Economics

Medicare's Fiscal Ruin

Are Medicare's fiscal problems even worse than the headline numbers suggest?

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The most recent annual report on the fiscal health of Medicare from the program's trustees wasn't much of a surprise. But it was yet another warning of the program's looming fiscal ruin.

Like the 2020 edition, the 2021 Medicare Trustees Report estimated that Medicare's hospital insurance trust fund will be insolvent 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.

In 2026, the hospital insurance fund will be able to cover only about 91 percent of its bills. In the years that follow, that gap will grow only larger. Without changes to the program's financing, doctors, hospitals, and other medical providers will face rapidly reduced payments from the program. This will have ripple effects on the provision and availability of health care and on the wider American economy, roughly a sixth of which revolves around health care services.

The report also provided reason to suspect that Medicare's fiscal problems may be even worse than the headline numbers suggest: The fiscal forecast assumes that an array of cost-reduction measures, including a series of caps on Medicare physician payments and bonuses, will persist. But the trustees noted that Medicare's "long-range costs could be substantially higher than shown throughout much of the report if the cost-reduction measures prove problematic and new legislation scales them back."

The report seemed to generate little concern on Capitol Hill. It was released at the end of August, as Democrats in Congress were pursuing two massive, interlocked spending packages: a -bipartisan $1.2 trillion infrastructure bill (about $550 billion of which constituted "new" spending) and a partisan spending bill focused on climate and welfare programs that was initially priced around $3.5 trillion.

That second bill has faced downward pressure from moderate Democrats in the Senate. But one provision supported by both President Joe Biden and progressives in Congress is the expansion of Medicare benefits, adding dental, hearing, and vision coverage to the program. In 2019, the Congressional Budget Office put the price of a similar proposal at $358 billion over a decade. (A later version of the package priced at $1.85 trillion proposed hearing coverage only.)

Progressive Democrats, of course, have long looked for ways to expand Medicare, from broadening eligibility to pushing for Medicare for All. The party's control of the White House and both chambers of Congress provides a potential opportunity.

In some ways, the stage for Medicare expansion was set by Republicans. In the late 2000s and early 2010s, then–House Speaker Paul Ryan (R–Wis.) backed Medicare reforms that would have set the program on a more sustainable fiscal path, but those proposals went nowhere. By 2012, the GOP's presidential nominee, former Massachusetts governor and current Utah Sen. Mitt Romney, was criticizing Obamacare for cutting Medicare. On the campaign trail, Romney repeatedly promised he would never cut Medicare to pay for another program.

Under President Donald Trump, the GOP abandoned even the pretense of supporting meaningful old-age entitlement reform. Trump rejected out of hand any spending reductions to such programs. According to the trustees' estimates at the time, the next president would face a shortfall. Yet both parties were now committed to ignoring Medicare's daunting fiscal problems.

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. "Spending trillions more on new and expanded government programs, when we can't even pay for the essential social programs, like Social Security and Medicare, is the definition of fiscal insanity," he said in September, calling for Medicare funding to be "stabilized" before any expansion was pursued.

Manchin is no one's idea of a limited-government conservative or a die-hard fiscal hawk. But he was saying what few others in Congress would: Medicare isn't sustainable in its current form, and it hasn't been for a long time. Both parties might oppose cuts to the program. But the trustees' report makes clear, yet again, that without serious reforms, the program is going to end up cutting itself.

NEXT: Brickbat: Spying Eyes

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  1. An insurance plan that can't pay the promised benefits. If it were a private insurer it would be shut down and those running prosecuted for fraud. This should be no different.

    1. We should totally have these people running our health care.

      1. And the rest of our federal government.

        1. Seriously I don’t know why more people haven’t tried this, I work two shifts, 2 hours in the day and 2 in the evening…FGh And i get surly a check of $12600 what’s awesome is I m working from home so I get more time with my kids.

          Try it, you won’t regret it........VISIT HERE

      2. It's true! The only reason they can't pay the medical bills is that the rest of the government is selfishly hoarding its cash! By putting it all under one roof, we can spend it ALL on health care!

  2. They'll start posting the bill from other taxes and do the illusion that it was ever a savings account now that most people that lie was sold to are dead.

  3. Umm. Apparently Peter is not aware that the federal government now operates on modern monetary theory.

  4. Allow it to fail.

    1. There's a stronger case to let Medicare and Social Security fail than Medicaid. Why should the government provide health care and retirement plans to people who are well off, just because they are older? Medicaid is to help people who are truly needy. Cut loose everyone who doesn't need government help and the problem is much more manageable.

