president joe bidens 2024 proposed budget includes plans to shore up the finances of medicare the federal health insurance program that covers americans who are 65 and up and some younger people with disabilities his administration aims to increase from 38% to 5% an existing medicare tax thats collected on the labor and investment earnings of americans who make more than us$400 000 annually it also aims to reap some savings from having the government negotiate prices on more prescription drugs the white house projects that these changes would generate an additional $650 billion in revenue over a decade some independent experts concur as economists who have long researched the medicare and social security programs we believe the presidents proposal is an important first step in opening the necessary debate on strengthening medicares finances part as precarious funding medicare consumes more than 15% of the federal budget the program cost $975 billion in 2022 out of the governments $65 trillion in total federal spending as anyone who has enrolled in it can tell you the program itself is rather complicated its divided into three parts known as a b and d each of which relies on revenue from a different mix of sources medicare part a covers care delivered at hospitals and nursing homes as well as home health care part b pays for doctors visits and outpatient procedures and part d pays for prescription drugs theres also part c a private insurance option known as medicare advantage however its costs are included in the accounting for parts a and b part a is primarily funded by a 145% medicare payroll tax on both employees and employers when that tax and the programs other tax revenues dont raise enough money to cover part as costs the program dips into the medicare hospital insurance trust fund to make up the difference the trust fund amassed from past surplus payroll taxes currently stands at around $143 billion without spending cuts funding increases or a combination of the two the medicare programs trustees have predicted in their annual report that the medicare trust fund will be exhausted by 2028 the trustees are the secretaries of the treasury labor and health and human services departments plus the social security commissioner there can be up to two additional trustees but those seats are vacant medicares expenses are rising rapidly with the retirement of baby boomers the large generation of americans born between 1946 and 1964 and rising health care costs should the trust fund be emptied out the trustees predict that hospital benefits would have to be cut by 10% but those cuts are widely considered to be politically unacceptable as illustrated by statements from biden and his predecessor former president donald trump in addition to proposing an increase in the tax levied on the investment earnings of high-income americans biden also proposes that these revenues be fully dedicated to the trust fund currently the government treats that money as general revenue that can be used for any government program 2 very different scenarios unlike medicare part a parts b and d are funded largely by general federal revenue and by premiums paid by retirees because the government is allowed to use general revenue to pay for them the funding of parts b and d isnt jeopardized by the depletion of their trust fund no matter how fast those costs rise even without bidens proposed changes official medicare spending projections rise rapidly through the mid-2030s and then plateau as a percentage of gross domestic product however those projections are based on a presumption that payments to hospitals are constrained as specified in the affordable care act and that other spending constraints on physician payments are realized unfortunately history provides little assurance that lawmakers will maintain all of these requirements to restrain future payments to health care providers we say this because of what happened after 1997 when congress approved the sustainable growth rate system which was intended to limit the annual increase in cost per medicare beneficiary to the rate of economic growth starting in 2002 congress passed legislation year after year to override it and only stopped doing that once it did away with the system altogether in 2015 reflecting this uncertainty the annual trustees report features an alternative projection that is arguably more credible and more scary it indicates that medicare costs will grow much faster than the economy starting in 2036 competing demands the social security program a national pension program that primarily supports older americans faces similar funding shortfalls its trustees anticipate that the social security trust fund will be depleted by 2035 without changes in funding promised benefits or both in that event social security benefits may have to fall by about 20% from anticipated levels medicare and social security are the nations largest entitlement programs almost all americans if they live long enough will eventually be eligible to obtain these benefits regardless of their income or wealth while americans do not yet agree on how to put these programs on a steadier fiscal footing the math is clear our elected representatives cannot avoid making hard decisions that involve increasing taxes reducing benefits or both this story was originally published by the conversation