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House-Passed Health Plan Would Speed Medicare Trust Fund’s Depletion by Two Years

May 9, 2017 at 4:45 PM

Update, May 10: Based on additional information, we have revised the estimated depletion date of the Hospital Insurance trust fund to 2026, from 2025.

The House-passed bill to repeal the Affordable Care Act (ACA) would move up the Medicare Hospital Insurance (HI) trust fund’s depletion from 2028 to 2026, we estimate (see graph), and increase HI’s 75-year deficit by more than half.

 

 

The ACA imposed an additional payroll tax of 0.9 percent on earnings above $200,000 for individuals and $250,000 for couples, bringing the total payroll tax to 3.8 percent on such earnings.  The House-passed bill would repeal that additional payroll tax effective in 2023, thereby reducing federal revenues by $59 billion over the next ten years, undermining Medicare’s financing and giving high earners a windfall.

The tax cut would be highly regressive.  Nearly two-thirds of its benefits would go to millionaires, who would get tax cuts of $13,700 each, on average, in 2025, according to the Tax Policy Center.  At the same time, the House bill would undermine the financial security of millions of low- and moderate-income households by repealing the ACA’s coverage expansions and raising the cost of coverage and out-of-pocket expenses.

The House bill, officially the American Health Care Act (AHCA), would also weaken Medicare’s financing in another way.  Medicare makes additional “disproportionate share hospital” payments to facilities that serve many uninsured patients.  Because the bill would reduce the number of people with Medicaid and increase the number of uninsured, it would increase these payments by about $48 billion over ten years.

The House Budget Committee’s version of the AHCA would have repealed the additional Medicare payroll tax five years earlier, in 2018.  We previously estimated that the committee’s version of the bill would have accelerated the depletion of the Medicare HI trust fund by four years.   

Undercutting Medicare’s finances would further expose it to benefit cuts.  House Speaker Paul Ryan and other House Republican leaders have proposed converting Medicare to a “premium support” system, which would provide beneficiaries with vouchers whose purchasing power wouldn’t keep pace with health care costs.  They’ve also proposed raising Medicare’s eligibility age from 65 to 67. 

Ryan falsely claims that Medicare is “going broke” and that these radical changes are necessary to “save” the program.  That’s nonsense; as we’ve explained, Medicare could still pay 87 percent of hospital insurance costs after HI’s trust fund is depleted, and Medicare’s coverage for doctor and outpatient costs and its prescription drug benefit have their own revenue sources and can’t run short of funds.  By accelerating HI’s insolvency date, the House bill would only fuel these bogus charges and put Medicare coverage for seniors and persons with disabilities at greater risk.


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