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What The Recent Report On The Medicare Trust Funds Tells Us About Healthcare Policy

Each year, the trustees of both the Social Security and Medicare Trust Funds issue reports about the fiscal health of the funds. The practice is meant to spark a public policy analysis within the executive and legislative branches, but it almost never does. This year is no different.

The Biden administration touted the recent report on the extension of the solvency of the Medicare Part A Trust Fund as some sort of evidence that it has worked diligently to ensure Medicare’s future. In its election-year press release from Health and Human Services (HHS) Secretary Xavier Becerra, it touted supposed remarkable achievements on the Medicare stabilization front: “The Biden-Harris Administration has left no stone unturned in our efforts to strengthen and preserve Medicare, not just for our parents and grandparents but for our children and generations to come.”

But nothing could be further from the truth. The administration and Democrats have done little to take the current plight of Medicare seriously. At the same time, much of the Republican party is devoid of real attention as well.

What did the trustees tell us?

The Part A program is funded solely from the trust fund via payroll tax contributions throughout our lives. With some limited exceptions, Americans do not pay premiums for Part A coverage on retirement or other eligibility for the program. They do pay major cost-sharing in the form of deductibles and per-day copays when access is needed. The inpatient hospital benefit is also limited.

The Medicare Hospital Insurance (HI) Part A Trust Fund (hospitals and some other post-hospital care) will be able to pay 100 percent of total scheduled benefits until 2036, five years later than reported last year (which also saw a slight extension of solvency). But then, the fund’s reserves will become depleted and continuing program income will be sufficient to pay just 89 percent of total scheduled benefits. In essence, to afford the Part A program, government and enrollees will have to find a huge 11 percent increase for a benefit that already has numerous holes and is unaffordable for many. Or, the benefit might need to be chopped back further.

With regard to the other parts of Medicare, the trustees say those funds are solvent indefinitely. That is technically accurate because funding comes 25% from enrollees’ premiums for the Part B program (outpatient care) and 75% from government appropriations. The same is the case for the Part D retail prescription program. But the assumption that consumers and the government can afford ever-increasing costs is a fundamental falsehood. We have already seen extreme pressure on Part B premiums for Americans due to uncontrolled costs in the program, out-of-control prices and utilization, new drug introductions, and more. Saying the fund is solvent does not mean the program will be affordable for tens of millions of Americans in the future.

Despite the administration’s electioneering, the extension of the Part A fund’s solvency was tied to simple economics. There was a change to how medical education expenses are accounted for in Medicare Advantage (MA) rates starting in 2024. Further, there was higher Medicare payroll tax income than anticipated due to stronger-than-expected economic performance. Last, actual 2023 expenditures were lower than projected last year. So, no policy truly impacted the fund’s solvency extension.

Abdication of responsibility

I will give the Biden administration some credit on healthcare reform in passing Medicare drug price negotiations and annual inflation caps on drugs. This is a positive step in addressing drug price and costs. But the program represents a sliver of Medicare expenditures and covers reform for just Part D and Part B drugs. It does not attack in any way other services. Thus far, the administration’s overall Medicare policy solutions have been to propose tax increases on the wealthy to further extend the fund. I am no fan of tax hikes, but I do view them as legitimate proposals as part of a package of overall reforms.

The problem is that almost no one in leadership of the country – Republican and Democratic presidents as well as Republican and Democratic leaders in Congress – have truly given us their proposal for comprehensive reform of Medicare. Again, the Biden administration believes the answer is a wealth tax. Former President Trump refuses to take any real position on Medicare’s plight and says he would not touch the program. In some ways that is more irresponsible than Biden’s position.

In Congress, Democrats are on the tax-the-wealthy campaign as well, along with adding demonstrably to benefits and thereby costs via various proposals. About the only entity proposing concrete reforms in Medicare is the House Republican Study Committee, a rightist group in the House representing about 80% of the GOP caucus. Mind you there is plenty to hate in the committee’s healthcare budget proposals, but it did propose concrete Medicare reforms – in an election year to boot!

The committee’s proposal would merge all the Medicare trust funds and implement a premium support or voucher model. Private plans would compete with a federal Medicare plan that would offer the traditional Medicare benefits. This is not unlike the competition we have today between MA and fee-for-service (FFS). All payments year-to-year would be benchmarked to the bid made by the federal Medicare plan. The Republicans says more limited approaches could reduce premiums by 7 percent, with more expansive versions well more than that. The proposal would appear to constrain costs in the system as well. In addition, the Republicans would implement site-neutral payments in Medicare, which is a key reform we need throughout healthcare.

Again, it is a proposal and is even mentioned as a viable idea on my list of Medicare reforms. You can see them in an earlier blog as well as discussed on an earlier podcast (links are below).

Democrats can criticize the study committee’s Medicare views all they want, but would it actually be worse than a system that is so budget-constrained that premiums, cost-sharing, and benefit holes increase year to year in order for the uncontrolled system to simply survive?

The truth is, both presidential candidates and leadership in both parties are absolutely irresponsible for not having real policies to transform entitlements for the long term. Our leaders kick the political can down the road when we need concrete proposals. We cannot wait any longer. The longer we wait to make some tough decisions, the greater the pain later and the less likely we can sustain the programs. 

For Medicare and other entitlements to survive over the long term, a concrete and dispassionate discussion on both the tax and spending front needs to occur. The constant election cycles and a lack of backbone on both sides of the aisle have prevented this. There is little that we as a democracy can do about election cycles, but there are things we can do to hold leaders accountable. For the sake of our healthcare future – Medicare, Medicaid, universal access, and overall system reform — politicians should be asked hard questions and tell us how they would act on these important issues. If not, we should get leaders who are willing to do so.

#entitlementreform #medicare #medicaid #exchanges #aca #obamacare #medicareadvantage

Medicare Trustees Report:

Earlier Healthcare Labyrinth Blog:

Earlier Healthcare Labyrinth Podcast:

— Marc S. Ryan

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