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Medicare in peril as funding runs low

In this article:
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Rick Newman joins Myles Udland and Brian Sozzi to talk about the finances of Medicare and what the future of Medicare could be as Congress must figure out a plan to supply funding for the program to continue.

Video Transcript

[MUSIC PLAYING]

MYLES UDLAND: All right. Welcome back to "Yahoo Finance Live" on this Wednesday morning. Well, as we get into the end of this year and start already talking about the 2022 midterms, Rick Newman has his eyes focused on Medicare and the endless conversation, Rick, about the future, really, of health care in the US. You're writing a story here for Yahoo Finance about why Medicare isn't as broken as it sounds. So maybe we should start with what sounds broken about Medicare, first of all?

RICK NEWMAN: We just got the annual report from the trustees for Social Security and Medicare. And they tell us every year about the financial health of these programs. And the Medicare Trust Fund is going to start running short of money in 2026. That's five years from now.

Now that's the same target date or doom date, if you want to call it that, as their report last year. But the finances for Medicare have not gotten any better. And it is now one year closer to the time when Medicare is going to start running short of money.

So this is going to be the first major test case of what Congress and the US government is going to do when these huge social safety net programs really come under financial stress. The time to address this is now. But it doesn't look like Congress is going to address it now. Like so many things, they're probably just going to wait until the last minute when they just have to avert a crisis.

MYLES UDLAND: Yeah, and this report also telling us, what, Social Security is going to run out of money in 2033, something like that? But you and I have had this conversation really for the last almost five years now. That's not going to happen, right?

We're not just going to-- people aren't just going to not get their Social Security, at least in this political environment, probably in any political environment. So how are we getting-- how are we squaring this circle then? And when you say it's not as broken as it sounds, what sort of are the practical steps that you see Congress taking to keep Medicare and Social Security and other programs funded?

RICK NEWMAN: Just to clarify a couple of points first, Myles. When these trust funds start to run out of money, that doesn't mean Social Security and Medicare cannot pay any of their benefits. It just means they will not be able to pay all of their benefits. They won't have this kind of surplus pot of money that has been used for several years now to cover benefits.

So if nothing changes and Medicare starts to run short, it will still be able to cover 91% of what it owes starting in 2026. And then that number is going to go down after that. Now you point out, is this really going to happen? Almost certainly not. I mean, it's kind of politically implausible that the most popular health care program for seniors, which covers something like 62 million Americans, is actually going to let those people down and start not paying their bills.

So what Congress is probably going to do is they can change the law to do-- they could do something such as raise the payroll tax rate that pays for Medicare. That's currently 2.9% split by employers and workers. They could raise that a little bit. If you raised it to 3.4% or 3.5%, you might be able to solve the entire problem. Now no politician ever wants to raise taxes these days, at least raise taxes on lower-and-middle-income Americans.

So there are other things they could do. They could change the law in a way that allows just simple borrowed money, regular taxpayer dollars to pay for all the important things Medicare covers, including hospital expenses. There are a whole list of ways to fix Medicare that special interest groups and think tanks have come up with. The Congressional Budget Office does it. Fixing it is not that hard. It's just getting politicians to actually do what they are supposed to be doing.

BRIAN SOZZI: Or Rick, they just, I guess, could raise the eligibility age to, what, 80?

RICK NEWMAN: Maybe by the time you and I retire, Sozzi, or maybe by the time you retire since I think I'll get there first. But yes, that'd be another way to do it. Or just the broader category there is limit benefits. Or another thing you could do is require larger co-pays for new enrollees. So if you're already in the program nothing changes. But if you are just retiring and entering Medicare, then maybe you have to pay a little bit more as a copay.

But that's not what Congress is talking about right now. Congress is actually talking about lowering the Medicare eligibility age from 65 to 60. I think President Biden favors that. Bernie Sanders, of course, wants everybody to enroll in Medicare. Another thing that Congress is talking about doing in this big reconciliation bill coming forward is adding new benefits to Medicare such as dental benefits and vision benefits.

So Democrats want to expand the program. They say they have a plan to pay for it, which is going to be higher taxes on businesses and the wealthy, but they're not going to get all those new taxes. So this time next year, we could have Medicare covering more things and more people and be in an even more precarious financial state, at least on paper.

MYLES UDLAND: All right. Rick Newman, another day closer to retirement. The march-- the march there continues.

RICK NEWMAN: I can't wait, Myles.

MYLES UDLAND: I know. I can hear it in your voice. All right. Rick, appreciate the time.