How Much Would the President’s Budget Extend Medicare Solvency? | Committee for a Responsible Federal Budget

What Medicare Policies Are in the President’s Budget? The President’s FY 2022 budget text calls on Congress to make a number of changes to Medicare – including lowering drug prices through negotiations and price growth caps; reforming insurer and provider payments; expanding access to dental, vision, and hearing coverage; and allowing people to enroll in Medicare starting at age 60.

Unfortunately, these proposals lack detail and are not included in the budget itself, which does little to change or improve Medicare. The budget does, however, include new resources to extend the life of the Medicare HI trust fund that is used to finance Part A.

Under current law, based on estimates in the budget, the HI trust fund will run out of funds in 2026, facing a shortfall of roughly $430 billion through 2031 (CBO estimates $515 billion) and $6.2 trillion over 30 years. Over ten years, we estimate the budget includes roughly $260 billion of policies to strengthen the HI trust fund.

The vast majority of these funds would come from closing loopholes that allow some pass-through business income to escape both the net investment income tax (NIIT) and payroll taxes for the self-employed (SECA). Some additional funds would come from improving tax compliance and reducing fraud and overpayments within the Medicare program. Taken together, we estimate these policies would close about two-thirds of the HI funding gap over a decade and 30 percent of the gap over three decades (including 25 percent in the final year).

In addition to these improvements, the budget would effectively divert $430 billion over ten years from general revenue to the trust fund by taking gross revenue from the existing 3.8 percent NIIT and depositing it into the HI trust fund (note that the gross revenue is much higher than the net revenue, mainly because the NIIT leads to reduced capital gains tax revenue). Including this policy, we estimate the President’s proposals would extend solvency well beyond the ten-year budget window and close 80 percent of the 30-year solvency gap (including 70 percent in the final year).

How Much Would the President’s Budget Extend Solvency?

Our estimates show the President’s budget would extend the life of the HI trust fund by 14 years – delaying insolvency from 2026 to 2040. However, much of this improvement comes from diverting existing tax revenue from the general fund to the trust fund. Only counting net new revenue and savings, we estimate the budget would extend solvency three years – from 2026 to 2029.

Source: How Much Would the President’s Budget Extend Medicare Solvency? | Committee for a Responsible Federal Budget

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