Medicare’s Fiscal Ruin

It was not surprising that the most recent annual report from Medicare’s trustees on its fiscal health wasn’t too shocking. However, it warned of the possibility that the program would soon be in financial ruin.

Similar to the 2020 Edition, the 2021 Medicare Trustees Report predicted that Medicare’s hospital insurance trust funds would be insolvent by 2026. At that point, the fund will have to rely on incoming revenues, essentially operating on a cash-flow basis—and there won’t be enough cash.

By 2026, only 91 per cent of hospital bills will be covered by the insurance company. This gap will only get larger over the next years. Doctors, hospitals and other providers of medical care will see their payments drop rapidly if the financing is not changed. The program’s financial restructuring will result in a reduction of payments to hospitals and doctors, as well as ripple effects on American health care provision.

There are also reasons to believe that Medicare’s fiscal problems could be more serious than headlines suggest. For example, the fiscal forecast assumes that there will continue to be a range of cost-reduction initiatives, which include a set of cap payments for Medicare physicians and bonuses. However, the trustees cautioned that Medicare’s future costs might be much higher than what was shown in the report. If the cost reduction measures are not successful or new legislation is passed to reduce them, this could lead to substantial increases in Medicare’s long-range costs.

Capitol Hill didn’t seem to be concerned by the report. As Democrats in Congress pursued two huge, interlocking spending programs, the report came out at the end-of August. The bill was bipartisan and valued around $1.2 trillion.

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Moderate Democrats in Congress have pushed back against the second bill. The expansion of Medicare benefits to include vision, dental and hearing coverage is a provision that President Joe Biden supports. The cost of a similar proposal was estimated at $358 billion per decade by the Congressional Budget Office in 2019. The package was priced at $1.85 trillion for proposed hearing coverage.

The Progressive Democrats have been looking for new ways to increase Medicare. They’ve tried everything from expanding eligibility to advocating for Medicare for All. A potential chance is provided by party control in both the White House as well as both Congress chambers.

Republicans set the tone for Medicare expansion in some ways. In the late 2000s and early 2010s, then–House Speaker Paul Ryan (R–Wis.) Ryan (R-Wis.) supported Medicare reforms to have put the program on a sustainable fiscal track, but these proposals were rejected. In 2012, Mitt Romney (former governor of Massachusetts and currently senator from Utah) was criticized for criticizing Obamacare’s cuts to Medicare. Romney made it clear that he will not cut Medicare for the sake of another program.

Trump has made it clear that the GOP will no longer support any meaningful reform of old-age entitlements. Trump strongly opposed any reductions in spending on such programs. The trustees estimated that the president after Trump would be in deficit. Both parties agreed to ignore Medicare’s serious fiscal issues.

By the time Biden became president, it was left to a handful of self-styled moderates—in particular, Sen. Joe Manchin (D–W.Va.), perhaps the most powerful vote in the Senate—to point out the obvious. He stated in September that spending trillions on expanded and new government programs when it is impossible to pay for essential social programs like Medicare and Social Security, was the definition of fiscal madness.

Manchin’s ideal role is one of limited-government conservative and fiscal hawk. He was saying something that few other members of Congress could hear: Medicare in its current state isn’t sustainable, and hasn’t been since long. While both sides might be opposed to cuts to the program, It is possible for both parties to oppose cuts. However, the trustees’ report reiterates that the program cannot be saved without significant reforms.