Another Warning About Medicare Is Going Unheeded

The annual report from Medicare’s trustees just arrived. The picture it paints is anything but sunny.

According to the report, Medicare’s Part A hospital insurance trust fund is set to be exhausted in 2026. Avoiding this fate, the trustees conclude, will require a massive increase in taxes or decrease in spending.

In other words, Medicare faces an existential threat. But you wouldn’t know it from listening to Democrats in Congress. Progressive lawmakers are continuing to advance plans for expanding the entitlement — plans that would put the program on even worse financial footing.

The pandemic “dramatically affected” Medicare in two major ways. First, it disrupted the labor market and thus reduced the amount of payroll tax revenue Medicare collected. And second, of course, the program had to spend a significant amount of money caring for people with COVID-19 as well as those who took advantage of expanded access to telehealth.

But those new expenses were actually lower than what Medicare expected to spend in a normal year, as people put off seeking non-COVID care.

So the prediction of a 2026 doomsday for Medicare is the same as it was in April 2020, when the pandemic was still in its early stages.

Even if payroll tax revenues recover, the resumption of non-COVID care will stretch the trust fund past its breaking point.

Lawmakers have five years to come up with a plan for addressing this crisis. What would such a plan look like?

According to the Medicare trustees, for Part A to remain solvent for the next 75 years, the standard payroll tax would have to jump from 2.9% to 3.67%.

The median household income in 2019 was north of $68,000. A payroll tax hike at the level contemplated by the trustees would represent an extra $500 in taxes for that median household.

Failing that, the program would need to immediately slash spending by 16%.

Given the severity of this problem, one would expect Democrats — the self-avowed champions of Medicare — to snap into action.

For four years in a row, Medicare’s trustees have issued an official funding warning. Under current law, that action should trigger the president to submit a plan for shoring up Medicare’s finances with his next budget. It’s then up to Congress to consider such reforms on an expedited basis.

That hasn’t happened. Instead, Congressional Democrats are hard at work hastening the entitlement’s demise.

Democrats signed on to legislation lowering Medicare’s eligibility age from 65 to 60.

According to the bill’s lead sponsor, Rep. Pramila Jayapal, D-Wash., Medicare at 60 would be “life-saving for so many across America who will finally be able to get the care they need and deserve.”

Hardly. Reducing Medicare’s eligibility age would add 23 million Americans to the program and increase Medicare’s costs by as much as $100 billion a year, one analysis found.

The move makes even less sense given that Americans between the ages of 60 and 64 are more likely to have health coverage than almost any other age group in the country. Many of these older adults are in their peak earning years, with quality employer-sponsored health insurance that they generally like.

Rather than lowering the Medicare eligibility age, Congress should be raising it. Seniors are living longer now than they did more than 50 years ago, when the program was created. Social Security has raised the age when people are eligible for full benefits; why can’t Medicare follow suit?

Democrats are also agitating for legislation that would add dental, hearing, and vision care to traditional Medicare’s suite of benefits.

That represents another $358 billion in direct Medicare spending over a decade, according to an analysis of similar legislation by the Congressional Budget Office.

It’s also unnecessary.

Today, seniors can secure dental, hearing, and vision coverage by selecting privately administered Medicare Advantage plans.

In an era of scarce public resources, seniors — especially wealthy ones — should be picking up a greater share of their healthcare tab. Lawmakers can lessen the sting by allowing seniors to set aside pre-tax dollars in Health Savings Accounts that they can invest and later use to purchase care or cover things like co-pays tax-free.

Medicare is in a state of crisis. Rather than expand the program, Congress must shore up its finances for its current crop of beneficiaries.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All,” (Encounter 2020). Follow her on Twitter @sallypipes.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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