By SALLY C. PIPES
One day, our grandchildren may talk about Medicare the way we talk about Bernie Madoff.
Medicare’s trustees recently released their annual report on the program’s finances, and things are not looking good. The entitlement spent $12 billion more than it took in from taxes in 2023. Absent change, Medicare’s Part A hospital insurance trust fund will be exhausted by 2036.
Years ago, there may have been more than enough workers to cover the cost of Medicare for many fewer retirees — and sock away some extra in the accounting fiction that is the Part A trust fund. Those days are gone. Soon, Medicare won’t be able to collect enough in taxes from workers to pay for the benefits that retirees are redeeming.
Sounds an awful lot like a Ponzi scheme. Preserving the program for future generations will require harnessing the power of competition to lower costs and bringing eligibility requirements into the modern era.
A new report from the Paragon Health Institute highlights Medicare’s problem. The average American who turned 65 in 2020 will receive $176,500 more in Medicare benefits than they paid in. One who retires in 2030 is on track to receive $248,500 more than they paid in.
Some 62 million Americans were enrolled in Medicare in 2023. By 2033, that number is projected to swell to 78 million. The nonpartisan Congressional Budget Office estimates that by the following year, Medicare spending will account for just over 17% of the federal budget and 4% of GDP.
Medicare’s growth is fueled by an aging population. Americans 65 and older will make up nearly one-quarter of the population by 2050, the U.S. Census Bureau estimates.
Americans are also living longer. Men who make it to age 65 can expect to log another 17.5 years; life expectancy for women who reach 65 is another 20.2 years. That’s an increase of 4.5 years for men and almost four years for women, relative to 1965, when Medicare was created.
Yet Medicare’s eligibility age — 65 — has remained the same since the program’s inception. Given improvements in longevity, raising the age at which Americans become eligible makes sense — and would ease some of the fiscal pressure on the program.
But that’s not the only way to save Medicare from insolvency. The program can institute more “means-testing,” to ensure that richer beneficiaries pay for a greater share of their coverage than their poorer counterparts.
For example, lawmakers could lower the threshold at which means-testing already kicks in for premiums for Medicare Part B, which covers physician services, and Part D, which covers prescription drugs. Right now, only individuals who make more than $103,000 a year — and couples who make more than $206,000 a year — face additional costs in Parts B and D.
Policymakers need not limit themselves to income when formulating means-testing policies. As the Paragon Health Institute report points out, Social Security calculates benefits based on lifetime earnings. Medicare could do something similar.
There are any number of roads back to Medicare solvency. Medicare’s choice is no longer between change and the status quo. It’s between change and dissolution.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All” (Encounter 2020). Follow her on X/Twitter @sallypipes. This column was originally published by PennLive.
The solvency of MEDICARE is to STOP paying the illegals flooding over the border their medical chkup?? and anybody else that HAS NOT WORKED to pay into the system..
They are paying for people from various reasons that HAS NOT PAID into the system..There are other “pots of money” that they can pay from and STOP using our PAID IN MEDICAL EXPENSES.
As Biden stated truthfully (for once in his life)…”We finally Beat Medicare.” Trumps response was perfect. “You beat it to death.”
Medicare and Social Security are both PONZI schemes. I am so glad that I was able to retire in April 2019 at age 47. Im not paying into either one of the scam programs any more. I paid in for 30 year and because of indexing of past wages Im being credited greater with benefit then had I stayed in the workforce.
This story states incorrectly that ” Social Security calculates benefits based on lifetime earnings.” NOPE. Social Security calculates benefits based on your HIGHEST 35 years of INDEXED to inflation (COLA) earnings. There is a HUGE difference. I’ll give you my own numbers so you can see how this works.
COLA when on Social Security is added to the benefit check. If not on Social Security it is applied to past wages. Here are examples. Cant give you recent years because I retired in 2019 at age 47.
2018 wage was $41873. Social Security indexes that as of October 2023 to be $51,227. In 2013 wage was $43,721. Social Security indexes that to be $62,136. 2010 wage was $45,772. Social Security indexes that to $70,067.Here is the highest indexing wage in record. 2004 wage $47023. Social Security indexes that to be $84,152.
Social Security only looks at your highest 35 years of INDEXED earnings not NOMINAL earnings. The further back in time the greater the compounding effect on past wages. This has the effect of making people believe that if the earn more in nominal dollars at the end of their working lives that will increase their benefits. For the vast majority of people this is not the case. Are their exceptions? Yes. But those exceptions are not the norm.
Then Social Security takes those highest indexed earnings and divides them by 420 moths to come up with a workers Average Indexed Monthly Earnings (AIME). For 2023 the first $1,174 of AIME is paid out at a rate of 90% or $1056. The rest of most workers AIME is paid out at a rate of 32%.
So numbers in this persons (me) working record is as follows. AIME $3,999. First $1174 is paid at $1056. That leaves $2885 of AIME at 32% paid at $904 for a total benefit at 67 of $1969 per month. Now the intention is to draw at age 65 so benefit will be reduced by approximately 14%. Leaving a monthly benefit of $1693.
The indexing verses nominal earnings are massive when applied to the total highest 35 years of indexed earnings.
In my work history total nominal wages are $993,802 and the indexed earnings are $1,679,801.
If 2025 COLA is 2.5% applied to the indexed wages of $1,679,801 that an additional $41,995 added to the past wages on record. That exceeds the 2018 wage of $41,873. And this is how later years are not counted.
Its vital to look up the indexing chart each year. Social Security has indexing charts that try to project future indexing but the current one is the one that counts.
So if you have a work history of having been in the workforce from age 18-67 (49 years) they will only count the highest 35 years in indexed waged and toss out the other 14 years. Those tossed out 14 years are years later in life where you will have paid more in Social Security and Medicare taxes but it in no way effects your benefits. THAT”S THE PONZI SCEME.
Understanding how these scams work is vital. If the general population understood these numbers they would reform it. But the general population is just too dumbed down to understand the basic concepts behind how these numbers are applied. Most refuse to learn basic math. Without the ability to understand these basic math formulas, they cant grasp this. And the overwhelming majority of college graduates cant grasp this. I cant tell you how many so called smart college educated people cant figure this out. Its amazing to me.
Way to solvency? Simple. Stop the ceiling on earnings and make all employees pay into Social Security and Medicare. Next, don’t authorize payments to those who have never contributed. When a person who has paid into Social Security and Medicare dies their remaining balance should be refunded to the estate-tax free since they already paid taxes on the money when it was earned and paid to Social Security and Medicare.
And the government wants all of us on it.
The only thing the government can do better than private enterprise is waste money.
Trump has flip flopped on reducing Medicare benefits. Trump continues to make false claims on immigrants receiving Medicare and Social Security.