Now That’s a Whopper: Medicare Funding

By:  Michael Allbee, CFP®, Senior Portfolio Manager

Last week, we tackled one of America’s largest mandatory spending programs, Social Security (forecasted to account for 21% of total government spending in 2023) and answered the question, Is Social Security on life support? However, did you know Medicare and Medicaid are projected to account for 26% of total government spending in 2023? Together, Social Security and Medicare programs will be responsible for nearly 80% of the deficit’s rise between 2023 and 2032, according to Congressional Budget Office (CBO) projections.

Absent any reforms, Medicare’s Hospital Insurance Trust Fund will be insolvent by 2031, two years before the insolvency of Social Security (2033). If this were to happen, Medicare hospital insurance payments would be cut by more than 10%. The 2023 Trustees Report shows that a significant payroll tax hike of 4.2% would be required to close the current funding gap for Social Security’s Old Age, Survivors, and Disability Insurance (OASDI) and Medicare.

Just as with Social Security, many options have been proposed and combining some of these may help soften the impact of any one solution to solve the funding of Medicare. For too long politicians on both sides of the aisle have chosen to ignore the problem. The risks to our economy will only continue to grow the longer we wait to address them.

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