"I think we are derelict in our responsibilities to ignore the realities of entitlements. It is impossible to say we are defenders of Medicare & ignore the looming deadline of 11 or 12 years when it is going to be insolvent. We're not defenders. We're basically standing by & watching its demise." - Illinois Senator Dick Durbin - February, 2013
Senator Durbin has been the Democrat Party's Senate Whip (second-highest ranking senator in the party leadership) since 2005 making him the longest-serving Senate party whip in U.S. history. As such he is well aware of the Medicare cash-flow insolvency that is the topic of this post. Proof of his awareness - On April 23, 2025, twelve years after his above statement warning about Medicare's insolvency in twelve years, Durbin announced he will not seek reelection in 2026, ending his tenure in the Senate.
Social Security, Medicare, & Medicaid form the cornerstone of the American welfare state. All three programs are largely transfer programs where current workers' taxes fund current benefits. Medicare Part B (doctors) was designed by Congress in 1965 to be funded by monthly premiums, adjusted each year, paid by the beneficiary that equaled 50% of the total cost with the other 50% coming from the general treasury. This 50-50 split held only until 1972 when legislation limited premium increases thereby dropping the beneficiaries share significantly. Starting in the early 1980s the 25 - 75 split took hold but was not formally & permanently established until the Balanced Budget Act of 1997 set premiums paid by the beneficiaries @ 25% of total Part B costs which is where it has remained ever since.
The last post reported that the Social Security trustees have determined that under current law retirement benefits will be reduced 23% starting in 2033. The Medicare Trustees' Report for 2025 indicated that the Medicare Hospital Insurance (HI) Trust Fund would also be depleted by 2033 @ which time Hospital Insurance revenues are projected to cover 89% of incurred program costs. Dick Durbin anticipated these projections figuring they were too close for comfort so he is getting out of Washington while the getting is good.
The graphic below shows by interpolation that most retirees received lifetime Medicare benefits as of 2025 that exceed the combination of their payroll taxes, employer's matching contribution, & premiums by over $200,000. An individual would have to earn over $220,000 per year over their entire working career to pay as much into the system as they receive in benefits. A two-earner household with average earnings retiring in 2020 was estimated to receive $353,000 more in lifetime benefits than they paid in taxes & premiums; this gap is projected to increase to $498,000 for those turning 65 in 2030.
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So what's not to like, except it's unsustainable because the projected growth of Medicare, Social Security, Medicaid, & interest on the national debt will shortly exceed expected revenue thereby crowding out all other government programs such as education, infrastructure, & environmental protection - all Democrat party favorites. Already, in fiscal year 2024 interest paid on the national debt surpassed total U.S. defense spending.
The graphic below shows the cost distributions & their growth as a percentage of GDP. Payroll taxes & (income) tax on OASDI (Social Security) benefits fund Medicare Part A Hospital Insurance Trust Fund. Premiums, state payments & drug fees, & general fund transfers fund Medicare Part B, formal name Supplementary Medical Insurance (SMI). Medicare Part D drugs also are 25% - 75% funded by premiums & general fund transfers respectively.
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Note - The Medicare Part A Hospital Insurance Trust Fund is partially funded by income tax payments on Social Security benefits (OASDI on the above graphic). The provision of Trump's OBBBA known as "no Tax on Seniors' Social Security Benefits" accelerates the cash flow insolvency of the trust fund from 2033 to late 2032. The OBBBA was enacted after the trustee's report was issued so the report does not include this information which is a classic "pay now or pay later (when I'm out of office)" charade that shows that not only is Trump not working on solving Medicare's solvency problem, his policies are hastening the Trust Fund's demise.
The following excerpts are taken from the Trustees' report:
In 2024, Medicare covered 67.6 million people: 60.3 million aged 65 and older, and 7.3 million disabled. About 50 percent of these beneficiaries have chosen to enroll in Part C private health plans that contract with Medicare to provide Part A and Part B health services.
