The Congressional Budget Office has updated Congress on its projections of the Hospital Insurance or HI Trust Fund’s financial position as well as changes in its outlook on that position.
Below is CBO’s Feb. 23 update.
The HI trust fund is used to pay for benefits under Medicare Part A, which covers inpatient hospital services, care provided in skilled nursing facilities, home health care, and hospice care. The fund derives its income from several sources. Over the next 30 years, about three-quarters of its annual income comes from the Medicare payroll tax and roughly one-eighth comes from income taxes on Social Security benefits. The rest comes from other sources.
Budget Projections
CBO estimates that the HI trust fund’s balance will be exhausted in 2040. The balance generally increases through 2031, but spending begins to outstrip income in the following year.
That projection is based on CBO’s demographic projections published in January 2026, its economic and 10-year budget projections published on Feb. 11, 2026, and its long-term budget projections that extend those earlier projections. It does not account for any effects, including effects on the economy or the budget, of the Supreme Court’s ruling on tariffs on Feb. 20 (Learning Res., Inc. v. Trump, Nos. 24-1287, 25-250, slip op. (S. Ct. Feb. 20, 2026)https://www.supremecourt.gov/opinions/25pdf/24-1287_4gcj.pdf)
As required by the Deficit Control Act, CBO projections reflect the assumption that benefits would be paid as scheduled even after the HI trust fund was exhausted. If the balance of the fund was exhausted and the fund’s spending continued to outstrip its income, total payments to health plans and providers for services covered under Part A would be limited by law to the amount of income credited to the fund. Total benefits would need to be reduced (in relation to the amounts in CBO’s baseline projections) by an amount that rises from 8% in 2040 to 10% in 2056, CBO estimates. It is unclear what changes the Centers for Medicare & Medicaid Services would make to operate the Part A program under those circumstances.
CBO estimates that the HI trust fund’s actuarial balance measured over a 25-year period is negative: an actuarial deficit of 0.30 percent of taxable payroll (or 0.13 percent of gross domestic product, or GDP).
The actuarial balance is a single number that summarizes the fund’s current balance and annual future streams of revenues and outlays over a certain period. It is the sum of the present value of projected income and the current trust fund balance minus the sum of the present value of projected outlays and a year’s worth of benefits at the end of the period. A present value is a single number that expresses a flow of current and future income or payments in terms of an equivalent lump sum received or paid today. And taxable payroll is the total amount of earnings—wages and self-employment income—subject to the payroll tax.
To eliminate the actuarial deficit, lawmakers would need to take action. They could increase taxes, reduce payments, transfer money to the trust fund, or take some combination of those approaches. The estimated size of the change needed—0.30 percent of taxable payroll—excludes the effects of changes in taxes or spending on people’s behavior and the economy. Those effects, which would depend on the specifics of the policy change, would alter the size of the tax increase, benefit reduction, or transfer needed to eliminate the actuarial deficit.
Changes in CBO Projections Since March 2025
The year in which the HI trust fund’s balance is exhausted in CBO’s current projections, 2040, is 12 years earlier than in its most recent estimate of that date, which was published in March 2025. Measured in relation to taxable payroll, the trust fund’s 25-year actuarial deficit is 0.17 percentage points greater in the current projections than in last year’s. (Measured in relation to GDP, the actuarial deficit is 0.07 percentage points greater than CBO projected last year.) Those changes are driven largely by projections of less income to the fund. Projections of greater spending also contribute to the changes.
Projections of income to the HI trust fund are less this year than last year for three main reasons:
- Revenues from taxing Social Security benefits are smaller in the current projections because of changes put in place by the 2025 reconciliation act (Public Law 119-21), which lowered tax rates and created a temporary deduction for taxpayers age 65 or older.
- CBO decreased its projections of revenues from payroll taxes to account for projections of lower earnings.
- CBO now project interest income credited to the trust fund to be smaller than estimated last year because of the smaller trust fund balances in this year’s projections.
Spending is projected to be greater mainly because of an increase in expected spending per enrollee. Per-enrollee spending in Medicare Part A’s fee-for-service program in 2025 and bids in 2026 by providers of Medicare Advantage plans were both higher than we expected, leading to projections of greater per-enrollee spending in both programs.
Projections of the HI trust fund’s balances are sensitive to small changes in projections of its spending and income. As a result, those estimates are highly uncertain.