      1. Everyone on everything really needs it. Just ask them.

        I’m for voluntarily helping folks I deem to be needy. But will never agree with being forced to do so.

      2. Many elderly on Medicare are not financially well off. And at least those on Medicare paid in for all of their working life to help finance this system. Medicaid is totally funded by borrowed money to provide medical care for those who have financially contributed relatively little.

      3. A moment's thought will supply the answer for why the government should supply healthcare to all older Americans. It's because we expect healthcare coverage to be supplied by the employer. Once you retire you no longer have that health insurance benefit and then would have to purchase a private policy. I don't know if you've priced private insurance but only the very wealthy could easily afford it. A better question might come from employers: why should they have to pay health insurance for their employees when their international competition does not?

      4. Social Security and Medicare are programs that Americans directly paid into. These are not welfare benefits. Congress has recklessly expanded these programs and used these monies to pay for people who are not entitled to the benefits. Shame on Congress. Remove the extras and return the programs to solvency.

  5. To Congress, the name of the program is a portmanteau of ME? Do I CARE?

  6. Perhaps we could just confiscate all existing political campaign funds from federal level politicians, and the entire assets of the DNC and RNC. In addition, transfer all pension benefits for politicians to the Medicare fund. Mandate all federal politicians use Medicare instead of their generous existing PRIVATE insurance plans. That should fix it for a few more years.

  7. Umm, the United States is a very wealthy country and can afford this. At least I hear a bunch of lefty communists tell me this from our media.

  8. In some ways, the stage for Medicare expansion was set by Republicans.

    But in other ways, the stage was set by FDR when that communist bastard convinced the country that it was the government's responsibility to take care of everybody while eliding the fact that the government couldn't give you anything it didn't first steal from somebody else.

    1. And yet I'm sure you'll be using Medicare when you get older (or already are.)

      And somehow every other Western country has found ways to fund it without issue. They also solved that pesky little problem of medical bankruptcy but I guess you wouldn't give a shit about that huh? Fuck you, got mine. The asshole mantra.

      1. And somehow every other Western country has found ways to fund it without issue.

        I'll take "Delusional Thoughts from Fantasy Island" for $1,000, please.

      2. Republicans are whiny babies so of course the second they need a service from tbe govt they will bitch and moan about not getting enough. It has to effect them personally for them to care and literally the minute they get "theirs' they're back to complaining about spending. I see it play out like this every time a hurricane hits Louisiana. What explains it. They're antisocial selfish crybabies. It explains practically everything about the Republican voter. Another example is that they demand that the govt pay for their private schools while they complain about public school funding. It's the same song and dance.

        1. I enjoyed reading about your hatred.

        2. Another example is that they demand that the govt pay for their private schools while they complain about public school funding. It's the same song and dance.

          Pop Quiz:

          How does the government make money?

          1. See reference to MMT above.

            We also will accept "Magic Money Tree".

            1. Dunno about you, but my Jackson orchard didn't provide any harvest at all this year.

          2. Selling silver plated state quarters?

      3. Yeah most western countries solve for this by charging their middle class exorbitant taxes to provide them a mediocre service. And yet, somehow, every time there is any mention of tax reforms to the US Tax system (which by most measures is one of, if not the most progressive tax systems in the OECD), folks like you are wailing about the rich not paying their fair share.

        The average tax burden in the United States would have to increase by 80% - 300% to put us at the same tax rate as nordic countries. That isn't going to be born by the rich, and the longer you antiquated class warfare addicts continue to insist to the contrary, the longer no one will deal with it.

        1. The collectivists have a simple vision:

          Healthcare is a right. Like the air, healthcare is a resource that just exists "out there" and the issue is figuring out a way to harvest and distribute that resource effectively. Insisting that any given individual pay for healthcare is like insisting they pay for their right to breath. It is therefore the role of government to consolidate and ration the air to make sure everyone has enough.

          That healthcare is the result of a real person's labor never crosses their mind. That healthcare is difficult and requires many years of education and toil never crosses their mind. That healthcare is a service provided by free human beings to which others are not automatically entitled simply by virtue of existing never crosses their mind.

          The collectivists do not see people, they see only the hive. They also see themselves as the guardians of the hive, imbued with the power to make executive decisions as to how to hive will operate.

          If you want to understand a leftists moron's view of healthcare, and the insane policy proposals they spout, you need only to understand the analogy of the beehive.

