Sustaining and Improving Medicare

Executive Summary

More than 65 million older Americans and those with disabilities rely on Medicare for health care, but as the population rapidly ages, the program faces increasingly urgent financial challenges. Indeed, expenditures in recent years have consistently outpaced dedicated revenue streams. With Medicare’s Hospital Insurance (HI) Trust Fund facing insolvency by 2031, and with beneficiaries and taxpayers frustrated by the lack of progress in ensuring greater affordability, policymakers must overcome their political fears of addressing the problems and focus on reforms that will sustain and improve Medicare in the coming years.

Central to ensuring Medicare’s long-term survival is for Congress to address the program’s core financial issue—the gap between rising spending and lagging revenue. Medicare now covers nearly 20% of the U.S. population, and total expenditures for benefits are projected to exceed $1 trillion this year, up from $580 billion only 10 years ago. The number of workers who help finance the program through payroll taxes relative to the number of beneficiaries is declining. There were about four workers for every beneficiary from 1980-2008; by 2022, the number had dropped to about 2.9, and by 2030 it is expected to be 2.5.

Congress also needs to examine a second significant problem: how Medicare can better meet the needs of enrollees. Beneficiaries, many of whom are retirees on fixed incomes, are struggling to pay their share of expenses and navigate a complex Medicare system to find the right coverage and benefits. Health care advocates question the program’s fairness, too, as some enrollees get benefits that others do not, depending on which coverage options they select.

In this report, the Bipartisan Policy Center issues recommendations for Congress to improve the program—both its financing and the benefits it provides. BPC’s 2021 report, The Cost of Waiting to Act on Medicare’s Hospital Insurance Trust Fund, points to recurring examples of policymakers’ hesitancy to address reform, analyzes various reform proposals, and demonstrates that waiting only increases the price of action.

Congress has been reluctant to address Medicare’s long-term solvency, due largely to the scale of the financial adjustments required and aversion to the political risks involved. Reforming Medicare undoubtedly will invite political opposition: Older Americans turn out for key elections in disproportionately high numbers. Earlier in 2023, when some in Congress suggested restraining Medicare spending as part of a deal to raise the debt ceiling limit, others strongly opposed the move. In his State of the Union address in February 2023, President Biden urged both parties to commit to keeping Medicare benefits unchanged. In a rare demonstration of unity, both Democrats and Republicans stood and applauded. Without a politically viable path toward bipartisan compromise, Congress took Medicare changes off the table and raised the debt ceiling in May without addressing the challenges facing the program when it passed the Fiscal Responsibility Act of 2023.

That said, a politically viable path forward is possible, and this report outlines how. It is not without precedent for Congress to act on a bipartisan basis to address Medicare’s cost and solvency issues. Examples include but are not limited to the Social Security Act Amendments of 1983, which established a new prospective payment system for inpatient hospital services, and the Balanced Budget Act of 1997, which established both a prospective payment system for outpatient services and Medicare Part C. Both examples occurred when divided government existed, which is to say different parties held the White House and at least one chamber of Congress. Indeed, the political divide is virtually a prerequisite to avoid the temptation to politicize any effort to improve Medicare. These previous accomplishments demonstrate policymakers’ ability to come together when the need arises and leaders of the two parties lead.

This report creates a road map for bipartisan action that Congress should pursue in a two-step process. The changes in the first step would secure meaningful improvements that would make Medicare more affordable for the federal government, taxpayers, and beneficiaries. It also lays the foundation for a second set of fundamental reforms that build upon the first step’s goals by ensuring further simplification for beneficiaries and promoting competition within the program.

The road map’s first step, outlined in Phase 1 below, calls on Congress to immediately address the HI Trust Fund’s impending insolvency and affordability challenges for beneficiaries by slowing spending increases and raising revenues. At the same time, policymakers would enhance Traditional Medicare (TM) by improving benefits, reducing costs, and simplifying the program for easier access.

Phase 1 also addresses enforcement of past triggers that Congress has instituted—but ignored—to force action when federal spending on Medicare dangerously exceeds revenues. To be sure, important new prescription drugs and devices are contributing to Medicare’s increased spending, and that should be a factor for policymakers to consider as they make decisions about appropriate levels of spending. Nevertheless, it will be important to fix the current general revenue trigger so that it more effectively pressures Congress and the administration to take corrective steps as appropriate to ensure the program’s financial sustainability.

The recommendations in the second step, outlined in Phase 2, would create apples-to-apples competition between Traditional Medicare and Medicare Advantage (MA), allowing beneficiaries to easily compare these coverage options based on a standard set of benefits.

It is crucial for Congress to embrace both parts of this road map; rationalizing and improving how MA plans and TM fairly compete within an improved competitive policy will not in and of itself address all solvency and affordability issues facing the program. Because of demographics, Medicare’s costs will increase regardless of how efficient the program becomes; enhanced revenues and payment reforms, as a result, will have to be part of any bipartisan compromise that thoughtfully deals with solvency.

BPC also encourages the Senate to swiftly engage in full, fair, and prompt consideration of the Social Security and Medicare public trustees. The Senate Finance Committee approved two nominees on November 2, 2023, but a full Senate vote is required, and at the time of publication, the Senate had not moved forward. In addition to the four trustees who are members of the administration, the two public trustees serve as objective experts who report on the status of the trust funds to Congress and the American people; they also provide credibility for the annual reports. Since 2015, these two positions have been vacant due to Senate inaction. Congress should ensure that these positions are consistently filled moving forward.