The federal program’s in dire financial straits.
President Biden is hoping to keep a vital national healthcare program afloat for the next 25 years as it faces some serious financial challenges.
In an op-ed published in The New York Times, the president detailed how he planned to avert a major Medicare funding crisis (under the current tax and spending levels, the program’s trust fund is set to run dry in four years). This includes increasing taxes on high earners and allowing more negotiation on prescription drug prices.
“Medicare is more than a government program,” Biden wrote. “It’s the rock-solid guarantee that Americans have counted on to be there for them when they retire.”
Biden’s proposal, which is part of the White House’s broader budget plan, could have far-reaching effects. The Kaiser Family Foundation estimates that roughly 60 million seniors ages 65 and older depend on Medicare for their health insurance, and the stakes could not be higher. Unless Congress takes action to boost the program, seniors could start seeing cuts in benefits as soon as 2028.
As we await Biden’s full budget rollout on Thursday, here’s a breakdown of the three key changes that Biden’s proposing to help keep the federal insurance program stable.
Increasing the Medicare tax
One of the main ways Biden wants to strengthen Medicare is by increasing the tax rate from 3.8 percent to 5 percent for Americans who make more than $400,000 per year. Under this plan, this tax would also be expanded to include more kinds of earnings, so that no one gets out of paying their fair share. As the White House points out in the plan, some wealthy business owners have typically gotten out of paying taxes by claiming that their wages are “neither earned income nor investment income.”
“As I proposed in the past, my budget will also ensure that the tax that supports Medicare can’t be avoided altogether,” Biden said. “This modest increase in Medicare contributions from those with the highest incomes will help keep the Medicare program strong for decades to come.”
Expanding Medicare’s drug negotiation power
Building upon newly established reforms, Biden’s plan would allow Medicare to not only negotiate prices for more drugs but to also speed up the negotiation process with drug companies. For context, Medicare is only currently allowed to negotiate the prices of a small share of covered drugs as outlined in the Inflation Reduction Act that was passed by Democrats last year. But Biden estimates that this change would bring in an additional $200 billion for the Medicare trust fund.
“The Budget’s expansion of Medicare drug negotiations will not only save money for the federal government — it will also cut beneficiaries’ out-of-pocket costs by billions of dollars,” the plan states.
Reducing Medicare prescription drug payments
The plan would give the administration the power to negotiate what price the federal government pays for drugs beyond the limited number approved in the Inflation Reduction Act. Specifically, this would mean capping co-pays to $2 per prescription each month for popular medications used to treat chronic conditions, like hypertension and high cholesterol.
Biden also tried to draw a stark contrast between his administration and the Republican Party when it comes to Medicare. Similar to remarks made during his State of the Union address, he even accused some in the GOP of taking aim at the government program, though House Speaker Kevin McCarthy has already indicated that it would be off the table in any future negotiations about federal cuts. “If the MAGA Republicans get their way, seniors will pay higher out-of-pocket costs on prescription drugs and insulin, the deficit will be bigger, and Medicare will be weaker,” the president said.
As far as Biden’s agenda goes, though, it’s already not looking very promising. The proposal faces some serious hurdles in the Republican-controlled House as lawmakers remain at odds over how to bolster Medicare, which has been further complicated by the debate over how to get the debt ceiling under control. Biden has backed taxing the rich, while Republicans have generally opposed tax increases in favor of spending cuts, setting up what’s sure to be a fierce battle, so expect more fallout.
