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. It was a warning sign of imminent fiscal disaster for the program.

The 2021 Medicare Trustees Report, which was similar to the 2020 edition of the report, estimated that Medicare’s trust fund for hospital care will go bankrupt in 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. The gap will continue to grow in the years ahead. Without any changes in the funding of the program, physicians, hospitals, or other medical providers may see their reimbursements from the program drop quickly. 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-term expenses.

Capitol Hill seemed unconcerned by the report. The report was published at the end August as Democrats were working on two large, interconnected spending packages. One was a bipartisan bill to fund infrastructure (around $550 billion) and one that focuses on welfare and climate.

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. A later package, priced at $1.85 Trillion for hearing coverage only, was also available.

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

Republicans were the ones who set the stage for Medicare extension in some aspects. 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. Mitt Romney was the GOP’s nominee for president, a former governor in Massachusetts. Romney made repeated promises on the campaign trail that he wouldn’t cut Medicare in order to fund another program.

Trump’s presidency saw the GOP abandon any pretense to support meaningful entitlement reform for the old age. Trump rejected spending cuts to these programs outright. 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. In September, he stated that “spending trillions more for new and expanded government programmes, while we can’t even afford the essential social program programs like Social Security and Medicare is the definition fiscal insanity.” He called for Medicare funding “stabilization” prior to any expansion.

Manchin does not represent the ideal of either a fiscal hawk or a conservative with limited government. However, he said what only a few members of Congress believed: Medicare’s current form isn’t sustainable and hasn’t for a while. The program could be cut by both parties. However, both parties might be opposed to cuts to the program. The trustees’ report once again shows that without serious reforms the program will end up being cut.