Medicare insolvency is not inevitable, and it’s important to question why politicians continually present it as if it is.
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At last week’s White House Easter lunch, President Trump said the U.S. government "can't take care" of Medicare costs (along with Medicaid and childcare), because “we’re fighting wars.”
Thankfully, a U.S. president cannot unilaterally stop funding Medicare, period, but President Trump is the latest in a long line of politicians from both parties who have talked about the “need” to cut Medicare to pay for other expenses. These statements perpetuate the false narrative that the viability of the Medicare program is in question, justifying drastic program cuts to fund other non-health related priorities. For example, a substantial portion of the savings projected from changes to Medicare in the 2022 Inflation Reduction Act will go to the federal government to reduce the overall deficit.
Medicare insolvency is not inevitable, and it’s important to question why politicians continually present it as if it is. Congress created the Medicare program more than 50 years ago with guardrails to ensure its sustainability. Here are 5 reasons why the Medicare program can’t go broke:
Medicare is an “entitlement” program, meaning it requires the federal government to pay health care benefits based on eligibility—generally to adults 65 years and older and younger individuals with qualifying disabilities, regardless of income level. While the word “entitled” is commonly used today to imply a “you owe me” attitude, Congress made Medicare contributory. In other words, beneficiaries paid into the program most of their lives through payroll taxes during their working careers, and then again in Medicare premiums once they enroll. In 2024, Medicare (including Medicare Advantage) covered 67.6 million people, at a total cost of $1.1 trillion. A little over half of those costs were paid by contributions.
The Medicare program is funded by two separate trust funds. The first is the Hospital Insurance trust fund that pays for Part A inpatient hospital care. The second is the Supplementary Medical Insurance trust fund that pays for the Parts B and D outpatient care and prescription drug benefits. When politicians warn of an impending deficit in Medicare's finances, they are strictly referring to the HI trust fund.
The HI trust fund solvency relies on taxes on payroll income and Social Security benefits, and an additional tax on the investment income of high-income individuals. Since 2011, population shifts in aging (20 million Americans turned 65), combined with substantially lower U.S. birthrates, have translated to reduced contributions to payroll taxes as Medicare enrollment has ballooned. According to the latest report from Medicare Trustees, the HI trust fund is expected to be depleted in 2033. That does not mean Medicare will suddenly shut down in eight years. Notably, Medicare Trustee projections frequently forecast insolvency within a decade. Congress has historically responded by adjusting payroll taxes, modifying provider payments, or enacting reforms to maintain solvency. To date, lawmakers have never allowed the HI trust fund to be fully depleted.
On the other hand, the SMI Trust Fund is adequately financed into the indefinite future. This is because, unlike the HI trust fund, beneficiaries pay premiums to this supplementary trust fund. The federal government contributes to it, too. Those premiums and contributions are adjusted each year to meet expected costs. In other words, the SMI part of Medicare can never run out of money.
Last, Medicare is a mandatory spending program, which means federal funding is automatically provided without requiring annual congressional approval that could be subject to political winds.
There is much more to be gained by recognizing the value of our aging population than by treating older adults as an unproductive line item. Ultimately, Medicare as an entitlement is about older adults being paid back by society for what they have contributed.
I will unpack more examples of the impact of this false insolvency narrative in future columns.
For now, hold on to the idea that Medicare is not a bargaining chip we have to trade for other political priorities.
