Center on Budget & Policy Priorities: Medicare Is Not ‘Bankrupt’
Claims by some policymakers that the Medicare program is nearing "bankruptcy" are highly misleading. Although Medicare faces financing challenges, the program is not on the verge of bankruptcy or ceasing to operate. Such charges represent misunderstanding (or misrepresentation) of Medicare's finances.
The 2018 report of Medicare's trustees finds that Medicare's
The 2026 date does not apply to Medicare coverage for physician and outpatient costs or to the Medicare prescription drug benefit; these parts of Medicare do not face insolvency and cannot run short of funds. These parts of Medicare are financed through the program's
The outlook for the HI trust fund has worsened somewhat since last year, largely as a result of actions by the
The trustees' latest projections are broadly in line with those that the trustees have issued for some time. Since 1970, changes in the law, the economy, and other factors have brought the projected year of Medicare HI insolvency as close as two years away or pushed it as far as 28 years into the future.(3) The latest projection falls within that spectrum. Trustees' reports have been projecting impending insolvency for over four decades, but Medicare has always paid the benefits owed because Presidents and Congresses have taken steps to keep spending and resources in balance in the near term. In contrast to
The Affordable Care Act (ACA), along with other factors, has significantly improved Medicare's financial outlook, boosting revenues and making the program more efficient. The HI trust fund is now projected to remain solvent eight years longer than before the ACA was enacted. And the HI program's projected 75-year shortfall of 0.82 percent of taxable payroll is much less than the 3.88 percent of payroll that the trustees estimated before health reform. (See Figure 1.) This means that
Despite the improvements the ACA has made, Medicare continues to pose long-term budgetary challenges, stemming from the aging of the population and the continued rise in costs throughout the
Medicare has been the leader in reforming the health care payment system to improve efficiency and has outperformed private health insurance in holding down the growth of health costs. Since 1987, Medicare spending per enrollee has grown by 5.4 percent a year, on average, compared with 6.8 percent for private health insurance.(4)
The ACA envisions that Medicare will continue to lead the way in efforts to slow health care costs while improving the quality of care. The research and pilot projects that the ACA establishes should yield important lessons. Until these efforts bear fruit, it will be difficult to achieve big additional reductions in Medicare expenditures.
Some additional savings can be achieved over the next ten years, however, while preserving Medicare's guarantee of health coverage and without raising the eligibility age or otherwise shifting costs to vulnerable beneficiaries. Possible measures include ending Medicare's overpayments to pharmaceutical companies for drugs prescribed to low-income beneficiaries, increasing funding for actions to prevent and detect fraudulent and wasteful Medicare spending, further reducing overpayments to Medicare Advantage plans, and ensuring efficient payments to other health care providers.
A key fiscal policy goal is to stabilize the federal debt relative to the size of the economy. But it is neither necessary nor desirable to accomplish this by radically restructuring Medicare -- such as through "premium support" proposals that would convert it to vouchers whose purchasing power fails to keep pace with the cost of health care -- or by shifting more health care costs to Medicare beneficiaries, as the House Republican budget plan would do.(5) Policymakers and the American public should not be driven into adopting such proposals by misleading claims that Medicare is on the verge of "bankruptcy" or is "unsustainable." Instead, we should pursue a balanced deficit-reduction approach that puts all parts of the budget on the table, including revenues.
Footnotes:
(1) Boards of Trustees of the
(2) Upper-income beneficiaries pay higher, income-related premiums. Low-income beneficiaries receive premium subsidies.
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