The Medicare Doomsday Clock Ticks Closer to Midnight

Medicare’s trustees recently released their annual report on the program’s finances, and things are not looking good. The entitlement spent $12 billion more than it took in from taxes in 2023. Absent change, Medicare’s Part A hospital insurance trust fund will be exhausted by 2036.

Years ago, there may have been more than enough workers to cover the cost of Medicare for many fewer retirees -- and sock away some extra in the accounting fiction that is the Part A trust fund. Those days are gone. Soon, Medicare won’t be able to collect enough in taxes from workers to pay for the benefits that retirees are redeeming.

Sounds an awful lot like a Ponzi scheme. Preserving the program for future generations will require harnessing the power of competition to lower costs and bringing eligibility requirements into the modern era.

A new report from the Paragon Health Institute highlights Medicare’s problem. The average American who turned 65 in 2020 will receive $176,500 more in Medicare benefits than they paid in. One who retires in 2030 is on track to receive $248,500 more than they paid in.

Some 62 million Americans were enrolled in Medicare in 2023. By 2033, that number is projected to swell to 78 million. The nonpartisan Congressional Budget Office estimates that by the following year, Medicare spending will account for just over 17% of the federal budget and 4% of GDP.

Medicare’s growth is fueled by an aging population. Americans 65 and older will make up nearly one-quarter of the population by 2050, the U.S. Census Bureau estimates.

Americans are also living longer. Men who make it to age 65 can expect to log another 17.5 years; life expectancy for women who reach 65 is another 20.2 years. That’s an increase of 4.5 years for men and almost four years for women, relative to 1965, when Medicare was created.

Yet Medicare’s eligibility age -- 65 -- has remained the same since the program’s inception. Given improvements in longevity, raising the age at which Americans become eligible makes sense -- and would ease some of the fiscal pressure on the program.

But that’s not the only way to save Medicare from insolvency. The program can institute more “means-testing,” to ensure that richer beneficiaries pay for a greater share of their coverage than their poorer counterparts.

For example, lawmakers could lower the threshold at which means-testing already kicks in for premiums for Medicare Part B, which covers physician services, and Part D, which covers prescription drugs. Right now, only individuals who make more than $103,000 a year -- and couples who make more than $206,000 a year -- face additional costs in Parts B and D.

Policymakers need not limit themselves to income when formulating means-testing policies. As the Paragon Health Institute report points out, Social Security calculates benefits based on lifetime earnings. Medicare could do something similar.

There are any number of roads back to Medicare solvency. Medicare’s choice is no longer between change and the status quo. It’s between change and dissolution.

Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All.