CMS: 80% of Home Health Agencies May Have Negative Margins by 2040

Medicare’s Hospital Insurance Trust Fund — which helps pay for Medicare Part A services, including in-patient hospital, skilled nursing facility, hospice and home health care services — is set to go broke by 2026, Trump administration officials reported Monday.

What’s more, if current utilization and financial projections prove accurate, the vast majority of home health agencies could be operating with negative margins come 2040.

The warning of Medicare running out of money by 2026 isn’t a new one, as the Medicare Board of Trustees gave the same forecast in its annual report in 2018. Specifically, the Hospital Insurance Trust Fund will only be able to fund about 89% of costs in seven years, largely because of lower tax revenue, higher payments to medical providers and macro-level demographic shifts tied to America’s aging population.


“If we do not take the fiscal crisis in Medicare seriously, we will jeopardize access to health care for millions of seniors,” Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma said in a statement.

The Supplementary Medical Insurance (SMI) Trust Fund — which pays for Medicare Part B and D services — also faces a funding emergency, though not as immediate. Medicare Part B helps pay for physician services, along with out-patient hospital, home health and related services for individuals who have voluntarily enrolled.

The SMI Trust Fund has $104 billion in assets at the end of 2018, according to Monday’s report from the Medicare Board of Trustees.


Overall, total Medicare costs are projected to grow from approximately 3.7% of GDP in 2018 to 5.9% of GDP by 2038, then increase gradually to about 6.5% of GDP by 2093.

While projections appear bleak, Medicare’s financial well-being is only threatened if Congress fails to bolster its coffers, Max Richtman, president and CEO of the National Committee to Preserve Social Security & Medicare, said in a statement.

“The national committee supports legislation that would reduce Medicare’s costs – especially allowing the government to negotiate prescription drug prices with big pharma – while expanding seniors’ health benefits,” Richtman said. “Again, we call on the Trump administration and Congress to act swiftly to effectuate common-sense solutions without jeopardizing the health and security of seniors.”

Margin projections

Simulations taking into account lower Medicare payment rates, other payment provisions, sequestration, changes to Medicare and Medicaid disproportionate share hospital payments, and coverage expansions collectively suggest a deterioration of facility margins for hospitals, skilled nursing facilities (SNFs), and home health agencies over the long run.

Broadly, the simulations suggest that about 40% of hospitals and two-thirds of SNFs would have negative total facility margins by 2040, according to the Medicare Board of Trustees’ Monday report.

Meanwhile, about 80% of home health agencies would have negative margins by 2040.

“Over time, unless providers could alter their use of inputs to reduce their cost per service correspondingly, Medicare’s payments for health services would fall increasingly below providers’ costs,” the report reads. “Providers could not sustain continuing negative margins and would have to withdraw from serving Medicare beneficiaries or (if total facility margins remained positive) shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid payers.”

The role of Medicare Advantage

Over the past two years, CMS has taken multiple steps to expand the Medicare Advantage (MA) program, which gives private insurers federal funds to cover basic Medicare benefits, plus a number of extras.

At the start of 2019, for example, MA plans were allowed to cover non-medical in-home care services and supports as supplemental benefits for the very first time. CMS subsequently widened the scope of supplemental benefits allowed earlier this April, while also giving the MA program a pay raise.

Those moves — also coupled with expanded telehealth opportunities — are driving the Trump administration’s efforts to strengthen Medicare on the whole, according to CMS.

By the close of Q3 2018, about 36% of all Medicare beneficiaries — nearly 21 million people — were enrolled in a Medicare Advantage plan, according to the latest quarterly home health trends report from Atlanta-based analytics and metrics firm Excel Health.

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