How Medicare Spending Can Be Cut To Help With Inflation

As the Federal Reserve raises interest rates which affects the cost of borrowing money, the cost of the government’s debt is rising.  That in turn is having an impact on government spending, as well as the balances of the Medicare and Social Security Trust Funds.

The Medicare Hospital Insurance Trust Fund faces impending insolvency by 2028 according to the 2022 Medicare Trustees annual report.  At that point the trust fund could pay about 90% of hospital insurance benefits according to the Medicare Trustees’ estimate.  Some fiscal policy experts are suggesting that cutting federal spending on Medicare could help the Federal Reserve’s efforts to bring down inflation.  How could that work?

TSCL feels there are two areas of Medicare spending that would produce savings for Medicare and for beneficiaries as well.  They include:

  1. Reducing the cost of prescription drugs.  President Biden recently signed into law legislation that would allow Medicare to negotiate prices on certain drugs, reducing Medicare spending on prescription drugs by an estimated $288 billion, according to the Congressional Budget Office.  The legislation would also reduce what beneficiaries pay at the pharmacy on certain drugs and would cap out-of- pocket spending on covered drugs at $2,000 starting in 2025.  An analysis by the Kaiser Family Foundation found that the top 10% of beneficiaries with highest drug costs spent at least $5,348 in 2019.  Each person in that group would have saved $3,348 with the $2,000 cap.
  2. Combatting inflated “risk scores” in Medicare Advantage plans.  Congress still has work to do to adjust for some inflated reimbursements received by Medicare Advantage plans.  The sicker the patient, the more that private Medicare Advantage health plans receive in reimbursements from Medicare.  In recent months we’ve written that some Medicare Advantage plans are under federal investigation for inflating “risk scores” to make patients appear sicker than they really are, to gain higher reimbursements from Medicare.  Because the Part B premium is based on all total expected program costs, inflated Medicare Advantage reimbursements drive up Part B premium costs for everyone enrolled in Part B.  Making it harder to game Medicare would provide savings that can help slow the rate of Part B premium increases.

TSCL is continuing to study other areas of Medicare payments where reductions to Medicare spending might be achieved without affecting access to healthcare services or quality of care.

Have unexpected medical bills caused you to carry medical debt? Please tell us by taking TSCL’s new Retirement Survey.

Senior Priority:  78% Say Tax Employers More for Medicare  

Current law requires employers to match the 1.45% withholdings for Medicare payroll taxes which is applied to all the wages earned by an employee.  But the “Additional Medicare Tax” of 0.9% imposed on wages in excess of $200,000, that was passed into law in 2010, does not require employers to match the additional 0.9% Medicare payroll tax withholding.

78% of participants in TSCL’s Senior Priority Plan survey want employers taxed to match the individual’s Additional Medicare Tax to extend the solvency of the Medicare Part A, the Hospital Insurance Trust Fund.



“How Would The Prescription Drug Provisions in the Senate Reconciliation Proposal Affect Medicare Beneficiaries?” Juliette Cubanski, Tricia Neuman, Meredith Freed, Kaiser Family Foundation, July 27, 2022.