House GOP study group is proposing changes to Medicare. Here’s what you need to know

As congressional lawmakers in the House slog through the early stages of negotiating over the debt ceiling — the amount of money the U.S. government can borrow — there’s been concern that those discussions could include spending cuts to Medicare.

However, House Speaker Kevin McCarthy, R-Calif., has now made assurances that Medicare is off-limits during these negotiations (as is Social Security, for that matter), according to published reports.

Yet at some point, experts say, Congress will need to deal with a looming problem for Medicare: One of its funding sources is projected to become insolvent in 2028.

More from Personal Finance:
IRS warns tax refunds may be ‘somewhat lower’
Despite layoffs, tech jobs are still hot in 2023
These are key tax forms you need to file return

“Medicare is a sizable share of the federal budget,” said Gretchen Jacobson, vice president of the Medicare program at the Commonwealth Fund. “Balancing the fiscal [soundness] of the federal government with affordability for beneficiaries has always been an ongoing challenge.”

Medicare has 64.5 million beneficiaries, the majority of whom are at least age 65 — the age of eligibility — or younger with permanent disabilities. It consists of Part A (hospital insurance) and Part B (outpatient care coverage).

There also is Part D (prescription drug coverage) and Part C (Medicare Advantage Plans), both of which are offered by private insurers. Advantage Plans deliver Parts A and B, and usually Part D. 

The Republican Study Committee — the GOP’s largest caucus, with about 170 members out of 222 House legislators — has addressed the looming fiscal problem by outlining hoped-for changes to Medicare in its proposed budget, which it says would ensure the system’s long-term solvency.

Among the group’s proposals: raising the age of eligibility to 67 from 65, which would align with the full retirement age for Social Security. Additionally, Parts A, B and D would be consolidated into a single plan with one premium, and direct competition would be encouraged from Advantage Plans with that federal plan. There also would be premium subsidies available, depending on a person’s income.

“The [budget] is going to be our guide for what conservatives would like to see in an ideal world,” said a committee spokesperson.

Nothing is in legislative form yet, and it’s uncertain exactly which proposals would be included if bills are introduced — or what their chances of getting through a divided Congress would be.

“This is still early in the policy process so it is hard to predict which proposals will remain on the table, or how they might evolve,” said Tricia Neuman, executive director for the Kaiser Family Foundation’s program on Medicare policy. “Some of the proposals would involve a large-scale restructuring of the current Medicare program.”

Right now, Neuman said, the savings proposals are being described at a fairly high level.

“The policy debate starts to get real when the specifics are laid out,” she said. “The stakes in a debate like this are high, given the importance of Medicare [for] seniors and younger people with disabilities.”

In simple terms, it’s the Part A trust fund that is facing a shortfall beginning in 2028, according to the latest Medicare trustees report. Unless Congress intervenes before then, the fund would only be able to pay roughly 90% of claims under Part A beginning that year.

That trust fund gets most of its revenue from dedicated taxes paid by employees and employers. Generally, workers pay 1.45% via payroll tax withholdings (although an additional 0.9% is imposed on incomes above $200,000 for single taxpayers or $250,000 for married couples). Employers also contribute 1.45% on behalf of each worker. Self-employed individuals essentially pay both the employer and employee share.

Meanwhile, Part B gets its funding from monthly premiums paid by Medicare beneficiaries, as well as from the federal government’s general revenue. The same goes for Part D. And each year, premiums are adjusted to reflect anticipated spending and ensure there’s no shortfall.

Despite the threat of insolvency, reducing Medicare spending isn’t realistic, said Robert Moffit, a senior fellow at the Heritage Foundation, a conservative think tank.

Enrollment in Medicare continues growing as the population ages, as does the cost of providing medical care, he noted.

“I don’t think anyone thinks we’re going to spend less on Medicare in the future than we are today,” Moffit said. “We’re going to spend more, but we can spend those dollars smartly.”