GOP NEEDS COUNTEROFFER TO MEDICARE FIX
President Biden’s proposed plan to fix the Medicare trust fund is a typical Democratic tax hike. Republicans would be right to reject it out of hand. But they should also use it as a starting point for serious negotiations.
No one disputes that the Medicare trust fund is going broke. Absent changes to the program, the fund is projected to run out of assets to pay for hospital expenses in 2028. Running out of assets means revenues from taxes would no longer cover expenses, forcing Congress to make emergency changes to the program. No one wants that.
Biden’s plan mainly relies on increases in income taxes for taxpayers making more than $400,000 a year to fix the problem. He proposes raising the 3.8% rate those people pay on capital gains and investment income to 5%. He also wants to expand that tax to certain types of income that is excluded from the levy.
Taxpayers in that category — which includes the Bidens themselves, who arranged their finances after he left the vice presidency to avoid paying the Medicare tax — would face a hefty tax hike. Others would pay the proposed top federal marginal rate of 42%.
But there’s only so much revenue that can be squeezed from the wealthy. The annual federal budget deficit is more than $1 trillion and shows no signs of decreasing on its own. Revenue hikes from the rich should go toward reducing that number, which would in turn lower future federal spending by shrinking the amount of interest paid on new bonds issued to cover the debt. Pushing that new revenue toward the hospital trust fund takes it off the table for general use.
There’s little evidence that a small, 1% rate hike significantly impacts individual economic decision-making. But adding 1% here and 1% there will add up into something significant. Such stealthy, incremental tax increases is clearly part of the Biden agenda.
The president clearly wants to put Republicans on the defensive over Social Security and Medicare as part of his 2024 re-election strategy. The party thus needs a plan to shore up the trust fund and blunt Biden’s attacks. An all-cuts approach is not likely to pass political muster, especially since congressional leaders have already said they don’t want to do that.
This means Republicans need to come up with a politically fair counteroffer, which means people who can afford to pay need to pay more. It must also be economically prudent, which means trying to cut the rate of growth in hospital expenses to lower future Medicare spending.
Changing the law regulating so-called Medigap insurance plans is one place to start. These plans — which are typically used by healthier, wealthier and more educated individuals, as data from the Kaiser Family Foundation shows — insulate consumers from any hospital co-pays or coinsurance. They also eliminate deductibles that beneficiaries would otherwise have to pay for hospital stays. The Congressional Budget Office says that academic studies show such insulation from the costs of care causes patients to use more care. That drives up the costs for everyone else.
Changing Medigap policies to require some cost-sharing of hospital stays would thus reduce overall spending and shift some current payments to the wealthier people using the plans. That would be popular.
It’s both economically prudent and politically fair to push well-off seniors to pay for more of their Medicare health care costs. The overall thrust should be simple: Reduce costs for all taxpayers while pushing wealthier Americans to pay for more of their care.
A deal would likely include elements of both plans.
Biden’s Medicare trust fund tax hike is an obvious political ploy to force Republicans to defend the rich and appease their anti-government base. The GOP should parry and thrust back with their own plan rather than stupidly fall into his blatant trap.