          1. Be fair. Most progressives never got beyond preschool understanding of economics. And they definitely rejected the notion that as adults they have primary responsibility, fiscal and otherwise, for their own lives. Instead, they dedicated their lives to the kinds of arcane, intricate fantasy games with lots of bizarre rules designed to favor their little tribal group, and cast out the other kids.

            1. People that neither produce nor create are often incapable of stepping outside the bounds of their own existence and, as result, cannot fathom that other people created the world and the goods and services that flourish around them. Because of this experiential gap, they are easily convinced that the world exists because of the magicians in government.

              You are completely correct. Leftists are children, and government is their Santa Claus. The gifts simply appear; all there is left to do is enjoy them.

  9. Expanding a program we already can't pay for...it's a provocative concept.

  10. "adding dental, hearing, and vision coverage to the program"
    Say goodbye to $75 dental cleaning appointments.

    F'en Nazis. Literally taking over the USA by the second.

    1. I choose not to have a vision plan. The appointments and glasses are about half the price with cash than with a plan.

      1. That's OK. Most of our government also chooses not to have a vision plan. Or at least a vision plan based on reality.

          1. You’ve always been a very apt pupil.

      2. "I choose not to have a vision plan. The appointments and glasses are about half the price with cash"

        ...and the Nazi's are here to take that choice away
        Point being; Add dental and vision to the healthcare crisis of UN-affordable Nazi-Markets.

  11. Pretty big joke with Manchin considering his daughter makes the Epipens and raised the price from like 100 bucks to 600. Acting as if he isn't intertwined is farcical.

    The real issue is the absolute insanity that is healthcare pricing. Until you fix that then you can't really fix anything else.

    1. The real issue is the absolute insanity that is healthcare pricing.

      One almost gets the sense that having the government promise everyone free shit has a tendency to distort the market.

      1. No, it's corporate money bribing Republicans to prevent the govt from being able to negotiate prices with these private companies.

        1. What business does the government have negotiating prices? That is exactly the problem I was identifying. That you cannot see it is the problem, is also a problem.

          1. The Lord will never understand (or embrace) the idea that rational adults can and should make their own decisions, including personal commerce.

            1. Lefty shits seem to have their development halted at a conceptual level approximating a 13YO: Demand mommy provide whatever is desired and whine about it if mommy doesn't do so.
              Personal responsibility? Not part of the conceptual gestalt.

        2. It is even cheaper when customers get to directly negotiate prices. More options, better options and fewer strings attached.

    2. You probably don't understand this, but any system where customers spend other people's money is liking to have distorted, inflated pricing.

  12. The vast majority of Medicare spending is spent in the last 6 months of life. It is time to have rational discussions on cost vs longevity and stop delaying death for a month at extremely high costs.

    They did this to my grandfather for a year, draining fluids from his lungs every 6 weeks. He was miserable as his life was just hospitals. Finally he said no more. This needs to happen sooner.

    1. "stop delaying death for a month at extremely high costs."
      Let the chicomvirus run rampant??

      1. It already does. That's what a virus does.

    2. so, death panels?

    3. I've often wondered how much medical costs would go down if people just were rational about end of life care.

      my great grandfather died in the 1960s. some form of cancer. his EOL 'treatment' was the dr dropping off morphine at his house once a week to try and keep him comfortable. cost was pennies. I have no doubt that today they would have spent 6 or 7 figures on him in his final days.

      1. This is certainly part of the problem. We are reluctant to deal with the end of life. I have made it clear to my children that I do not want to be kept alive for no purpose. I have always taken my own healthcare seriously, I question my doctors and try to arrive at the best and in most cases the lowest cost option.

  13. "In some ways, the stage for Medicare expansion was set by Republicans. In the late 2000s and early 2010s, then–House Speaker Paul Ryan (R–Wis.) backed Medicare reforms that would have set the program on a more sustainable fiscal path, but those proposals went nowhere. By 2012, the GOP's presidential nominee, former Massachusetts governor and current Utah Sen. Mitt Romney, was criticizing Obamacare for cutting Medicare."

    Is this a stage set by Republicans, or is it a stage set by our own damn republic?

    For 30 damn years various people have been calling for fiscal sanity, and for 30 damn years, the public has instead rewarded the pols promising tax cuts and obamaphones and free everything else.

    Until the Public signals a willingness to elect the politician that says, "You can have a solvent Medicare, or you can have low taxes on the Middle Class, but you can't have both", this will not get better.

