Medicare solvency: IRA debate shows renewed interest

Last week, President Biden signed the Inflation Reduction Act (IRA), a new law passed under the complicated budget reconciliation process with health and climate provisions. But as Democrats celebrate the bill’s passage after a long partisan process, it’s worth noting that there was a brief attempt to address Medicare’s solvency, an issue that we at BPC have long held concerns about.

Why mention this unsuccessful attempt? Because it demonstrates at least some congressional interest in Medicare’s solvency, something beyond the rhetoric of Medicare for All or privatizing Medicare. Two key estimates this year extended the life of Medicare’s Hospital Insurance Trust Fund: the Medicare Trustees report moved its estimate from 2026 to 2028, and the Congressional Budget Office’s estimate moved from 2027 to 2030. Last year had been the closest point that we have seen to the HI Trust Fund’s insolvency in two decades yet that warning resulted in little discussion on Capitol Hill as to how to address the fund’s looming insolvency.

Of course, the term “solvency” does not apply neatly to the four parts of Medicare, and focusing solely on which parts can go “insolvent” can gloss over Medicare’s overall fiscal state. For instance, the Hospital Insurance (HI) Trust Fund, which funds inpatient, or Part A, services, is financed through payroll taxes and can go insolvent, in which case the federal government would have to decide to step in and pay for beneficiary services or cut back on benefits.

But the Supplementary Medical Insurance Trust Fund –for outpatient, or Part B, services—technically cannot go “insolvent” because it automatically draws down general revenues in addition to collecting premiums from beneficiaries. The draw down from general revenues though crowds out funding for other public programs. Part C, which is the Medicare Advantage program, is financed through beneficiaries’ premiums and payments from Parts A and B so part of its future is tied to Part A. Part D, which funds Medicare’s privately-run drug benefit, is financed similar to Part B and mostly through general revenue and beneficiaries’ premiums. (The IRA will change the structure of Part D plans.)

Protecting Medicare’s financial status should be a bipartisan issue, not handled through the highly partisan reconciliation process. We need stakeholders to come together to address these fundamental fiscal challenges to ensure that Medicare works well for future generations before considering expansions that may not be fiscally sound. Indeed, Medicare’s solvency was one rationale that ended a proposal to expand Medicare benefits to include hearing, vision, and dental benefits. Sen. Joe Manchin (D-WV) commented that he could not vote to expand Medicare’s benefits given its long-term fiscal challenges.

With support from Arnold Ventures, BPC is addressing these issues. After the 2022 Medicare Trustees report was released on June 2, 2022, we hosted a webinar on the policy and political ramifications from the report. A key takeaway was that this extension should not cause us to breathe a sigh of relief. These new predictions only underscore the volatility we are facing—both politically and economically—and the need to identify strategies to ensure Medicare’s long-term stability.

Building off our 2021 report, The Cost of Waiting, which demonstrated significant, additional costs associated with delaying action, we are planning to engage with experts and stakeholders to develop a set of recommendations for the next Congress to consider. We hope to get some consensus—not necessarily complete agreement across the aisle—around a menu of options that would address the HI Trust Fund’s solvency and even Medicare spending more broadly while protecting beneficiaries. Such options may include a balanced approach such as a mix of revenue raisers but also long-term structural reforms.

But we also want to engage on process changes that can help the next Congress overcome institutional barriers and trigger warnings that will cause future Congresses to move more quickly to address any future shortfalls. Both Congress and the administration have ignored budgetary warnings and even failed to do routine “good government” tasks like appointing Trustees, which have gone unfilled for too long.

We are not alone in our concerns about Medicare’s long-term outlook. In October 2021, a Rasmussen poll found that most older voters would rather shore up Medicare over expand its benefits. When the solvency provision was being discussed, a Morning Consult poll found that two-thirds of all voters supported raising taxes “on earners above $400,000” to extend Medicare’s solvency an additional three years. Ideally, Congress would have used that time to engage in more significant reforms rather than simply adding revenue.

Hopefully, these recommendations and this public support can help Medicare’s congressional champions drive forward some policies that not only ensure the program’s solvency but also make meaningful reforms for beneficiaries and other stakeholders. If you or your organization have recommendations, feel free to send them as we consider ways to shore up Medicare’s solvency.