PracticeLink Magazine image header for Reform Recap
PracticeLink Magazine image header for Reform Recap

The future of Medicare


Table of Contents

Republicans and Democrats fight over proposals to preserve Medicare’s solvency by either cutting benefits or raising taxes

THE RESERVES OF MEDICARE’S HOSPITAL INSURANCE TRUST FUND are projected to be depleted in 2031. Every year, the Board of Trustees of the fund (Medicare Part A) issues a new report. The projected depletion date has shifted forward and backward based on changing conditions and projections. When the reserves are exhausted, Medicare will not be able to pay all of its bills unless new revenue is added or benefits are cut. If a solution is not reached, the future of Medicare might mean it only pays a portion of its bills, such as 90%. Medicare covers 64.5 million people, both aged over 65 and those with long-term disabilities. The federal government is projected to spend $820 billion on Medicare in 2023—about 12% of the federal budget.

Republican proposals

The solution to the financial shortfall is the subject of intense political struggles. Republicans are not unified in their approach, but many Republicans favor reducing benefits.

The Republican Study Committee issued a report titled “Reclaiming Our Fiscal Future” regarding the 2022 budget. The report proposed multiple changes to Medicare and other federal programs “that would balance the budget in five years.”

The proposal would raise the age of eligibility for Medicare from 65 to 70 to reflect increased life expectancy.

The report also favors a “market-oriented” approach with added reliance on the private sector. The government would provide subsidies based on an individual’s income and wealth to purchase insurance in the private market rather than primarily rely on the government to pay providers more directly.

A similar Republican proposal from decades ago was called “vouchers.” It was never enacted.

The Study Committee would increase use of health savings accounts, but would place a cap of $7,500 on cost-sharing by enrollees. Quality bonuses currently paid to providers would be eliminated, but insurance plans would be eligible for larger quality bonuses.

The pushback

The proposal to raise the age of eligibility and potentially reduce other benefits did not sit well with many Americans. Senate minority leader Mitch McConnell said Medicare would not be cut.

Speaker of the House Kevin McCarthy said Medicare and Social Security should be “completely off the table” when discussing debt ceiling negotiations.

Proposals from President Biden

President Joe Biden said he would make Medicare solvent beyond 2050 without cutting any benefits. To raise money to maintain solvency, he would increase Medicare taxes by 1.2% on people earning more than $400,000 per year. In addition, the top marginal tax rate would return to 39.6% from the current 37%. The corporate tax rate also would increase.

President Biden noted the increasing concentration of wealth in the wealthiest 1% of Americans and said, “Let’s ask them to pay their fair share so that the millions of workers who helped them build that wealth can retire with dignity and the Medicare they paid into.”

President Biden plans to save money for the Medicare program by making more drugs subject to price negotiation and by requiring drug companies to pay rebates to Medicare if the companies raise prices more than the rate of inflation.

Republicans generally oppose any tax increases. With a Republican majority in the House of Representatives, it will be difficult or impossible to pass a tax increase.

Medicare Advantage and diagnostic codes

Senator Elizabeth Warren and several other Democrats want to promote solvency by saving money in the current Medicare program. The senators and representatives target what they describe as “overpayments to Medicare Advantage plans that line the pockets of big insurance companies.”

Senator Warren said the “corporate profiteers” have added an ever-growing number of diagnostic codes to their patients in a quest to obtain higher risk adjustments and higher levels of reimbursement to care for their patients. Patients enrolled in Medicare Advantage end up costing the government more per patient than patients enrolled in traditional fee-for-service Medicare.

A Kaiser Family Foundation report, using data from 2019, said that “Medicare spent $321 more per person for Medicare Advantage enrollees than it would have spent for the same beneficiaries had they been covered under traditional Medicare.”

Senator Warren and her colleagues seek to reduce payments for Medicare Advantage and increase transparency of the program. In the coming years, pressures on Medicare solvency will increase as the population ages and as health care costs rise. Political leaders also will feel pressure from the people they represent. Before the Medicare trust fund is depleted, Congress will need to strike a balance. 




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