As forecasters warn that a key Medicare trust fund will run into major financial problems within five years, the administration will propose three major changes — including tax increases and new rules to reduce prescription drug costs – to stabilize the program for at least 25 years, the plan shows.
Nearly 60 million seniors rely on Medicare for their health insurance. Because the program is spending money at a faster clip than it’s bringing in funding, it faces automatic federal cuts starting in 2028, raising the dire scenario of medical providers refusing to pay. -care for the elderly if Congress and the White House do not address the looming issue. lacking first.
The administration introduced the measures as part of the White House’s broader 2024 budget proposal, but it faces an unlikely path to get through a Republican-controlled House of Representatives. The budget is scheduled to be released on Thursday.
President Biden’s introduction of a Medicare financing plan marks a direct contrast to the GOP, which is weighing cuts to the program while also criticizing the administration for approving legislation last year aimed at curbing spending. of prescription drugs. The White House plan raises the high political stakes of Medicare and Social Security — by far the two largest federal programs — ahead of the 2024 presidential election.
“The president’s budget extends the life of the Medicare Trust Fund by at least 25 years,” the plan says. “These gains were achieved without benefit cuts — in fact, while lowering costs for Medicare beneficiaries.”
The White House proposal would raise the net investment income tax, created by the Affordable Care Act, from 3.8 percent to 5 percent for all Americans earning more than $400,000 a year, in line with Biden’s pledge not to raise the tax for anyone under this standard. The tax applies to capital gains and investment income. The plan will also expand this tax by applying it to more types of income from pass-through companies – businesses where the owners pay tax on their personal income tax. Currently, these types of business owners do not pay this tax.
In addition, the plan calls for expanding new rules that would reduce Medicare prescription drug payments beyond measures approved last year as part of the Inflation Reduction Act. The plan would give the administration authority to negotiate what price the federal government pays for more drugs than the limited number approved as part of a legislative package by Democrats last year, while also speeding up the process. for negotiation. Prescription drug changes would bring in an additional $200 billion for the Medicare trust fund, the plan said. The proposal would also cap co-pays for some generic drugs, such as those used to treat hypertension and high cholesterol, to $2 per prescription per month.
“Budget expansion of Medicare drug negotiations will not only save money for the federal government – it will also cut out-of-pocket costs for beneficiaries by billions of dollars,” the plan says.
Republicans are certain to reject all of the new tax proposals in the administration’s plan, and some budget hawks believe the White House will also have to push for spending cuts. Biden’s plan is also likely to draw further criticism from the pharmaceutical industry, which says restrictions on federal spending discourage groundbreaking drug research and innovation.
It’s also unclear whether the White House will respond in its budget to the looming shortfall facing Social Security, the pension program for seniors, which faces its own funding crisis starting in 2033. Biden promised in the State of the Union address that he would introduce a plan to fund Medicare for two decades, but he did not make a similar pledge for Social Security. Sen. Bernie Sanders (I-Vt.) and other Democrats have urged Biden to expand payroll taxes for high earners to fund the pension program, but the administration has so far shied away from that approach. .
Conservatives say raising the net investment income tax is a bad way to fund Medicare. Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a conservative-leaning think tank, said a more efficient approach would be to raise what workers pay into the Medicare trust fund from dedicated taxes. on the payroll, rather than relying on the tax base – investment. income — which can jump up and down depending on the year.
Currently, workers pay 6.2 percent for Social Security and 1.45 percent for Medicare, and employers pay the same amount.
“It can distort savings and investment decisions, which a payroll tax can’t,” Pomerleau said. “And capital gains can be a pretty unreliable tax base.”
Estimates of when Medicare and Social Security will face funding crises vary. The latest estimate from Medicare trustees is that “Part A” of the program, which pays for hospital care, will be insolvent by 2028. The nonpartisan Congressional Budget Office recently estimated that date not until 2030.
“The challenge here is that many, many people are getting older, and the cost of health care is rising. Medicare is spending more money than anyone expected, and without action cannot pay the benefits, “said Howard Gleckman, a senior fellow at the Urban Institute, a DC-based think tank. “It’s been decades since a president came out with a policy plan that really dealt with this issue. “
