U.S. Representative Paul Ryan (R-WI) speaks at a news conference on Capitol Hill in Washington October 20, 2015.
U.S. Representative Paul Ryan (R-WI) speaks at a news conference on Capitol Hill in Washington October 20, 2015. Yuri Gripas—Reuters

Is Medicare Really Going Broke, Like Paul Ryan Says?

Nov 15, 2016

After taking a backseat to national security and other issues during the presidential campaign, Medicare is suddenly in the spotlight. Emboldened by Republican victories in Congress and the White House, House speaker Paul Ryan is using concerns about Medicare’s fiscal stability to push for big changes to the government insurance program for 55 million Americans.

In an interview with Fox News last week, Ryan said that Obamacare was causing Medicare to go broke.

Here’s the thing: Medicare is on an unsustainable spending path, but it’s not going broke. “The idea that we have a crisis is just nonsense,” says Dr. Robert Berenson, a fellow at the Urban Institute, a nonpartisan research organization, and formerly an official at the Centers for Medicare and Medicaid Services. And Obamacare is not the culprit for Medicare’s fiscal woes. Separating the rhetoric from reality will help us understand what’s at stake amid proposals to change this safety net for Americans 65 and over and younger people with certain disabilities.

Broke means running out of money, and Medicare won’t run dry. What it will do, if nothing changes, is continue to devour a growing share of federal spending to cover its mounting costs. Total Medicare expenditures were $648 billion in 2015, according to the 2016 Medicare trustees’ report.

The Center on Budget and Policy Priorities, a nonpartisan research and policy institute, calculates that Medicare will represent 15% of the 2016 federal budget, and projects that share to grow to 20% by 2036. This spike will crowd out spending on other priorities, such as early education, infrastructure and defense.

The Medicare trustees project that the Part A trust fund, which pays for hospital costs, will be depleted in 2028 if no changes are made to rein in costs or increase funding. Again, this doesn’t mean bankruptcy: The fund will still be able to pay 87% of Part A costs after then, through a dedicated payroll tax.

Far from damaging Medicare’s fiscal outlook, Obamacare actually improved it. The Affordable Care Act, as Obamacare is formally known, contains roughly 165 provisions affecting Medicare through cost reductions, increased revenues, fraud and abuse prevention, and other initiatives, according to the trustees’ report.

Thanks to these provisions, the Part A trust fund is projected to remain solvent for 11 years longer than before Obamacare was enacted, according to an analysis this July by Paul N. Van De Water for the Center on Budget and Policy Priorities.

And yet, Ryan hopes to use fears of Medicare’s imminent demise to make sweeping changes to the program. These changes generally fall under the terms “privatization,” or “premium support.” While it remains unclear exactly what this would look like, it may mean giving beneficiaries some sort of fixed dollar amount to buy their own private insurance as an alternative to, or even replacement for, original Medicare.

Under this type of system, beneficiaries who choose the lowest-cost coverage will stretch their government subsidy the farthest—which, ironically, is how Obamacare works today.

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