The estimated depletion date for the HI trust fund is 2033, 3 years earlier than projected last year primarily due to the change in projected expenditures.
In 2024, HI income exceeded expenditures by $28.7 billion. The Trustees project that surpluses will continue through 2027, followed by deficits until the trust fund becomes depleted in 2033.
For HI, the primary financing source is the payroll tax on covered earnings. Employers and employees each pay 1.45 percent of a worker’s wages, while self-employed workers pay 2.9 percent of their net earnings. High-income workers pay an additional 0.9-percent tax on their earnings above an unindexed threshold ($200,000 for single taxpayers and $250,000 for married couples).
Other HI revenue sources include a portion of the Federal income taxes that Social Security recipients with incomes above certain unindexed thresholds pay on their benefits, as well as interest earned on the securities held in the HI trust fund. For SMI, transfers from the general fund of the Treasury represent the largest source of income. The transfers covered about 71 percent of program costs in 2024. Also, beneficiaries pay monthly premiums for Parts B and D. Those premiums financed roughly 23 percent of the total cost in 2024. As with HI, the securities held in the SMI trust fund earn interest.
Despite the significant differences in benefit provisions and financing, the two components of Medicare are closely related. HI and SMI operate in an interdependent health care system. Most Medicare beneficiaries are enrolled in HI and SMI Parts B and D, and many receive services from all three.
Figure II.D1 shows projected costs as a percentage of GDP. Medicare expenditures represented 3.8 percent of GDP in 2024 and will increase to 6.2 percent of GDP by 2049.
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Over the past 20 years, the HI trust fund experienced various periods of surpluses and deficits. Expenditures exceeded income each year from 2008 through 2015. However, in 2016 and 2017, there were fund surpluses amounting to $5.4 billion and $2.8 billion, respectively. In 2018, 2019, and 2020, expenditures again exceeded income, with trust fund deficits of $1.6 billion, $5.8 billion, and $60.4 billion, respectively. The large deficit in 2020 was mostly due to accelerated and advance payments to providers from the trust fund. In 2021, there was a small surplus of $8.5 billion as these payments began to be repaid to the trust fund, and this continued repayment resulted in a larger surplus in 2022 of $53.9 billion. In 2023 and 2024 there were surpluses of $12.2 billion and $28.7 billion, respectively.
Fund surpluses will continue through 2027. Deficits are projected to return in 2028 and persist for the remainder of the projection period, requiring redemption of trust fund assets until the trust fund’s depletion in 2033.
Under the intermediate assumptions, after 2025 the assets of the HI trust fund would steadily decrease as a percentage of annual expenditures throughout the remainder of the short-range projection period, as illustrated in figure II.E1. The ratio declines until the fund is depleted in 2033, 3 years earlier than projected last year.
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There is substantial uncertainty in the economic, demographic, and health care projection factors for HI trust fund expenditures and revenues. Accordingly, the date of HI trust fund depletion could differ substantially in either direction from the 2033 intermediate estimate. As shown in greater detail in section III.B, trust fund assets would increase throughout the entire projection period under the low-cost assumptions. However, under the high-cost assumptions, asset depletion would occur in 2029.
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This post regarding Medicare & the last post regarding Social Security portrayed the fragility of both programs' financial conditions & in particular their impending cash flow insolvencies that should project the matter into the 2028 presidential race. Imagine being responsible for 11% of a six figure hospital bill (or bills), or people, whose only income is Social Security monthly payments, trying to exist after double digit benefit cuts. These conditions, for both programs, have been known by our temporary politicians for this entire century as Senator Durbin acknowledges above.
How unkind is it for our elected reps to continue building this house of cards until it is too late to not hurt anybody? It is the elderly & people over 55 who are dependent on these programs who will be hurt the most when the programs give way. Just what will these people do then?
But both many well-meaning people & duplicitous elected representatives say, without evidence, that the American people deserve better.
Reference Post: Premium Support Phase-In Leads To The Solution To America's Healthcare Cost Problems
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