Medicare, a government health insurance program for Americans over age 65, became law in 1965. Originally, President John F. Kennedy pushed for the bill and then President Lyndon Johnson got it enacted after Kennedy’s death. As seen in the photo above, former President harry Truman was the program’s first enrollee.
The question of whether Medicare is “going bust” or facing financial challenges is a complex and politically charged one. Medicare is a federal health insurance program in the United States that primarily serves individuals aged 65 and older, as well as certain younger people with disabilities. The financial stability of Medicare has been a topic of concern for many years, and there are several factors to consider when discussing its financial outlook:
Trust Fund: Medicare has two trust funds – the Hospital Insurance (HI) Trust Fund, which covers Part A (hospital insurance), and the Supplementary Medical Insurance (SMI) Trust Fund, which covers Part B (medical insurance) and Part D (prescription drug coverage). The HI Trust Fund has faced more immediate concerns as it relies on payroll taxes and has experienced deficits in some years. These deficits have led to warnings about the fund’s sustainability.
Demographic Factors: The aging population is one of the key challenges facing Medicare. As the baby boomer generation (a large demographic cohort) continues to age into Medicare, it places increased strain on the system. This has led to concerns about the program’s long-term financial sustainability.
Rising Healthcare Costs: Healthcare costs in the United States have been rising faster than inflation for many years. Medicare is not immune to these cost increases, and this can put financial pressure on the program.
Revenue Sources: Medicare is primarily funded by payroll taxes, premiums paid by beneficiaries, and general revenue contributions from the federal government. The adequacy of these revenue sources to cover the costs of the program is a topic of debate.
Policy and Legislative Actions: The financial stability of Medicare can be influenced by policy decisions made by the government. For example, the Affordable Care Act (ACA) included several provisions aimed at extending the solvency of the Medicare trust fund. Changes in healthcare policy, reimbursement rates, and program design can affect Medicare’s financial outlook.
In summary, Medicare is facing financial challenges, particularly the Hospital Insurance Trust Fund, due to factors such as the aging population and rising healthcare costs. While the program has not gone “bust,” it has required attention and management to ensure its long-term sustainability. The government periodically takes measures to address these challenges, and the issue is a topic of ongoing debate and discussion in healthcare and policy circles.
But it should be noted that there is an easy fix for any potential revenue shortfalls for the Medicare program. For example Medicare Part A gets 89% of its’ funding comes from FICA payroll taxes.In 2023, FICA taxes are only paid on the first $160,200 of income. Simply raising that cap, or eliminating the cap altogether on taxable FICA income would easily solve any financial shortfalls for Medicare.