For three consecutive years (2018-2020), the Medicare trustees have formally warned that the program has become excessively dependent on general revenue transfers from the Treasury rather than its dedicated revenue streams, such as payroll taxes and premiums.
When this happens in just two consecutive years, the president and Congress are required — by law — to act. Specifically, the president must present, within 15 days of submitting his annual budget, a legislative proposal for putting Medicare’s fiscal house in order. And Congress must then consider the legislation on an expedited basis.
Yet, despite the repeated warnings and their statutory obligations, neither the White House nor Congress has moved to slow the cost increase and decrease Medicare’s growing dependence on general revenue financing. Continued failure to act puts the stability of the program at risk, accelerating the program’s spending, driving up Medicare beneficiaries’ premiums as well as imposing ever larger burdens on the taxpayers.
It’s important to remember that Medicare was created as a traditional social insurance program, not a welfare program. The original arrangement was that beneficiaries would finance the Part A program through payroll taxes and pay premiums to cover half of Part B program costs. In 1970, when the program had been just four years in operation, general revenues accounted for just 25% of Medicare’s total income; the rest was funded by payroll taxes (62%) and beneficiary premiums (14%).
That balanced mix no longer exists. General revenues have shouldered the largest share of Medicare financing since 2009. By 2016, general revenues passed the 45% mark — the level deemed sufficiently “excessive” to warrant the Medicare trustees to issue an official “funding warning.” Clearly, what was initially designed as a “social insurance” program is morphing into yet another federal income transfer program.
Its costs are growing faster than national health spending, private insurance and the national economy. Through general revenues, taxpayers now provide about three out of every four premium dollars for Part B (physician services) and Part D (prescription drug) benefits.
In raw numbers, the taxpayers’ general revenue transfer to Medicare will nearly double in the coming decade, rising from $356.2 billion to $705.3 billion. Within the next 20 years, Medicare would consume about 26% of all federal tax revenues, dramatically reducing resources available for other federal programs — from defense to transportation to education and welfare.
Medicare, along with other entitlement spending, is a leading driver of federal deficits and debt. The latter now over $28 trillion — an alarming figure that merits a formal warning of its own.
But that conventional debt figure is dwarfed by Medicare’s unfunded obligations, the dollar value of the benefits Medicare has promised to deliver that are not paid for with dedicated revenues. The total unfunded obligations for Medicare now amount to $45.7 trillion — about $140,000 for every man, woman and child in the U.S.
Because this debt is accumulating over a long period (75 years), some try to dismiss it as having no pressing relevance. But for current and future taxpayers, this increasing debt is real, relevant and inescapable. Financing it, say the trustees, “... will require general fund transfers of this amount, and these transfers represent a formal budget requirement.”
Rising Medicare costs aren’t just a fiscal problem. They are hard on Medicare beneficiaries, too. In 2020 alone, Part B and D premiums and cost-sharing rose to about 24% of the “average” Social Security benefit. As the trustees reported, the rapid growth of program costs “places steadily increasing demands on beneficiaries and taxpayers.”
Despite these growing fiscal challenges, President Biden has ignored the Medicare trustees’ warnings and failed to submit a legislative proposal to shore up the program. Instead, he has proposed expanding Medicare by lowering the age of eligibility from 65 to 60. This would only strain the program further. According to one reputable estimate, it could cost between $40 billion and $100 billion annually.
Biden’s proposed financing? General revenues.
Soon, the Medicare trustees will once again release a new report on the financial condition of the Medicare program. It is possible that they may reissue a Medicare funding warning.
For Washington’s political class, it will be another test. Most will fail it. If they are not going to abide by the law they enacted, they should at least repeal it. That would be better than ignoring it and making a mockery of the rule of law.
There is, of course, another option. Some brave Capitol Hill souls may take the law and its intent seriously, assess what is right for future taxpayers and beneficiaries alike, and behave like statesmen.
A senior fellow in domestic policy studies at The Heritage Foundation, Robert E. Moffit, Ph.D., specializes in health care and entitlement program analyses.