If you depend on Medicare, you may be aware of the Medicare Trust Fund, which is 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, people often wring 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.
[READ: How to Manage Anxiety with Rising Medicare Costs]
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 are the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund. Together, these two trust funds finance different parts of Medicare.
| Medicare Part | Funding Source | Key Services Covered |
| Part A | HI Trust Fund | Inpatient hospital care, skilled nursing facility care, home healthcare, hospice care |
| Part B | SMI Trust Fund | Medically necessary or preventive medicine |
| Part D | SMI Trust Fund | Prescription medications |
| Medicare Advantage (Part C) | Medicare trust funds and beneficiary premiums | Bundles Part A and Part B (and usually Part D), extra benefits |
[Read: The Highest Medical Costs to Expect in Retirement.]
How the Hospital Insurance Trust Fund Is Funded
The HI 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 could pose a problem.
“This would be similar to an individual’s checking account running out of funds to pay expenses,” Patel says.
[Read: 7 Ways to Reduce Health Care Costs in Retirement]
How the Supplementary Medical Insurance Trust Fund Is Funded
The money for the SMI Trust Fund 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?
The SMI Trust Fund could run out, but it isn’t expected to. The HI Trust Fund, on the other hand, is a little less certain. Congress would need to take specific action to avoid the HI Trust Fund running dry, but Brandon Hill, a senior financial advisor at Beckett Financial Group in West Columbia, South Carolina, says politicians letting that happen “would be political suicide.”
To understand the policy nuances around trust fund solvency, compare what the experts said below:
| Expert | Likelihood of the Trust Fund Depleting | Insight |
| Patel | Possibly | “Estimates suggest the Trust Fund could deplete all of its assets in the early to mid-2030s.” If it did, it wouldn’t mean people wouldn’t receive benefits, but at least for a while, they would get fewer benefits, he adds. |
| McMullen | Unlikely | “The increasing cost of Medicare has been observed for some time. … 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.” |
| Hill | Not a chance | “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.” |
[SEE: Ways an Elder Law Attorney Can Help Families]
Strategies for Staying Financially Healthy If You’re Sick
To stay financially healthy, Hill says you may want to consider other fiscal avenues, such as:
— Long-term care insurance: These plans, though potentially costly and limited, can help cover long-term care, considering Medicare typically only covers the first 100 days of skilled nursing facility care after a qualifying hospital stay. Hill encourages all clients to purchase one of these policies, regardless of circumstances, provided they are able to qualify.
— Saving for retirement: Set aside as much money as you can through vehicles such as high-yield savings accounts and money market accounts.
— Short-term home healthcare plans: These plans typically pay out benefits for only a year and are designed for care received in the home, Hill says. Many adults, however, prefer to age in place, and these plans can temporarily fill care and coverage gaps.
— Hospital indemnity plans: These plans provide coverage beyond what Medicare may cover or for what Medicare doesn’t cover at all.
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Everything You Need to Know About the Medicare Trust Fund originally appeared on usnews.com
Update 08/19/26: This story was previously published at an earlier date and has been updated with new information.
