Biden Proposal Would Extend Medicare Solvency by 25 Years Through Tax Increase on High Earners

According to the White House, March 7th, the Medicare Trust Fund will continue for 25 years more with lower benefits if President Joe Biden approves his proposed budget.

Two days ahead of the publication of Biden’s budget proposal, this statement occurred amid a partisan discussion over raising the national debt ceiling. Both sides also pledged to support and strengthen Medicare.

A report issued by Medicare Trustees 2022 states that the Trust Fund would be depleted by 2028. According to the Medicare Office of the Chief Actuary, Biden’s plan will extend the lifespan of the trust fund until the 2050s.

Biden’s plan starts with raising Medicare taxes for those who earn high wages.

Biden’s budget would raise Medicare taxes from 3.8 to 5. percent for people earning over $400,000 annually. Additionally, it would eliminate loopholes currently allowing wealthy persons to avoid Medicare tax on a portion of their income.

“Since Medicare was passed, income and wealth inequality in the United States have increased dramatically. By asking those with the highest incomes to contribute modestly more, we can keep the Medicare program strong for decades to come,” The White House reported.

Two other revenue streams would be directed into the Trust Fund by the budget: the Medicare Net Investment Tax (NIIT), and the savings from the renegotiation prescription drug prices under the Inflation Reduction Act.

The Affordable Care Acts of 2013 created the NIIT and designated it a Medicare Tax. However, because the law didn’t specify how the funds would be used, money received from this tax so far has been deposited in both the Medicare Trust Fund and the general fund.

According to the White House, $200 billion in additional Trust Fund funding will come from savings that were made through negotiations on prescription drugs over the course of 10 years.

Biden also proposes to reduce Medicare beneficiary costs by lowering drug prices. He plans to limit copays to $1 for certain drugs, waive copays up to three visits to a mental or behavioral hospital per year, as well as reducing copays.

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Budget watchdogs were pleased with the announcement.

“We strongly support the administration’s efforts to strengthen the Medicare trust fund,” Maya MacGuineas is the president of the nonpartisan Committee for a Responsible Fed Budget.

But her admiration was not in vain.

“It would be better for the plan to keep the drug savings in Medicare Part D, where costs remain too high and are rising too quickly,” MacGuineas claimed.

“Far more concerning, the administration’s plan to redirect the NIIT revenue amounts to a large general revenue transfer that would strengthen Medicare on paper without truly improving its financing.

“This plan, which does not include offsetting measures to offset the loss, robs Peter of Paul’s money and would make the outlook for the budget worse outside the trust fund.”

Matthew Fiedler, senior economic fellow for health policy at Brookings, also saw the Biden plan as a positive development.

“These revenue proposals will generate substantial revenue, mostly from those with greater income. The drug proposals the administration seems intent on implementing will reduce the amount of prescription drug spending by a significant degree.” Fiedler said.

“All of these factors can be combined to significantly extend the trust fund’s life and lower the federal debt.”

The sticking point could be the source of the revenue, which comes in part through increased taxation of high earners.

“This is why revenue must be part of any long term strategy.” Fiedler said. “The specific suggestions made here are thoughtfully thought out. There will always be people that disagree on where the new revenues should come.”

Partisan Posturing

The White House announcement strikes the latest pose in a posturing battle between Republicans and Democrats over who loves Medicare the most.

When House Speaker Kevin McCarthy (R-Calif.) refused to raise the debt ceiling in January until the president agreed to future spending cuts, Biden accused the Republicans of trying to cut Medicare and Social Security, which account for 31 percent of the nation’s budget.

Biden renewed the charge in his State of the Union address on Feb. 7, saying, “Some Republicans support the end of Medicare and Social Security.” referring to a plan authored by Sen. Rick Scott (R-Fla.)—a claim was quickly dismissed by Senate Minority Leader Mitch McConnell (R-Ky.)—and also a Republican Study Committee report released last year that suggested alterations to Social Security and Medicare.

Two days later, 13 House Republicans introduced a non-binding resolution declaring that Medicare is a “vital pillar” of senior health care and committing to the United States to “Save and Strengthen Medicare. Medicare should not be used as a slush money to fund Democrats’ political agenda.”

McCarthy and other prominent Republicans have said they envision no changes to Medicare or Social Security, but want to return federal spending to 2022 levels. However, McCarthy has been vague about which spending should be reduced or eliminated.

The president has consistently said he will not negotiate over increasing the debt ceiling because failure to do so would put the full faith and credit of the United States at risk. However, Biden has said he would work together with Republicans to reduce the federal deficit.

Sen. Joe Manchin (D-W.Va.) broke with the Democrat party line by calling for future spending cuts along with an increase to the nation’s debt ceiling in a March 3 speech.

The debt ceiling is currently $31.4 trillion, which would have been reached on Jan. 19 if the U.S. Treasury hadn’t taken “Amazing measures” to delay it.

Those measures will be exhausted sometime between July and September according to the Congressional Budget Office.