Medicare’s Hospital Insurance trust fund is projected to be depleted by 2031, but rather than propose serious fixes to the popular entitlement, both parties’ presidential nominees are busy attacking each others’ plans in search of political points to win the election.
Medicare spending is growing much faster than the rate of federal tax revenues that support it. The Congressional Budget Office predicts that by 2032, Medicare spending will explode to $1.9 trillion, up from $944.3 billion in 2022, twice the current defense budget.
Once the fund is depleted, there is an automatic process in place or precedent to determine how to appropriate available funds or close the shortfall.
If the fund became insolvent, it would cover about 89% of the scheduled benefits. But that would still burden enrollees with tens of thousands of dollars in medical bills.
Some 62 million people are enrolled in Medicare, but the program is expected to swell to 78 million by 2033, increasing the strain.
A February poll by the Kaiser Family Foundation found that 73% of voters want President Biden and former President Donald Trump, the presumptive Republican nominee, to talk more about Medicare affordability. Among voters’ top concerns, that ranks it ahead of the future of democracy (72%) and immigration (69%), according to the poll.
Yet neither Mr. Trump nor Mr. Biden have offered a realistic solution to the looming crisis. Mr. Biden has released a more detailed plan than his opponent, who insists he won’t cut benefits. The president’s proposal is based on heavy tax hikes and is not expected to make it through the Republican-controlled House.
“This is going to be a tidal wave that is going to overwhelm the economy with debt and will make decisions about defense spending and welfare seem pretty irrelevant. Biden and Trump are really just trying to wish the problem away,” said David McLennan, a Meredith College professor who teaches health policy.
Mr. Biden‘s budget proposal for fiscal 2025, released last month, calls for stabilizing Medicare by increasing taxes on the wages, investment gains and self-employment income of people earning more than $400,000 per year.
The White House predicts the tax increases will keep Medicare solvent for 25 years. The Centers for Medicare and Medicaid Services, the federal agency that oversees the program, painted a rosier picture, saying it would extend the trust fund’s solvency “indefinitely.”
Mr. McLennan said the long-shot cash infusion wouldn’t solve the program’s structural problems.
“Even if everything breaks Biden’s way and Democrats control both chambers, the tax increases are a finger in the dike of a dam that has a lot of water behind it,” Mr. McLennan said. “Taxing the wealthy is Biden playing to his base, not a serious policy discussion.”
As president, Mr. Biden passed his massive climate, health care and tax law known as the Inflation Reduction Act. The law authorizes Medicare to negotiate prices with drug manufacturers to reduce participants’ out-of-pocket costs.
The law impacted 10 drugs that treat heart disease, certain cancers, diabetes, autoimmune and other conditions. In 2022, the 10 medications cost Medicare $45.6 billion and enrollees $3.4 billion in out-of-pocket costs, according to White House data.
It also capped prescription drug costs for seniors on Medicare at $2,000 a year, no matter the total cost.
Pharmaceutical companies blasted the proposal as price-fixing by “government bureaucrats” that could harm research and development. The companies claimed they were forced to participate in the negotiations or otherwise face steep penalties or withdraw from the Medicare and Medicaid markets.
Mr. Trump has yet to lay out his own plan to keep Medicare afloat or give any indication that he would raise taxes to finance the program.
Trump campaign spokesman Steven Cheung did not respond to questions about when he would reveal his plan or what would be on the table to prevent benefit cuts.
On CNBC last month, Mr. Trump said there’s “tremendous bad management of entitlements” and “tremendous amounts of things and numbers of things you can do,” but offered no specifics. He vaguely talked about poor management and theft raising the cost of entitlements before changing the topic.
“President Trump has never really enunciated a path to make major changes with Medicare,” said Stephen Parente, former chief economist for health policy in the Trump administration who now teaches at the University of Minnesota. “It’s just not a topic he wants to weigh in on because he’s just not a traditional conservative in the way of a Republican you would traditionally see.”
During his presidency, Mr. Trump’s budgets didn’t call for Medicare cuts. Instead, his White House budgets proposed changing Medicare by lowering payments to providers and suppliers through new incentives and a lower inflation benchmark.
The proposals were somewhat similar to Obamacare, which extended the solvency of Medicare by lowering payments to hospitals and insurers in exchange for more customers. He also proposed lowering prescription drugs by allowing Medicare to negotiate with pharmaceutical companies.
Similar to his proposed Social Security reforms, Mr. Trump never pressed Congress to act on his plans and they never became law.
An influential group of House Republicans last month proposed restructuring Medicare.
The Republican Study Committee, a group of more than 170 House Republican lawmakers that counts House Speaker Mike Johnson of Louisiana among its ranks, outlined a significant overhaul to the popular but expensive entitlement.
The lawmakers call for converting Medicare to a “premium support model,” mirroring a similar proposal that former House Speaker Paul Ryan, Wisconsin Republican, had laid out years ago. Under the Republican plan, traditional Medicare would compete with private plans, and beneficiaries would be given subsidies to shop for the policies of their choice.
Since the proposal has yet to garner Mr. Trump’s endorsement, it is unclear if it will go anywhere.
The size of the subsidies would be tied to the “average premium” or “second lowest price” in a particular market.
Mr. Biden blasted the proposal, saying it was “extreme” and would raise prescription drug costs. He vowed to stop it.
Experts say there are fixes beyond cutting benefits or raising taxes. Officials could move some of the services in Medicare Part A, which is the hospital fund, to Medicare Part B, which pays for necessary and preventive services. That would mean some Part A services that are 100% covered could be subject to the Part B deductible unless the beneficiary has a Medigap or Medicare Advantage plan.
“You could do that, but the question is, what would you move over,” Mr. Parente said.
The government could also reduce Medicare payments to some or all Part A providers.
Mr. Parente had advocated for a “market choice” model of Medicare, that would empower seniors to choose between the traditional fee-for-service Medicare and privately administered Medicare Advantage plans.
It would rely on free market competition among private insurers to reduce plans by empowering Medicare enrollees to shop for plans themselves.
The plan could save the federal government an estimated $1 trillion over the next decade.