Expand Medicare? How About We Fix It First?

Last week, the Biden administration and congressional Democrats announced an agreement to pursue a $3.5 trillion “human infrastructure” package, which, among other things, would expand Medicare to include dental, hearing and vision benefits. (The administration also endorses lowering the eligibility age from 65 to 60, but that proposal does not appear to be included in the Democratic framework.) Meanwhile, the trustees charged with overseeing the program’s financial health are late with their annual report; when it is finally released, it is likely to warn that the program’s hospital insurance (HI) trust fund will run out of reserves within several years.

The disconnect between the Medicare agenda emerging in Congress and the program’s financial outlook is jarring. Medicare’s rising costs are central to the nation’s fiscal challenges. Before expanding the program further, Congress ought to ensure its current commitments can be met. 

While no release date has been announced, the wait for the annual report might end in the coming weeks because it could be awkward politically to push publication beyond summer. Medicare law stipulates that the annual trustees’ report should be delivered to Congress no later than April 1.  It is not difficult to see a connection between the current delay and what is occurring in Congress. The administration might want to avoid releasing a report warning of HI insolvency before the deal to expand Medicare is sealed. Last year’s report showed the HI fund running out of reserves in 2026 and projected a 75-year fix would require a 26 percent increase in the payroll tax rate.

The status of the hospital insurance trust fund is sensitive politically because, like Social Security, it can be fully depleted. HI spending, which was $328 billion in 2019, is financed almost entirely from payroll tax revenue. When payments for hospital services escalate more rapidly than tax receipts, the trust fund runs deficits and eventually burns through its reserves. If the trust fund has insufficient funds to cover its expenses, there is no authority in current law to keep paying the full cost of incoming claims (the implication, which has never been fully litigated, is that payments would have to be cut across the board). Congress must step in with corrective legislation before insolvency occurs.