Earlier this year a federal report indicated that the financial status of Medicare was dire. Indeed, the report from program trustees revealed that Medicare funds would run out in 2026 and the trust fund wouldn’t be able to fully cover projected medical bills for inpatient care. But a new study conducted by the Center for Retirement Research at Boston College finds the Medicare program is in better financial shape than it was 10 years ago.

Medicare funding may be healthier than previously believed, according to the Center for Retirement Research at Boston College.

The latest research, which looked at the current state of Medicare finances, comes in the wake of the Medicare Trustees 2018 annual report, which found that the Medicare Hospital Insurance (HI) Trust Fund would run out in 2026, three years earlier than previously projected.

The Center for Retirement Research found that although Medicare does face financing challenges, the program’s outlook is considerably better than it was a decade ago, even under projections that assume policymakers curb some recent cost controls.

The Medicare component in danger of running out early is HI trust fund or Part A, which covers inpatient hospital services, skilled nursing facilities, home health care, and hospice care. That portion is financed by a 2.9 percent payroll tax, shared equally by employers and employees.

Funding is not an issue for the larger Supplementary Medical Insurance program, which includes Medicare Part B physician and outpatient services, and Part D, prescription drugs. That program is funded through general revenues and participant premiums. The brief notes that portion of the program has adequate funding.

The reason that the HI trust is in danger of depleting earlier than planned is because the fund reserves are small relative to costs, which makes the date sensitive to relatively modest changes in economic and programmatic assumptions, according to the brief. The Affordable Care Act pushed the depletion date out to 2029, but the Bipartisan Budget Act of 2018 overrides some of the cost-saving provisions contained in the law and caused the depletion date to move up. But the depletion date doesn’t truly reflect the finances of the overall Medicare program because the trust fund is small compared to the HI costs and the HI is only about a third of the Medicare system, the study finds.

The brief provides an overview of the Medicare financing, the 2018 Trustees report projections, the cost control provisions in recent legislation, and a comparison of current law protections and an alternative scenario prepared by Medicare’s Office of the Actuary.

The final assessment is that even under the alternative assumptions, the finances for Medicare are improving. However, it will continue to face financial challenges because the program operates within the country’s very expensive health care system, it requires beneficiaries to pay substantial out-of-pocket costs, and has some serious gaps in insurance protection.