President Biden, in a guest essay for the New York Times, debuted a new plan to address Medicare’s increasingly urgent financial problems. The program, which provides health coverage to more than 63 million Americans aged 65 and older, faces an unfunded liability of some $48 trillion over the course of the next 75 years. This figure is so large that to most Americans, it means nothing. But consider that the Medicare trustees have said that the program will run out of money in 2028 … that’s right, just five short years from now.
So it’s not surprising that Biden wants to do something to shore up the program’s bottom line. His plan is to increase taxes on high earners (incomes over $400,000) and to add more drugs to a “negotiation” (read: price setting) program with Medicare in an effort to bring those drug costs down.
Everyone—regardless of political party—should recognize the dire straits that Medicare is in. It’s a shame that so many of our leaders, from both major parties, have chosen to turn a blind eye to this daunting problem.
But it’s understandable, as the political price for proposing fiscally responsible reforms to Medicare is high. You may recall Rep. Paul Ryan, who served as Speaker of the House. He worked hard to call attention to the problem of our runaway entitlements. He knew that there would come a day when our government could no longer make good on the promises it has made to retired and aging Americans, who depend on Social Security and Medicare to be there.
Here is the good, the bad, and the ugly about Biden’s latest proposal.
The Good: The good thing is that this proposal doesn’t have much chance of becoming law. But there’s a silver lining in the proposal itself: By increasing the Medicare tax burden on higher earners—or even talking about doing this—Biden’s plan could draw attention to the fact that our entitlement programs are already not what they seem: Many Americans believe that Medicare is self-financing. They think that because they paid into Medicare and Social Security during their working years, they are simply collecting on the money they paid in. While this may be true for some individuals, it’s not true on the whole. The average American will take out $3 in Medicare benefits for every $1 they paid in. This formula isn’t sustainable.
The Bad: The plan to add more drugs to Medicare “price negotiation” could lower the costs of those drugs to Medicare, but drugmakers could respond by selling less of those drugs to seniors, a backdoor form of rationing. Or—although this indirect consequence is harder to see—drugmakers would have less money to put into research and development for future drugs.
The Ugly: Medicare will continue to barrel toward bankruptcy. There are few good live options for dealing with this effectively. On the left, Sen. Bernie Sanders wants to totally eliminate the Medicare program as we know it and replace it with “Medicare for All.” This proposal is problematic for many reasons. Similarly, during President Obama’s tenure, Congress passed and later repealed an aggressive Medicare cost-control board that would have resulted in rationing. On the right, the proposals that would work to correct Medicare’s financial trajectory over time have faced enormous political backlash, and have been mischaracterized unfairly.
But now Medicare’s not just running out of money. We’re also running out of time. When the day comes that Medicare cannot provide the benefits it has promised, I hope fiscally conservative reformers will have something better to say than just “I told you so.” (But they will be right.) I hope there will be a robust, bipartisan, good-faith discussion of innovative policy solutions for Medicare between now and then. The last thing we should do is continue to kick the can.