Like Social Security, Medicare’s insolvency is being pushed back to 2036. Yet, beneficiaries could face shortfalls in the coming years. That’s because in 2025, those enrolled in Medicare Advantage benefits will have their supplemental benefits reduced marginally by 0.16% of their baseline payment rates.
The changes come as the Centers for Medicare and Medicaid Services’ (CMS) moves to refine the risk adjustment coding system in an effort to regulate accurate payments from insurers. Because insurers receive higher payments from the government if they record more health problems from beneficiaries, the CMS’ newest policy deters insurers from taking advantage of the system while ensuring a structured approach in using taxpayer funds.
However, insurers and opponents say the revisions cut benefits for seniors. Florida Senator Rick Scott, a main adversary of the changes, argued that it would reduce Medicare Advantage benefits by $33 per month, or $396 per year, for 2.8 million seniors in Florida. “President Biden has no plan to protect Social Security, and now he just cut Medicare benefits,” Scott criticized in a statement following the announcement in April. “Biden’s war on seniors is disastrous – especially for seniors on fixed incomes who are already struggling with skyrocketing inflation.”
Medicare Advantage plans have largely been scrutinized in the past—having been accused of displaying misleading advertisements and providing limited networks for beneficiaries.
Still, despite warnings that the plan could end up costing seniors more when falling ill, studies show that incorporating a Medicare Advantage plan could boast well for some enrollees. A 2022 study in the National Library of Medicare found that low-income seniors were more likely to receive some preventative care when enrolled in Medicare Advantage than in a traditional Medicare plan. Additional research in 2023 from the Harvard Medical School and healthcare technology company Inovalon reported that Medicare Advantage beneficiaries had “superior quality outcomes” that included fewer hospitalizations and lower rates of high-risk medication use compared to traditional Medicare enrollees.
CMS’ cut to Medicare Advantage plans is the second in the past two years. Despite the reductions, the federal agency expects Medicare Advantage payments to increase by 3.70%, or over $16 billion, from 2024 to 2025. Moreover, the federal government is projected to pay between $500 and $600 billion in Medicare Advantage payments to private health plans in 2025, CMS stated in its announcement.
Biden’s proposed revisions to Medicare
The changes come shortly after President Biden released his proposed budget in strengthening Social Security and Medicare. According to the proposal, one of Biden’s major changes includes increasing the Medicare tax rate for taxpayers with incomes over $400,000, from 3.8% to 5%.
Earners who make more than a specific income threshold are required to pay an additional Medicare tax of 0.9% on their tax returns every year. However, the Biden Administration says that some avoid paying the extra tax by profiting through passthrough businesses. Increasing the tax rate for wealthy taxpayers closes this loophole, the Administration states.
Other changes include directing a portion of the savings to the hospital insurance (HI) trust fund—where Medicare is funded—reducing prescription drug costs and lowering out-of-pocket costs and payments to Big Pharma.
‘Medicare is stronger’
Shortly following his proposed changes, Biden released a statement in reaction to the CMS’ Medicare Trustee Report, which found that the federal program’s insolvency date had been pushed back five years to 2036 due to higher payroll tax income and lower-than-projected expenses in 2023. After that, CMS says the fund’s reserves will become depleted and continuing program income will only be able to pay 89% of total scheduled benefits.
Still, the Biden Administration says its plan in building solvency for the programs remain resilient.
“Medicare is stronger and Social Security remains strong,” said Biden in the statement. “As long as I am President, I will keep strengthening Social Security and Medicare and protecting them from Republicans’ attempts to cut benefits Americans have earned.”
“Since I took office, my economic plan and strong recovery from the pandemic have helped extend Medicare solvency by a decade, with today’s report showing a full five years of additional solvency,” he continued. “My plan would extend Medicare solvency permanently by asking the wealthy to pay their fair share and lowering prescription drug costs.”
Medicare and Social Security insolvency, along with its potential revisions, are among the high-stake topics this year as the nation inches closer to November’s presidential election. A March 2023 poll by the Associated Press-NORC Center for Public Affairs Research found that most U.S. adults are opposed to proposals that would reduce benefits for the federal programs, and over half support resolutions that would raise taxes on the highest earners to keep Medicare running afloat.
While speculated, it’s unknown how election results will fuel changes to both programs, but several lawmakers and industry groups are adamant that revisions could only come with support from both political aisles.
A 2023 report by the Bipartisan Policy Group outlines a roadmap for improving the financial stability of Medicare, noting that bipartisan efforts will ultimately inspire any resolutions in the program. “It is not without precedent for Congress to act on a bipartisan basis to address Medicare’s cost and solvency issues,” the group stated.
SEE ALSO:
- 9 Years Until Social Security Trust Fund Becomes Depleted
- Early 2025 Social Security COLA Forecast Rises Again
- Explaining the Misperception Behind Social Security Insolvency
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.