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The Truth About Medicare and the Tax Cuts and Jobs Act

Medicare Trust Fund is Better Off Now

Both the 2018 Medicare Trustees Report and the Congressional Budget Office (CBO) project an insolvency date of 2026 for the Medicare Hospital Insurance (HI) trust fund. It’s time to separate fact from fiction on whether the trust fund is in better or worse shape due to the Tax Cuts and Jobs Act (TCJA). 

1.     CBO found that after TCJA, Medicare solvency improved. The Medicare HI trust fund finances hospital-related services for Medicare beneficiaries. Before TCJA became law, the Congressional Budget Office projected this trust fund would have a zero balance in 2025. After TCJA became law, CBO pushed back the insolvency date to 2026.

 

2.     The Medicare trustees used outdated and unreliable economic projections. The 2018 Medicare trustees report indicates that their new projected insolvency date is three years earlier than they projected in 2017. However, the trustees also admitted their economic projections for 2017 were inaccurate, which is the first reason listed for the new insolvency date. Further, their 2018 projection has not been updated to reflect improving economic conditions after TCJA.

  

3.     TCJA strengthened the major funding source for Medicare HI. Payroll tax collections, which finance both the Social Security and Medicare HI trust funds, increase when taxable wages are rising and more people have jobs. CBO found that TCJA will improve both wages and employment, and CBO now projects $300 billion more in payroll tax collections over 2018-2027 than it did before TCJA became law. 

4.     Seniors are paying less taxes on their Social Security benefits, and that’s good. In 1993, President Clinton and a Democrat-controlled Congress raised taxes on Social Security benefits and directed the revenue to the Medicare trust fund. This tax hike made up to 85% of a senior’s Social Security benefit subject to income taxes. By lowering income tax rates, TCJA softened the impact of this tax so seniors can keep more of their Social Security. Because this revenue is not a significant source of funds for Medicare, TCJA’s tax relief for seniors has little effect on solvency and will be far outweighed by stronger payroll tax collections. 

 

5.     “Republican policies” did not increase Medicare spending on hospitals. Obamacare created the Independent Payment Advisory Board (IPAB), a panel of unelected bureaucrats that could cut Medicare payments by fiat. This lack of accountability concerned both Republicans and Democrats, so Congress repealed IPAB on a bipartisan basis. The Medicare trustees cited this repeal as one of the reasons for their new insolvency date, yet CBO found IPAB repeal was fully offset by other health care savings, including some provisions that reduced Medicare spending on hospitals.

 

6.     Medicare solvency improves when fewer Americans need Disability Insurance. Americans who claim Social Security Disability Insurance (DI) also become eligible for Medicare. In the stronger economy made possible by TCJA, even the New York Times noted that DI claims have plunged as people with disabilities are joining the workforce in droves.

 

7.     After TCJA ended the individual mandate tax, the number of uninsured Americans shrank. Obamacare forced Americans to buy government-approved insurance (known as the individual mandate) and enforced this through a tax on uninsured individuals. TCJA ended this unfair tax, which the trustees predicted would increase the number of uninsured and therefore increase Medicare payments to hospitals for uncompensated care. However, since the tax ended the number of uninsured Americans actually fell by 1 million to the lowest percentage in a decade.

 

Preserving seniors’ access to Medicare is a serious issue that deserves bipartisan solutions, not baseless partisan attacks.

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