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.
11 thoughts on “Is Medicare Running Out of Money?”
Bob is trying to say that Socialism is hitting the end of the line. Medicare, Medicaid, Obamacare and CHIP (children) are the biggest drivers of the debt and government is controlled by goofball politicians who have zero knowledge or ideas.
Federal healthcare fraud is out of control and NOTHING is more waistfull. Taxpayers are paying Centene, the largest in Medicaid, a year after people get employer-based insurance. No wonder Centene gives so much money to politicans of BOTH political parties. Centene was the BEST stock on the S&P 500 in 2018. There is BIG money in government healthcare.
Bob is correct, Free and Open Markets work and Government Socialism is a failure. Some thought that American Socialism might work but clearly it didn’t. Some Great Society! Now we have 50% of Iowans in Nursing homes paid for by Medicaid. America, land of the poor Socialists. Government can’t do anything. Government couldn’t run a gum ball machine.
Devon, thanks for airing thoughts from a guest contributor. It’s useful to see a variety of opinion.
My reaction? “Oh what a tangled web we weave, when first we practice to deceive.”
No, not Bob Hertz. The Feds.
My opinion: the feds have deliberately tangled up the federal budget to make it virtually impossible for the average person to understand where the money is being spent.
Medicare actuaries have reported for years that Medicare will soon need more money to continue existing benefits and eligibility. So to suggest that Medicare is not “running out of money” it just “needs more money” strikes me as just a word game.
I also think it’s ironic that the Feds opposed Medicare Advantage from its beginning. Ironic because each MA enrollment moves liabilities off Medicare and onto private insurers. Despite the Feds’ resistance, about 50% of Medicare-eligible persons are now enrolled in a MA plan. That includes me and it includes Bob Hertz. My guess is that new MA enrollees are mostly new 66 year-olds aging in. Thats just my guess but if true, it means the average age of the Medicare-enrolled population is going up faster than the average age of all Medicare-eligibles. That’s raising Medicare’s costs.
While it may be complicated to explain what the Feds have been doing with the money, the outcome is pretty simple. Medicare’s financial condition is worsening – as the actuaries predicted – and the Feds have apparently not sought fundamental solutions in good faith. What comes next may get very ugly.
I don’t know John about the older seniors paying for Medicare Sups because I know an 82-year-old paying $900 a month for him and his wife. Sooner or later they give up. The Med Sups go up because of age attainment and inflation. It never stops, it’s like your wife’s age. It only goes one direction. AARP wants to keep that money and would NEVER inform the seniors that Trump’s Medicare Advantage MSA has “no premium” plus they stuff $2,000 or $3,000 in their MSA at the bank every year, all tax free. I’m impressed how President Trump isn’t bragging about his Executive Order that created and improved Medicare with tax free MSAs. Trump is way too humble for me. America deserves a President with an ego. No other Republican politician is going to endorse Republican healthcare reform and President Trump’s Medicare Advantage MSA before Trump does himself. Trump needs more ego and a better self image.
Obviously Trump should say, the BEST tax cut is “No taxes” and IT’S TIME FOR YOUR MSA!
I remember the days when Devon thought tax-free MSAs was a welcomed option to Medicare. Those days are long gone. Wait it gets worse. Dr. Goodman, the self proclaimed father of the MSA, wants to start taxing them into ROTH MSAs, unbelievable for a FATHER!
The Medicare Advantage MSA is in 36 states in 2023 and (4) more are coming in 2024. A Couple on Medicare can choose $6,000 a year PLUS, freedom to use your choice of doctors and hospitals, it’s federal law.
The CEO of Florida Blues said, “This isn’t fair, it’s like paying the couple $500 a month, tax free, if they don’t join a dangerous Medicare HMO that pays NOTHING out of network.”
Trump wants Medicare Advantage MSA seniors to be able to add more of their own money into their MSA up to the tax-free HSA limit, $3,850 in 2023. Of course HSA law allows an addition $1,000 with people 55 and older. The annual maximum would be $4,850.
Tell your wife that you are moving her old IRA into your tax-free MSA with no taxable event.
Let’s see if I have this right. If a senior buys a traditional Med Supp, they pay let’s say $400 a month for the top policy. That is $4800 a year (plus drug coverage), whether they have any claims or not. No expenses during the year, no networks.
Now in the Med Advantage MSA, using the lower-benefit option, the senior pays nothing in premiums. If they have a medical event during the year, their net expense is $3,000 maximum. If they have no claims, they are $2,000 ahead. (again, they need drug coverage also.) No networks.
Not too shabby.
Not a big deal, but I do not think that Donald Trump really ordered this up as you imply. I think that the actuaries at Lasso just worked it out.
