Medicare’s Big Challenges Threaten Seniors and Taxpayers Alike

COMMENTARY Medicare

Medicare’s Big Challenges Threaten Seniors and Taxpayers Alike

Jun 18th, 2018 2 min read
COMMENTARY BY
Robert E. Moffit, Ph.D.

Senior Fellow

Moffit specializes in health care and entitlement programs, especially Medicare.
The president and the Congress cannot ignore Medicare’s mounting problems. Valeriya/Getty Images

Key Takeaways

The Medicare Trustees note that Medicare spending will grow faster than workers’ wages, the general economy and other health spending.

For the second consecutive year, the trustees project that Medicare will have to draw 45 percent of its money from general funds within seven years.

The Heritage Foundation suggests that Congress gradually raise the normal age of Medicare eligibility to 67 and reduce the taxpayer subsidies.

Medicare is in trouble. Again.

The Medicare Trustees report the program’s Hospital Insurance trust fund is spending billions more than it takes in. In just eight years, they estimate, the fund will be insolvent. At that point, the account will decline, and the trustees warn, “Beneficiary access to health care services could rapidly be curtailed.”

Bad news, yes. But surprising? No. Two years ago, the Congressional Budget Office also predicted trust fund insolvency by 2026.

The relentless growth of Medicare spending threatens seniors and taxpayers alike.

The CBO projects overall Medicare spending will double over the next decade, from $707 billion to over $1.5 trillion annually. Even the hottest economy cannot “outgrow” the deficits and debt worsened by financially troubled Medicare and other federal entitlements.

The trustees note that Medicare spending will grow faster than workers’ wages, the general economy and other health spending. The Medicare Payment Advisory Commission warns that entitlement spending, plus interest on the debt, will consume all federal revenues by 2039, and perhaps even earlier.

The trustees report was especially bad news for working families, who fund the program through both Medicare payroll taxes and income taxes. Their report estimates that Medicare Part B services alone consume a seventh of all personal and corporate federal income taxes. By 2040, Part B will gobble up 25 percent.

When selling Obamacare in 2010, President Obama insisted that middle-class Americans would be spared additional taxation. For the first few years, Obamacare’s s Medicare tax hike would strike only the “rich” — statutorily defined as persons with annual incomes of $200,000 (or $250,000 for couples). The health law, however, did not index these income thresholds for inflation. The result: the tax will bite nearly four of every five workers over the next 75 years.

The news is even worse for young people. According to the Office of the Actuary at the Center for Medicare and Medicaid Services, Medicare’s unfunded obligations will reach $37.7 trillion during that same 75-year timeframe. The actuary, however, paints an even grimmer picture using a more realistic set of assumptions (a scenario based on the policy choices Congress is most likely to make). Under that scenario, the actuary estimates that Medicare’s unfunded obligations would total $47.3 trillion — more than twice the size of today’s total national debt.

Though seniors pay only a small fraction of annual Medicare costs, they cannot escape the financial pain. Medicare premiums consumed 23 percent of the average Social Security benefit in 2015, and they are on track to consume 30 percent of the average Social Security benefit by 2030.

Moreover, seniors’ access to care could decline, thanks to Obamacare. Over the next 10 years, Obamacare is scheduled to squeeze out more than $800 billion in Medicare payment changes and reductions. If that happens, the trustees estimate that by 2040, “approximately half of hospitals, roughly two thirds of skilled nursing facilities, and over 80 percent  home health agencies would have negative total facility margins.” In plain English: These provider will be hemorrhaging red ink and limiting Medicare patient access to their services.

Though neither President Trump nor members of Congress have shown much interest in tackling Medicare, current law will shortly require it. For the second consecutive year, the trustees project that Medicare will have to draw 45 percent of its money from general funds within seven years. That triggers a Medicare funding warning, which requires the president to submit to Congress proposed legislation responsive to the problem “within 15 days after the submission of the Fiscal Year 2020 Budget.” Congress is then required to consider the legislation on an expedited basis.

What would be a responsive proposal? The Heritage Foundation suggests that Congress gradually raise the normal age of Medicare eligibility to 67 (the same as Social Security); reduce the taxpayer subsidies for Medicare Parts B and D for the wealthiest Medicare recipients; and simplify the program by combining Medicare parts A and B, while adding protection against financial devastation caused by catastrophic illness.

For the longer term, Congress could build upon the best features of the Medicare program, the personal choice and intense competition that characterizes Medicare Advantage and the Medicare drug program, which can improve quality and yield significant savings in the process.

In either case, the president and the Congress cannot ignore Medicare’s mounting problems, without imposing even more punitive financial burdens on seniors and taxpayers alike.

This piece originally appeared in The Orange County Register