Medicare Trust Fund?
If you’re in the dark on how the Medicare Trust Fund works, consider this your primer.
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What Is the Medicare Trust Fund?
The federal government set up the Medicare Trust Fund to pay for Medicare, which was established in 1965. You could call the Medicare Trust Fund the wallet or piggy bank that contains the money to pay for Medicare.
And where does the money in the Medicare Trust Fund come from? From other funds.
“The Medicare trust fund is actually two different funds, each of which serves as a pool of funds that the U.S. government keeps on hand to cover Medicare expenses as they come in,” says Steven McMullen, professor of economics at Hope College, in Holland, Michigan.
Those two different funds McMullen is referring to are the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund.
So if you are worried about the fate of the Medicare Trust Fund, you should be more concerned about the HI and SMI trust funds running out of cash.
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Differences Between Medicare Parts A, B, and D Trust Funds
How the Medicare Trust Fund works can get complicated, but in a nutshell, there are four parts to Medicare insurance — parts A, B, C and D.
The Hospital Insurance Trust Fund funds Medicare Part A. If you wind up in inpatient hospital care or need skilled nursing facility care, home health care or hospice care, Medicare Part A will pay for it.
Medicare Part B, which pays for what’s considered medically necessary or preventative medicine, is covered by the Supplementary Medical Insurance Trust Fund. If you’re visiting the doctor for a checkup or getting a flu shot, labs or X-rays, your Medicare Part B pays for that.
Medicare Part D (we’ll get to Part C in a moment) is covered by the Supplementary Medical Insurance Trust Fund. Part D covers prescription medications. So if you’re taking high blood pressure medicine or you have an insulin pump, Part D pays for that.
Medicare Part C is a Medicare plan, known as Medicare Advantage, run by private insurers the federal government has approved. It’s funded by Medicare and its members’ monthly premiums. Some people like using Medicare Advantage plans because they may offer additional benefits that original Medicare (parts A and B) doesn’t.
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How the Hospital Insurance Trust Fund Is Funded
The Hospital Insurance Trust Fund is paid for by several entities: payroll taxes, income from Social Security taxation and the income from a 3.8% surtax on investment income incurred by high-income individuals.
“For the Hospital Insurance Trust Fund to remain solvent, the amount of funds coming into the trust needs to exceed the amount being paid out in expenses,” says Ajay Patel, chair and professor of finance and economics at Wake Forest University School of Business, in Winston-Salem, North Carolina. “If the number of working adults relative to retirees begins to decline, as the population in the U.S. ages, the Trust Fund could run a deficit in a given year because expenses exceed revenues.”
Eventually, this can pose a problem.
“This would be similar to an individual’s checking account running out of funds to pay expenses,” Patel says.
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How the Supplemental Medical Insurance Trust Fund Is Funded
The money in this case comes from Part B and Part D Medicare insurance premiums, Patel says, but also from revenue authorized by Congress and from interest on investments held by the SMI trust fund.
“The Supplemental Medical Insurance Trust Fund is not expected to run out of funds because the sources of funds are adjusted each year to cover projected expenses net of deductibles,” Patel says. “Even if there is a shortfall in any given year, as long as appropriate adjustments are made to the premiums paid and the amount authorized by Congress, this trust fund should not run out of funds.”
Could the Medicare Trust Fund Run Out?
As Patel said, the Supplemental Medical Insurance Trust Fund could run out, but it isn’t expected to. The Hospital Insurance Trust Fund, however, is a little more dicey.
“Estimates suggest the Trust Fund could deplete all of its assets in the early to mid-2030s,” Patel says.
If it did, it wouldn’t mean people wouldn’t receive benefits, but at least for a while, they would get fewer benefits, Patel says.
But is this a likely outcome?
Not a chance, says Brandon Hill, a senior financial advisor at Beckett Financial Group in West Columbia, South Carolina.
“Like Social Security, I feel it’s more than likely that Washington will eventually find a way to keep it fully funded once they stop kicking the proverbial can down the road,” Hill says, adding that for politicians to let the Medicare Trust fund run out, “would be political suicide.”
McMullen also doesn’t envision the Medicare Trust Fund running out. “If there are no policy changes, we expect this Hospital Insurance Trust Fund to run out of money in 10 to 15 years, which would just mean that Congress would need to either fund those additional Medicare expenses out of the general revenue, increase payroll taxes, or decrease benefits,” he says.
But McMullen doesn’t think it’s likely that the Hospital Trust Fund will dry up and that people won’t be able to use Medicare.
“The increasing cost of Medicare has been observed for some time,” McMullen says. “This shortfall is not going to surprise anyone, and while it would be expensive to cover that shortfall with other taxes, it would not be complicated to do so.”
McMullen also thinks that politicians will find a way to keep it funded.
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Strategies for Staying Financially Healthy If You’re Sick
If you are worried about Medicare running out or simply fear that it won’t cover enough expenses if you get ill, you may want to look into buying a long-term care insurance plan, suggests Hill.
“We encourage all of our clients to purchase a long-term care insurance plan, regardless of circumstances, provided they are able to qualify,” Hill says, acknowledging they can be costly and not everybody can get them, due to preexisting conditions. But it’s a good idea, if you can get a plan, he says.
“Medicare is not meant to be long-term care, as it will only cover up to the first 100 days of being in a skilled nursing facility,” Hill says.
He also naturally advises saving as much money as you can for retirement, through vehicles such as high-yield savings accounts and money market accounts.
“Short-term home health care plans can be of benefit, too. These will typically pay out benefits for no more than a year and will only be for care received in the home,” Hill says, pointing out that most of us would rather stay at our residence over a hospital, anyway.
“Another type of coverage in the private sector that can help make up shortfalls are hospital indemnity plans, helping provide coverage for concerns beyond Medicare or for what your Medicare plan may not cover,” Hill says.
FAQs About the Medicare Trust Fund
How much money is in the Medicare Trust Fund?
At the beginning of 2025, according to an annual report from the Centers for Medicare and Medicaid Services
, there was $237.5 billion in the Hospital Insurance Trust Fund, a key component of the Medicare Trust Fund.
In the Supplemental Medical Insurance Trust Fund, another major source of revenue for the Medicare Trust Fund, the annual report estimated that by the end of 2025, there will be approximately $176 billion.
Can Medicare take your home if it’s in a trust?
No. In fact, that isn’t a thing. However, Medicaid can take your house if it isn’t in an irrevocable trust. Consulting an elder law attorney can help prevent this from occurring.
What happens when the Medicare Trust Fund runs out?
Experts say that politicians in Washington know they’d be voted out of office if Medicare funding runs dry. That said, there’s nothing wrong with taking steps to maximize your finances by saving more money in case you need it or purchasing a long-term care insurance plan. The realistic danger isn’t that people won’t have Medicare in the future; the danger is that Medicare won’t cover a large enough proportion of your expenses if you become ill and require nursing home placement.
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Everything You Need to Know About the Medicare Trust Fund originally appeared on usnews.com
