It may come as a surprise, but there are still a few weeks to go before Medicare Advantage open enrollment finally ends. While open enrollment for regular Medicare happens in the fall, people on Medicare Advantage plans have a second window of time before March 31 to make changes to their coverage. We’ve talked about this before many times on AgingOptions. If you’re unhappy with aspects of your coverage, we urge you to take a look at your options now to see if switching plans makes sense.

But the topic of open enrollment got us thinking about the broader aspects of Medicare, a program that directly affects some 62 million Americans. In case you hadn’t been paying attention, the financial underpinnings of Medicare are in serious trouble, and – as with Social Security – solving Medicare’s problems will take political will and bipartisan action. In this recent Kiplinger article, reporter Jackie Stewart gives us an overview of some of the ways Congress might fix Medicare. The article is long, and we’ve had to summarize some of Stewart’s points, but for those affected by Medicare – which is just about everyone – it’s an important read.

Many Years of Dire Warnings

“For years, the warnings about Medicare’s inadequate funding and rising costs have been dire,” Stewart begins. “Congress knows it needs to do something, but politics and the complexity of the task keep even partial fixes in stalemate.”  Stewart quotes Robert Moffit of the Heritage Foundation who called Medicare’s financial health “terrible.”  He told Stewart, “The [Medicare] trustees have been warning Congress and the president that it’s a problem that can’t be ignored.”  Yet this trillion-dollar entitlement program has been allowed to sink deeper into insolvency.

The statistics are grim. By 2026, Stewart writes, Medicare’s trust fund for Part A is expected to be depleted. “Part A, which covers inpatient care at hospitals and skilled nursing facilities, is funded mostly through a 2.9 percent payroll tax,” he explains, split between employers and workers. “The Congressional Budget Office predicts that an additional $517 billion is needed, and that’s just to cover the program’s shortfall from 2026 to 2031. Otherwise, Medicare has enough revenue to pay for about 91 percent of Part A expenses starting in 2026.”

Medicare Parts B and D, which pay for doctor visits and prescription drugs, respectively, are marginally healthier, Stewart explains, because they are funded by beneficiary premiums and general tax revenue. “Technically, these programs are adequately funded because their spending is tied to expected expenses each year,” he writes. “But that doesn’t mean Parts B and D are fiscally sound. The costs of Part B are growing faster than those for Part A and even outpacing the economy. Eventually, policymakers will be forced to do something.”

Stewart lists five potential ways that experts say will prop up Medicare. “On their own, none of these solutions are enough to fix Medicare, and Congress will need to consider more than one to fund the program long term,” he states. Let’s give each a brief overview.

Suggestion #1: Raise the Eligibility Age

“Some Democrats are currently pushing to lower the Medicare eligibility age from 65 to 60,” Stewart writes, “but from a financial perspective, it’s the opposite that needs to happen. Because of changing demographics, the eligibility age will need to be raised for Medicare to remain viable long term.”  

Simple demographics explain the conundrum. “When Medicare was created in 1965, a 65-year-old man was expected to live 13 more years and a 65-year-old woman another 16 years, on average,” Stewart explains. “Now those figures have climbed to about 18 years for men and more than 20 years for women.” This longer lifespan combined with fewer workers paying taxes has created a perfect storm. Back in 1966, there were about 4.6 workers supporting each Medicare enrollee. By the end of the decade, that number is expected to be 2.3.

The argument for the change in eligibility age is simple. “The CBO estimates that raising the Medicare eligibility age would cut billions from the federal budget deficit,” Stewart says. Health policy expert Geoffrey Joyce from USC told Stewart, “You can make a really good argument for raising the age to 67.”  Also, something similar was done before, back in 1983 when Congress raised the full retirement age for Social Security from 65 to 67 over a 22-year period starting in 2000. The public, Stewart implies, will likely accept a similar change for Medicare.

But raising the age of eligibility has a downside. “Employers and younger seniors will have to pay for health care instead,” Stewart writes, potentially outweighing any Medicare savings. In a similar warning of unintended consequences, some experts predict that out-of-pocket costs for those already on Medicare may go up. “Younger people coming onto Medicare are often considered healthier,” Mary Johnson of the Senior Citizens League told Kiplinger. “When you raise the eligibility age, the tradeoff is that Medicare would be getting older and perhaps sicker people.”

Suggestion #2: Earmark Revenue from an Existing Tax

Stewart’s second proposal involves redirecting revenue from an existing tax, the unearned income Medicare contribution tax (also known as the net investment income tax), and applying those funds directly to Medicare. The tax, he explains, was part of a 2010 law called the Health Care and Education Reconciliation Act, designed to help pay for the Affordable Care Act. However, that tax revenue presently goes into a general revenue fund.