    1. To be fair, the party if fiscal responsibility and limited government has completely abandoned all pretenses of fiscal responsibility and limited government.

      1. Right partisan haters; just keep playing ignorant to Trumps de-regulation administration and massive budget cuts on the EPA as well as ending Obumercare mandates...

  14. What's the trick to having your browser not keep jumping to the video?

    1. Maybe ad blocker? I don't have that problem.

      1. Ad blocker? Why are you stealing revenue from Reason?

        1. Ad blockers are made by private companies, so it's just fine.

    2. You could set your browser to block third party cookies.

  15. Pete the dishonest DNC shill can only paint this as a GOP caused issue by completely ignoring the existence and actions of the party of free shit over the last 40 years.

    1. Why even bother with democracy if we can't vote for free shit?

    2. Why is it so hard for people to acknowledge that the deep hole America has dug itself into is the result of both parties?? And, of course, the vast majority of voters who enabled this crap.

      1. Why is it that people can't seem to accept proportional causes? Because they or DNC shills, or simply stupidity?

        1. I don’t think proportionality applies. Democrats run on big government and socialism, people like it, and they deliver. The GOP runs on small government and free markets and they fail to deliver and fail to make a case for liberty and small government to the American people.

          I don’t blame parties for delivering to voters what they promised. I do blame parties who promise one thing and then do something different.

  16. It was bankrupt the day it was passed, e.g. the Congress in power lied and said it would cost $10 in ten years and the actual cost turned out to be $10,000.

  17. >> Without changes to the program's financing, doctors, hospitals, and other medical providers will face rapidly reduced payments from the program. This will have ripple effects on the provision and availability of health care and on the wider American economy, roughly a sixth of which revolves around health care services.

    1) How much of the money charged by hospitals is used to pay the actual costs of the services they provide, and how much is drained off somewhere and ends up in the pockets of people running the places?
    2) A sixth of the U.S. economy devoted to health care? How does that compare to other countries? I expect that in few, if any, other countries is it that high.

  18. "...In some ways, the stage for Medicare expansion was set by Republicans..."

    What a steaming pile of shit.

    1. No, he is right: the root cause of the dysfunction and problems we are seeing in this country is a failure of Republicans and conservatives to govern well, their unholy alliance with religious nutcases, and to make a case for liberty.

  19. >>Medicare's hospital insurance trust fund will be insolvent in 2026

    so, single payer in 2024 then?

  20. Serious question: Could the U.S. Treasury just sell bonds to cover any shortfall for Medicare?

    If so, I believe Congress will take the easy, short term solution.

    1. Sure, and the Fed can buy them so the rate doesn't get too high.
      What could possibly go wrong?

  21. There is no effing trust fund. US social programs are paid out of taxes. The rest is an accounting gimmick.

    1. It's a ponzi scheme. Like that guy Bernie who made off with all those people's money. Any of us peons would go to prison if we tried it, but as usual the government believes it is above its own laws

  22. This a problem but we cannot solve it if we don't talk about the problem. Joe Manchin can talk because he is a moderate and if we had more moderates, both left and right, we might arrive at a solution. But keeping the far left and the far right in the driver seat means we wait till failure and then try to patch something together.

    The problem is not just the government, but also the heath care industry, and the patients. Solutions are needed at each point of the problem.

  23. Speaking of mandates, Why can't the federal government MANDATE the healthcare providers work for free? Problem solved.

  24. "Medicare's hospital insurance trust fund will be insolvent in 2026 the fund will have to rely on incoming revenues, essentially operating on a cash-flow basis"

    Whoops. This is the reality now. Treasury works on a cash in, cash out basis. There is no actual 'fund' somewhere. There might be a delightfully droll set of books that shows that "Medicare has IOUS due to it" - but those are just vapor chits. There is no THERE there.

  25. The elephant in the living room:
    1) there is no age or total/amount cutoff for Medicare;
    2) predictions of 'solvency' are based on actuarial stats;
    3) all that is required to detonate Medicare (and Social Security) is for people to live longer. Even an average of 1 or 2 years longer.
    4) people are going to live longer. More than 1 or 2 years longer than 'expected.' Boomers are not going to go quietly.

    BOOM!

  26. Unfortunately and always the focus is on who or how we pay when it really should be on what we pay and the relative lack of competition and high barriers in medical services.

    Also there is no field with higher OPAGUE PRICING And inability to shop than medical services in the USA.

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