Medicare’s hospitalization trust fund is on the fast track to insolvency. That has both seniors and future retirees worried. Because our leaders in Washington have been poor stewards of the record levels of tax revenue pouring into federal coffers, Americans aren’t sure how much longer their Medicare benefits will be available.
There is a way to ultimately solve the problem of entitlements like Medicare, but the president’s budget isn’t it. Biden’s latest proposal doubles down on the program’s wasteful spending by increasing payroll taxes through yet another tax bracket and raising the tax rate for Medicare.
But that only postpones the ultimate insolvency to a later date, which the White House has already admitted. While acknowledging the underlying problem, the Biden administration is simultaneously taking a victory lap for not addressing it.
The simple problem with Medicare is that it spends more than it raises in revenue, even though revenues are at record levels. Spending on the program has exploded at unsustainable rates. The situation was not helped by Obamacare or the Inflation Reduction Act (IRA), both of which were strongly supported by Biden with the false promise that reducing seniors’ health care options will magically lower costs.
In the case of the IRA, government subsidies and patients’ out-of-pocket expenses will face new limits in 2025 while premiums have limited increases. At first, that sounds like a good plan to limit expenses for both government and beneficiaries, but that’s not the case. In reality, Medicare recipients will likely face a choice between either lost drug coverage or having to switch doctors.
The proposal to raise taxes and put off Medicare’s day of judgment is ironic because Biden has already done so much to hamstring the program’s source of revenue through anti-growth policies. Depending on whether the president’s agenda is implemented for four years or eight, payroll tax revenue will be reduced between $400 billion and $900 billion because of lower wages and slower growth.
Medicare was already speeding toward insolvency, but Biden’s anti-growth agenda has supercharged that ignominious velocity.
The solution is not to prolong the problem but address it head-on. Medicare is fundamentally flawed and needs to be reformed, as evidenced by the fact that if left alone, the program will run out of money and throw tens of millions of seniors out of full coverage. To preserve benefits for existing retirees, and those set to retire soon, Medicare must become more flexible and competitive.
That does not mean “slashing entitlements.” We have an obligation to continue providing benefits to older Americans who have already been promised assistance. But young people should expect changes to the system to deliver effective health care without blowing a hole in their budgets.
Flexible health savings accounts are just one example of how people’s incomes can be redirected to cost-effective health care. Instead of taking more income from Americans and having bureaucrats spend it inefficiently, the government should allow people to keep more of what they earn while firms reduce costs and improve services to win business. It is no surprise that sectors like health care and education, which have a heavy government presence in the marketplace, also have some of the highest rates of inflation.
Medicare has been on a path to insolvency for decades because of structural problems with the program that make it unsustainable. But that trajectory has accelerated violently because of worsening public policy over the last few years.
The situation can be turned around, but the longer we wait to change direction, the more painful that course correction will be—and the more draconian the cuts to seniors’ benefits.
This piece originally appeared in ArcaMax