Guest contributor post by Bob Hertz. Edited by John Goodman.
Here is the actual state of affairs.
Medicare Part A (hospital insurance) has a trust fund and a payroll tax.
For many years, the receipts from payroll taxes exceeded the benefits paid out. So, the trust fund was in surplus. The extra funds were spent on other government programs and special government bonds were created, but not the kind of bond that is bought and sold on Wall Street. They were basically IOUs the government wrote to itself.
In recent years – due to baby boomers retiring and medical inflation — payroll tax receipts have been less than benefits paid out. These trust fund shortfalls are reflected each year in the retirement of IOUs the government writes to itself.
By law, the payment of Medicare Part A benefits cannot exceed the cumulative receipt of past payroll taxes. When those past payments have been completely accounted for, the Trust Fund is said to be exhausted. Going forward the government can spend no more than the amount of payroll taxes being collected – on a pay-as-you-go basis.
This is likely to happen around the year 2030. Part A would temporarily be unable to pay 10 to 20 percent of benefits. (Up to $50 billion a year and growing.)
This will force Congress to take one of the following actions:
- Use budget gimmicks to improve the nominal solvency of the trust fund, such as:
- Claiming that $200 billion from an expansion of drug price controls will go into the Medicare Trust Fund (even after the same funds are used to fund climate projects).
- Using the money raised by the 2010 net investment income tax to credit the Medicare Trust Fund (even after the same funds have been paying for Obamacare).
- Essentially scrap the trust fund; i.e. change the law so that the government can pay Part A benefits directly from the general fund.
- Raise additional revenue with a tax that Biden himself went out of his way to avoid on his personal income tax return. This proposal would increase from 3.8 percent to 5 percent a payroll tax all small business owners must on all distributions from their companies (not just their salaries). Biden and his wife Jill circumvented over $500,000 in such payroll tax obligations; the same is true for John Edwards, Newt Gingrich, and many others.
- Raise the Part A payroll tax on everyone, rich and poor;
- Require seniors to pay a higher monthly premium for Part A:
- Systematically pay less to hospitals.
However – for all this budget drama — the Part A trust fund may only be the canary in the coal mine.
Medicare Parts B, C, D — (for doctor fees, Medicare Advantage, and pharmaceuticals) — make up the SMI trust fund. These programs are actually larger than Part A, with a total cost over $500 billion a year.