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As congressmen in the House agonize through the early stages of negotiations on the debt ceiling — the amount of money the US government can borrow — there are concerns those discussions could include Medicare spending cuts.
According to published reports, House Speaker Kevin McCarthy, R-Calif., has now asserted that Medicare (like Social Security) is off-limits during these negotiations.
But experts say Congress will eventually have to deal with a looming problem for Medicare: One of its funding sources is expected to default in 2028.
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“Medicare accounts for a significant portion of the federal budget,” said Gretchen Jacobson, vice president of the Medicare program at the Commonwealth Fund. “Balance the finances [soundness] of the federal government with affordability for beneficiaries has always been a constant challenge.”
How the GOP is approaching Medicare’s fiscal woes
Medicare has 64.5 million beneficiaries, most of whom are at least 65 years old — the qualifying age — or younger with permanent disabilities. It consists of part A (hospital insurance) and part B (hospital insurance).
There is also Part D (prescription drug coverage) and Part C (Medicare Advantage Plans), both of which are offered by private insurers. Advantage plans provide parts A and B, and usually part D.
The Republican Study Committee — the GOP’s largest caucus with about 170 members from the 222 House of Representatives — has addressed the looming tax problem by outlining in its proposed budget the hoped-for changes to Medicare that it believes will ensure the system’s long-term solvency would .
Among the group’s proposals: Raising the eligibility age from 65 to 67, which would be the full social security retirement age. In addition, Parts A, B, and D would be combined into a single plan with a premium, and Advantage Plans’ direct competition with this federal plan would be encouraged. There would also be premium subsidies depending on a person’s income.
“The [budget] will be our guide to what conservatives would like to see in an ideal world,” said a spokesman for the committee.
“The political process is still in its infancy,” says the expert
Nothing is in law yet, and it’s uncertain exactly what proposals would be included if bills were introduced — or what their chances would be of getting through a divided Congress.
“This is early in the policy process, so it’s hard to predict which proposals will remain on the table or how they might play out,” said Tricia Neuman, executive director of the Kaiser Family Foundation’s Medicare Policy Program. “Some of the proposals would involve a large-scale restructuring of the current Medicare program.”
Given the importance of Medicare, the stakes in a debate like this are high.
Tricia Neuman
Executive Director for the Kaiser Family Foundation’s Medicare Policy Program
Right now, Neuman said the austerity proposals are being described at a pretty high level.
“Political debate starts to become real when the details are settled,” she said. “Given the importance of Medicare, there is a lot at stake in a debate like this [for] Seniors and young people with disabilities.”
That would mean bankruptcy in 2028
Simply put, it’s the Part A trust fund that faces a deficit starting in 2028, according to the latest Medicare Trustee Report. Unless Congress intervenes first, the fund could only pay about 90% of Part A claims as of this year.
This trust fund receives most of its revenue from earmarked taxes paid by employees and employers. Generally, employees pay 1.45% via payroll tax withholding (although an additional 0.9% is levied on income over $200,000 for single taxpayers or $250,000 for married couples). Employers also contribute 1.45% on behalf of each employee. The self-employed generally pay both the employer’s and the employee’s share.
In the meantime, Part B gets its funding from monthly premiums paid by Medicare beneficiaries and general federal revenue. The same is true for Part D. And each year premiums are adjusted to reflect expected spend and ensure there is no underfunding.
Despite the threat of bankruptcy, cutting Medicare spending isn’t realistic, said Robert Moffit, a senior fellow at the Heritage Foundation, a conservative think tank.
Medicare enrollments continue to rise as the population ages, as do the costs of providing healthcare, he noted.
“I don’t think anyone thinks we’re going to spend less on Medicare in the future than we do today,” Moffit said. “We’re going to spend more, but we can spend those dollars wisely.”
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