Bob lets use my calculator. The Med Sup cost is $4,800 a year and the smallest MSA deposit is $2,000 which is a difference of $6,800 a year with no claims for a single and double that or $13,600 for a couple. If this couple chooses the higher MSA deposits the savings increases to $15,600 per year. Admit it Bob, getting $15,600 a year is better than getting poked in the eye with a sharp stick.
PLUS, the federal budget would prefer the MSA because in the mind of the Medicare Supplement seniors they have a ZERO deductible that pays 100% so they might as well go down and visit the doctor today because they are lonely and somebody else is paying the bill. In contrast, the MSA seniors are aware they are spending their money so they will think twice before spending money. Devon used to say, like Milton Freidman, that the MSA will help Medicare’s utilization because people will spend others people money all day long.
Trust me Bob, when your Medicare Supplement couple that are paying $15,600 a year get their rate increase because of age attainment and inflation this fall and their premiums are going up to $17,600 the Medicare Advantage MSA option will seem like a gift from GOD!
But what about those poor grandma’s with cancer on a dangerous and deadly HMO with preauthorization who are restricted to ultra-skinny provider networks limiting their choices to the cheapest doctors who don’t speak English? President Trump’s Medicare Advantage MSA has no medical underwriting and here again the Medicare Advantage MSA is a gift from GOD!
Michael Cannon, Brian Blase, Sally Pipes, Doug Badger, Devon Herrick, Dr. John Goodman, Robert Moffit and the rest of the big brain PHDs refuse to acknowledge the Medicare Advantage MSA is in 36 states in 2023 and will include Iowa, Nebraska, Tennessee and Virginia for 2024.
Sally Pipes is writing articles saying we need HSAs in Medicare. I guess none of these big brainers think that dangerous Hillary Style HMOs need a quality competitor. If these bought off big brainers did their job properly then the CEO of Florida Blues would be saying, “Trump’s Medicare Advantage MSA is not fair. It’s like paying a couple $500 a month not to join our dangerous and deadly Medicare HMO.”
I bet Devon would be honest with his own mother. Devon would say, “Mom, in insurance you plan for the worst and pray for the best. If you get cancer in June I would prefer you on the Medicare Advantage MSA so you may use your choice of hospital and doctors instead of this low-rent HMO that is luring you to enroll with $900 a year in “healthy food”.
Bob, please compare the Medicare Advantage MSA with a low-rent HMO.
In the end government bonds or treasuries or any supposed Trust Fund is nothing more than obligations on taxpayers. When policy people talk about trust fund it’s money that’s already gone. That is the problem with the runaway government spending that has taken off recently. It is building just before the cost of Medicare and Social Security explode.
Ron, your first paragraph oversells the savings in the MSA plan, for this reason:
you cannot assume that a senior citizen will have no medical claims. If you were in my living room, I would say “wait a minute, what if I have claims?”
You still have a good product, but in health insurance I always showed the downside early on.
Bob, some people won’t go to the doc even when they have a heart attack. Some people in the middle of Nebraska don’t go to the doc when they cut off the end of their finger. They just put it back on with black electrical tape. Sure they lose the feeling in that finger but that’s hindsight for a cattleman. These are busy self-employed people and they don’t have time for doctors.
I used your example on the cost of a Medicare couple and compared it to no claims. You showed that even with a heart attack and a “maximum out of pocket” the Medicare Advantage MSA was in your words, “Not to shabby.” In your worst case senerio the outcome is better.
I didn’t say that people show up to Medicare stone cold broke and start getting federal MSA deposits and by the time they die they have accumulated $1 million in their MSA. That could easily happen in the future.
Tampa Real Estate Investor Pete Fortunato put $2,000 in a self-directed Roth IRA in the year 2000 and never added another deposit. 17 years later he had $1 million in the account. YOU know and I know anything you can do with a taxed IRA you can do with a superior MSA.
65 years old is young for some in a 21st Century lifespan and 17 years is only 82 years old and most of the Yoga exercising female Baby Boomers will live to be 100.
Seniors couples saving $17,600 every year with Trump’s Medicare Advantage MSA is just one possible outcome NOW. With the coming Biden inflation these overpriced Medicare Supplement plans could easily double in price in 10 years. You keep living and the Medicare Supplement price just keeps going up along with the Medicare Advantage MSA SAVINGS!.
We Minnesota seniors must be wimps. I keep tabs on 12 guys in my high school class of 1965. Two of them have no health problems, and the rest have the typical expensive ailments.
Minnesota does have Mayo Clinic and a pro-medical culture, I admit.
The cattleman with the taped up finger is at serious risk for tetanus, is he not? Still I get your point.
For the above-referenced Pete Fortunato to grow his MSA from $2,000 to $1 million in 17 years, with no further deposits, it would require an earnings rate of about 44%, credited annually.
Seems impossible, in any mutual fund.
It wasn’t in a mutual fund. It was a self-directed Roth IRA that he did real estate trades with. I was told it was 38% return.