Sen. Joe Manchin perhaps best clarified the huge stakes facing the country in the bitter debate over the Democrats’ massive $3.5 trillion tax-and-spend bill:
“What I have made clear to the president and the Democratic leaders is that spending trillions on new and expanded government programs, when we can’t even pay for essential social programs like Social Security and Medicare, is the very definition of fiscal insanity,” the West Virginia Democrat said.
Exactly.
Medicare, the program that serves almost 63 million senior and disabled Americans, is facing serious financial trouble. Manchin’s passionate plea for fiscal sanity follows the recent release of the Medicare trustees’ annual report on the deteriorating financial condition of the Medicare program.
Medicare’s Part A hospitalization program has been routinely plagued by annual deficits. Now, the trustees project that the Medicare hospitalization program faces insolvency in 2026, meaning that the program will no longer be able to pay for all the benefits promised to America’s seniors.
If that should happen, the trustees declare, “Beneficiary access to health care services could rapidly be curtailed.”
The Medicare trustees also warned that the current pace of Medicare spending, which reached $926 billion in 2020, is going to impose increasingly heavier financial burdens on beneficiaries and taxpayers alike.
The cost of Medicare Part B, the part of the program that pays for doctors and outpatient services, has been increasing at an average annual rate of 8.5% over the past five years, far faster than wages, inflation, and the growth of the general economy.
Not counting increased deductibles or drug costs, beneficiaries’ monthly Part B premiums alone are set to increase from $144.60 in 2020 to $248.60 by 2030. Prolonged inflation, which is a big risk with deficit spending, would push those future premium costs even higher, an ugly prospect for millions of retirees living on fixed incomes.
Beneficiary premiums for Part B and drug coverage, however, only account for 15% of Medicare’s total cost. Taxpayers, mostly through their federal payroll and income taxes, bear the rest. And the rapidly rising Medicare costs are accounting for ever-larger shares of the general economy, contributing to the nation’s worsening deficits and debt, and are on track to consume bigger chunks of taxpayers’ dollars.
In 2019, for example, the trustees report, Medicare consumed 17% of all federal business and income taxes, but by 2030, that share will amount to 23.6% and almost 29% by 2040.
Meanwhile, Medicare’s long-term debt, tens of trillions of dollars in unfunded obligations, is piling up for current and future taxpayers. Millennials, let alone Gen Z, won’t know what hit them.
The Medicare trustees are again urging official Washington to act responsibly:
The financial projections in this report indicate a need for substantial changes to address Medicare’s financial challenges. The sooner solutions are enacted, the more flexible and gradual they can be.
The early introduction of reforms increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations and behavior.
The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address these challenges.
But Washington is feverishly bent on the opposite course. President Joe Biden wants to expand Medicare’s already rapidly expanding enrollment by reducing the age of eligibility to 60, thus crowding out private coverage and increasing the troubled program’s short- and long-term costs.
Sen. Bernie Sanders, I-Vt., favors Biden’s proposal, and may add it to the Senate reconciliation bill, a procedural maneuver to force it through.
That’s pouring gasoline on the fiscal fire.
Meanwhile, as part of the budget reconciliation bill, House Democrats also want to add more benefits—dental, hearing, and vision services—to the traditional Medicare program without any structural reforms to control cost.
That’s yet more gasoline.
And it’s not even needed. Medicare Advantage plans already offer dental, hearing, and vision benefits. Another entitlement expansion would likely crowd out other existing, privately funded coverage.
In a 2019 score of these same benefit expansions, the Congressional Budget Office estimated a cost of $358 billion over 10 years, with dental benefits alone accounting for $238 billion. In the current version of the bill, radical House Democrats would not implement the dental benefit until 2028, thus politically masking the real cost of their handiwork.
There’s nothing inherently controversial about dental, hearing, or vision benefits, of course. Besides being already covered in private Medicare Advantage plans, they are conventional offerings in private and employer-sponsored health insurance.
Mindful of patients’ needs, private health plans routinely add new medical benefits and services. These competitive dynamics would be greatly accelerated in a consumer-driven system, where patients, financially empowered with a defined contribution, could choose the health plans and benefits packages they want and need.
And that’s the right remedy for a financially ailing Medicare.
Washington policymakers should transform the entire Medicare program into a competitive market-based system, financed by a defined contribution (“premium support”) to a beneficiary’s choice of health plans.
Give traditional Medicare managerial flexibility to compete with Medicare Advantage plans and other private plans on a level playing field. Such intense competition among health plans and providers would not only control costs for beneficiaries and taxpayers alike, but it would also stimulate innovation, provider productivity, and incentivize the delivery of high-quality care.
Beyond securing savings for Medicare beneficiaries and taxpayers, real Medicare reform, based on choice and competition, would secure better value for Medicare dollars.
While that goal is unlikely to be achieved in the current Congress, it should be the top task of the next one. Meanwhile, House and Senate members should follow Manchin’s advice and stop the fiscal madness embodied in the Democrats’ monstrous $3.5 trillion tax-and-spend bill.
People are going to get hurt.
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