Anytime Congress can redirect an existing tax instead of passing a new one, it should make Congress happy, says Kiplinger. The article quotes a CBO estimate that this tax, which mostly affects high earners, could bring in $350 billion from 2021 to 2030. That may be conservative.

On the other hand, critics of this plan say it doesn’t make Medicare more sustainable, but instead merely shuffles existing funds around. “Unless the costs of health care are reined in,” Stewart warns, “beneficiary premiums will only rise.” Indeed, he goes on, some experts say that the main force causing deficits to pile up has been when one called “open-ended entitlement spending in Medicare, and other federal entitlements.” This spending demands a permanent fix.

Suggestion #3: Modify Payments to Advantage Plans

“One way to cut Medicare spending is to lower what the program pays to private Medicare Advantage insurers and medical providers,” Stewart writes. According to Juliette Cubanski of the Kaiser Family Foundation, Medicare pays Advantage plans a set amount for each enrollee, an amount determined annually based on the insurers’ estimated Medicare costs. This method, some say, causes the government to overpay for Medicare Advantage – to the tune, based on one estimate, of about $6 billion a year.

Those in favor of such an adjustment claim it could spur more price competition among private insurers. The CBO estimates 10-year savings totaling an estimated $44 billion. What’s more, say proponents, the change “would have little direct impact on beneficiaries,” Stewart writes. At the same time, some policy analysts say Medicare could curb payments to providers in order to save money.

However, the pushback would be swift and loud. “Insurers are likely to fight this proposal tooth and nail,” Stewart writes, “and politicians may cave under the pressure.” Doctors would surely resist further cuts in Medicare payments to providers, who “might make up for the lost revenue by passing on higher costs to other payers, such as patients with employer-sponsored health insurance.”

Suggestion #4: Negotiate Drug Prices

We’ve certainly heard this argument many times before. “Under current law,” Stewart explains, “Medicare is prohibited from negotiating drug prices, but this might change if Democrats are able to pass the Build Back Better Act.”  In the House-passed bill, Medicare would be allowed to negotiate prices for a small number of high-cost drugs starting in 2025. The Senate has yet to vote on the legislation.

The savings under this graduated proposal, the Kiplinger article reports, could be significant: nearly $80 billion over a 10-year period. “This could also lower Part B and Part D premiums for beneficiaries, though the CBO hasn’t released any estimates for this.”  But it’s not a panacea. The Kaiser Family Foundation’s Juliette Cubanski warns that costs of Medicare Part A would see no appreciable benefit because of the way providers of inpatient care are reimbursed.

“This also wouldn’t cut costs for some of the most expensive treatments, which are typically recently approved drugs, [Cubanski] adds.” That’s because under the proposed legislation, Medicare would be prohibited from negotiating prices on new treatments for a period of nine to thirteen years. This restriction means exorbitantly high-cost drugs like the controversial Alzheimer’s drug Aduhelm – with a $28,200-per-patient annual price – would be exempt from the negotiation process. (Seems crazy to us!)

Suggestion #5: Shift to a Defined Contribution Program

Stewart has one final suggested Medicare fix – which sounds to us more like a complete structural overhaul. “One of the more controversial fixes calls for transforming Medicare into a defined contribution program,” he writes, “similar to the one for federal employee health benefits. The new Medicare program would be a premium support plan with the federal government contributing a set amount for each beneficiary to spend on health insurance, either a private plan or original Medicare.”

This plan has the benefit of a “free-market” approach, with greater competition to attract enrollees, potentially driving down costs and offering more benefits, says Stewart. “Original Medicare could also be reimagined to include a modernized governing structure with a new government board of directors. This board would compete with private insurers to attract beneficiaries.”

But as with everything in our free-market system, your actual mileage may vary. “Depending on which formula is used, beneficiaries could end up paying more for health care,” Stewart warns. This type of plan also fails to address areas in the country, mostly rural, where access to care is already limited. Because of what Kiplinger calls “geographical disparity for health care,” those with a more restrictive provider network today would probably be no better off under a defined contribution scheme. We also worry, just as with the plan to privatize Social Security, that many less sophisticated enrollees could get lost in the shuffle.

We’re watching this issue closely here at AgingOptions and will keep you posted as any legislative proposals seem to be gathering momentum. Stay tuned.

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(originally reported at www.kiplinger.com)