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Medicare insolvency would move up to 2023 under Obamacare repeal bill

Ethan Wolff-Mann
Senior Writer
Seniors in Chicago are led away by police after protesting cuts to Social Security, Medicare, and Medicaid in 2011. Source: Getty

“I was the first & only potential GOP candidate to state there will be no cuts to Social Security, Medicare & Medicaid. Huckabee copied me,” Donald Trump tweeted in 2015. While Trump ran for president on a promise not to touch these entitlements, he and his administration have pushed the American Health Care Act, a bill that proposes cutting the Medicaid expansion by 2020. In early 2016, according to Kaiser Family Foundation, the expansion in 32 states added 14.1 million people to insured rolls, so this cut is deep.

While the Trump administration has already broken his promise not to touch Medicaid by supporting the AHCA—and might look into Social Security changes—he has also indirectly broken his promise not to touch Medicare. According to the Committee for a Responsible Federal Budget, a nonpartisan group of budget hawks, the AHCA legislation would accelerate the insolvency of Medicare Part A’s Hospital Insurance fund from 2025 to 2023, resulting in deficits of $150 billion through 2026.

Sen. Bernie Sanders (I-VT) with a giant print out of Trump’s tweet promising not to cut Social Security, Medicare, and Medicaid.

“It’s not fully clear what happens, because this has never happened before,” CRFB SVP and Senior Policy Director Marc Goldwein told Yahoo Finance. “The overriding law means [Medicare] can’t pay out more than it has in its trust fund. This would spell a major cut.”

The CRFB estimates that under the AHCA, Medicare would have to slash its payouts by 14% in 2024 in order to maintain solvency, because the bill would cut a Medicare-funding tax and leave more people uninsured. Hospitals would still treat these people, and Medicare would reimburse strained hospitals $43 billion, according to CRFB calculations.

But it’s unclear what that cut would mean for patients and providers. There could be a cut across the board to providers, or the Center for Medicare & Medicaid Services could simply send IOUs promising to pay when the fund is replenished—without a date. According to Goldwein, none of these options have a direct impact on beneficiaries, but they do have an indirect impact.

“If providers aren’t getting paid on time or get paid less, it’s hard to imagine this doesn’t at least hurt access if not quality or availability of care for seniors.” This could manifest in providers stopping or slowing patient scheduling to a crawl, or result in more out of pocket costs paid by beneficiaries, which could strain retirement budgets.

How Trump and Congress could avoid Medicare insolvency

The CRFB does outline some solutions to avoid Medicare insolvency, calling the worsening of  its finances not “unavoidable.”

“There’s a bad way, which they may resort to,” said Goldwein. “They could just take money from general revenue.” Budget hawks don’t like this option, because it adds to the deficit. However, since the AHCA would reduce the deficit overall, as the CBO predicts, “that’s not so bad” in Goldwein’s view, if that actually happens. “They [could] end up using their savings to pay for more benefits, which it looks like they may need to.”

A better option, in the CRFB’s view, is to leave just one of the Obamacare taxes in. “The simplest option, which doesn’t have bipartisan support now, is just leave the hospital insurance surtax in,” said Goldwein.“That by itself would solve most of the problem. Some Republicans may get on board.” At 0.9%, the hospital insurance surtax, paid by people making over $200,000, would rake in 117 billion in the next decade, mostly solving the $150 billion dent in the Medicare Part A fund the AHCA would make, according to CRFB calculations. The fund is currently projected for insolvency in 2025 so every year counts.

Or, congressional Republicans could simply work to solve the issue in the legislation. “While the AHCA doesn’t have Medicare changes, there’s no reason it couldn’t,” said Goldwein, who noted that the ACA did. “There’s no reason you can’t do both. There’s not a trade-off here.”

In the CRFB’s view, there is a chance that pushing insolvency up two years has an outside chance to shock the government into doing something, as the figurative meteor gets closer and harder to ignore. “Maybe advancing the Medicare date now would lead to more Medicare reforms later that could be a win-win overall,” Goldwein said, adding a fatalistic caveat – “If we project out a scenario of unknown political decisions.” With just six years to act and an embattled Congress, that might not be enough time.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, tech, and personal finance. Follow him on Twitter @ewolffmann. Got a tip? Send it to tips@yahoo-inc.com.

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