• The 2019 Medicare Trustees Report found that the trust fund for Medicare Part A will be depleted in 2026.
  • Experts largely agree that now is the best time to act to restore Medicare’s long-term solvency.
  • One reform that could nudge the program towards solvency is changing Medicare’s rules so that seniors who opt out of the program are not financially penalized.

Medicare has a funding problem

Contrary to a number of headlines earlier this year following the release of the 2019 Medicare Trustees Report, the sky is not falling. Medicare is not going to go broke anytime soon and recipients are not about to lose all of their benefits. 

That said, the report gives Americans plenty of cause for concern. It projects that the trust fund for Medicare Part A hospital insurance (HI) will be depleted in 2026. (Medicare Parts B and D are funded through general revenues, which given the expanding federal budget deficit means they’re effectively funded through borrowing) Because laws prevent Medicare HI from making expenditures exceeding its trust fund, it will only have enough revenue to cover 89 percent of scheduled benefit payments by 2026. That percentage is projected to decline to 77 percent by 2046.

“Medicare HI’s outlook is not only troubling on its face, but is somewhat worse than projected in last year’s report,” wrote Charles Blahous, who recently served as a public trustee for Social Security and Medicare. As drivers of the program’s impending insolvency, Blahous identified “tax revenues being lower than expected, program spending being higher, and smaller productivity growth in evidence, which in turn reduces the savings projected from the (Affordable Care Act’s) cost containment provisions.”

This is not a recent problem, however; it has been decades in the making. Medicare HI is funded through a tax that is withheld from worker paychecks and paid by the self-employed. That tax, plus various smaller sources of revenue, is not sufficient to cover the program’s costs — and hasn’t been for years. The only reason Medicare HI has been able to operate smoothly is due to the trust fund that was built up when costs were relatively low in anticipation of aging Baby Boomers. Rising costs through the U.S. health care system have not helped matters. Because Baby Boomers are now retiring en mass, the trust fund is rapidly being depleted.

Addressing impending insolvency

Experts largely agree that the best time to act to restore Medicare’s long-term solvency is now, before more painful tax hikes or reductions to benefits become necessary. 

“Lawmakers should address these financial challenges as soon as possible,” the trustees of the program wrote. “Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

Possible solutions, according to the Center for Medicare Advocacy, include “oversight of private Medicare Advantage plans, smarter prescription drug payment limitations, support for Affordable Care Act provisions, (and) rolling back…tax cuts.”

Blahous has called for cost-saving measures that would be controversial but perhaps most effective, such as overriding the Affordable Care Act (ACA)’s annual provider payment restraints, as well as ceasing to postpone the ACA’s “Cadillac tax” on high-cost insurance plans.

An overlooked reform?

Another relatively simple reform that could nudge the program towards solvency, according to Naomi Lopez Bauman, director of health care policy at the Goldwater Institute, is changing Medicare’s rules so that seniors who opt out of the program are not financially penalized. Current rules stipulate that any senior who chooses to opt out of Medicare also must forfeit all of their Social Security benefit payments, including those they’ve already received. 

There is no law passed by Congress that forces seniors to forgo Social Security benefits if they want to opt out of Medicare, Bauman noted in a May op-ed for the Daily Caller. Instead the rule dates back to a Clinton-era administrative policy that went into effect without public discussion or congressional deliberation. As such, it could be reversed by executive action from the President, according to the Citizens’ Council for Health Freedom, which sent a letter to President Donald J. Trump last year urging him to do just that.

“Making this change will have NO impact on those who have enrolled, wish to stay enrolled, or want to enroll in Medicare in the future,” said CCHF President Twila Brase. “It simply allows senior citizens to collect their rightful Social Security benefits without being required to enroll in, or remain enrolled in, Medicare Part A.”

There is also a bill in the Senate to address the issue: The Retirement Freedom Act. Sponsored by Sens. Ted Cruz (R-Texas), Rand Paul (R-Ky.) and Mike Lee (R-Utah), it would codify in law a policy that allow seniors to opt out of Medicare Part A without forcing them to forgo their Social Security benefits.

In the hands of Congress

What course of action is Congress most likely to take to address Medicare HI’s impending insolvency? Many experts and analysts are skeptical that lawmakers will rise above the “partisan bickering” and “political tug-of-war” surrounding entitlement spending to implement a responsible solution.

“We don’t know what Congress will do — though the answer is probably nothing until the last minute,” wrote Howard Gleckman, author of the book “Caring for Our Parents” and resident fellow at The Urban Institute. Gleckman allows that lawmakers could decide to raise the payroll tax, but his guess is that they will turn to general revenue to fully fund Medicare.

“Which is another way to say,” he clarified, “they’ll borrow the money and further raise the national debt.”

Read the full 2019 Medicare Trustees Report here.

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