Before you learn about whether or not Medicare is going broke, I want you to take a look at this article from the New York Times — Corporate Giants Buy Up Primary Care Practices at Rapid Pace. In it you’ll discover some of the causes of the appalling state of healthcare in the United States. One paragraph in particular stands out for Medicare recipients: “The growing privatization of Medicare, the federal health insurance program for older Americans, means that more than half its 60 million beneficiaries have signed up for policies with private insurers under the Medicare Advantage program. The federal government is now paying those insurers $400 billion a year.”
$400 billion.
Just let that number sink in. $400 billion to private insurance companies from our tax dollars while many seniors are forced to decide between going to the doctor and eating.
So while Congress spends its time blackmailing the country about the debt ceiling by demanding cuts in our hard-earned benefits, it’s up to us to remind them of what they already know — that traditional Medicare costs less. Tell them to take that money we’re spending on corporate welfare and use it to expand benefits, not cut them. Tell your representatives you’ve had enough. US Senate, US House of Representative.
No, Medicare isn’t going broke. Here’s why.
Who Pays for Medicare?
We all do. That’s you and me, the American taxpayer and most non-resident aliens that work in the United States.
But with all the Medicare-related noise in the air, and all the talk about Medicare insolvency, this is a good time to take a look at how Medicare is funded.
Where does Medicare get its money?
Medicare is funded directly from two sources:
Part A — the hospital insurance trust fund (HI)
Part B — the supplementary medical insurance trust fund (SMI)
The Medicare trust funds receive their money as follows:
General revenue – 46%
General revenue is income the government receives from taxes, fees, and other sources.
Payroll taxes – 34%
15.3% of what you earn goes to pay for Social Security and Medicare, and it’s paid jointly by you and your employer. 6.2% of your salary up to $160,200 per year of earnings is deducted for Social Security, and 1.45% for Medicare. That’s matched by your employer for a total of 15.3%. An additional 0.9% Medicare withholding tax is paid by those whose salary is above $200,000. There’s no annual limit and no employer match.
The Medicare taxes withheld from your salary fund Medicare Part A, the hospital portion of your Medicare benefits.
Premiums paid by beneficiaries - 15%
Once you begin to receive Medicare benefits, usually at age 65, you’ll start to pay a monthly Part B premium — $164.90 in 2023. Those in high-income tax brackets pay more. It’s common to have this deducted from your monthly Social Security payment, but if you’ve decided to postpone Social Security you can pay it in other ways.
Most people don’t pay a monthly premium for Part A as it’s already been paid from withholding taxes. But if you didn’t those taxes for long enough, you can still get Part A by paying a monthly premium. Source: Center for Medicare and Medicaid Services (cms.gov).
How is Medicare Advantage funded?
Shocking as it may seem Medicare Advantage, the private-insurance alternative to traditional Medicare Parts A and B, is also paid for by the taxpayer-funded trust funds.
Money for Parts A and B through Medicare Advantage plans is taken from the two trust funds. Source: Kaiser Family Foundation
The Medicare trust funds pay Medicare Advantage providers a little over $12,000 per enrolled person per year. In return the insurance company agrees to take care of all the expenses and risk for that one amount. Of course it’s not quite as simple as that because the per-person annual rate goes up if the person is sicker. And in the Medicare demographic that’s a given. Insurance-industry profits from this arrangement are huge. Source: the Commonwealth Fund
In other words taxpayer dollars are subsidizing insurance-company profits, not costs. Now think about that $400 billion again.
What does that all mean?
Here’s a recent breakdown of those numbers from the Kaiser Family Foundation.
In 2021, Medicare benefit payments totaled $829 billion, up from $541 billion in 2011. Spending on Part B services (including physician services, outpatient services, and physician-administered drugs) accounts for the largest share of Medicare benefit spending (48% in 2021).
Payments to Medicare Advantage plans nearly tripled as a share of total Medicare spending between 2011 and 2021, from $124 billion to $361 billion, due to steady enrollment growth in Medicare Advantage plans and higher per person spending in Medicare Advantage than in traditional Medicare.
The takeaway: the Federal government pays more for the same services through Medicare Advantage than through traditional Medicare.
Is Medicare going broke?
No.
This is hyperbole designed to scare you, but it works. In fact Medicare Part A gets about 90 percent of its financing from the payroll taxes mentioned above. The rest of it comes from a portion of the income taxes collected on Social Security benefits and interest on the trust-fund balances.
A 2022 report from the non-partisan Center on Budget and Policy Priorities states that the hospital-insurance trust fund will be solvent through 2028. That means able to pay 100 percent of Part A benefits. But even in 2028, when the report projects the HI trust fund reserves will be depleted, incoming payroll taxes and other revenue will still be sufficient to pay 90 percent of Medicare hospital insurance costs. The share of costs covered by dedicated revenues will decline slowly to 80 percent in 2046 and then rise gradually to 93 percent by 2096. The shortfall will need to be closed by raising revenues, slowing cost growth, or most likely both. But the Medicare hospital insurance program will not run out of money and cease to operate after 2028, as the term insolvency suggests. Source: Center on Budget and Policy Priorities
Many legislators want you to believe Medicare is running out of money. Why? Because it diverts attention from the real culprit in the American healthcare disaster — the insurance industry. And the very influential insurance lobby spends a lot of money making sure state and federal legislators do things their way.
Just keep thinking about that $400 billion.
Medicare in the news
The Los Angeles Times: Medicare Advantage was meant to curb federal healthcare spending. It’s costing more instead
The New York Times: Medicare Delays a Full Crackdown on Private Health Plans
Forbes: It's Time For Medicare To Move Beyond Location, Location, Location
CNBC: Inside the mind of criminals: How to brazenly steal $100 billion from Medicare and Medicaid
The Washington Post: Opinion Medicare needs saving — just not from Republicans
NPR: Medicare announces plan to recoup billions from drug companies
The Hill: Democrats and Republicans can agree: Cut the waste in Medicare Advantage
The Amsterdam News: Protect yourself from Medicare scams