From 2018 to 2020, the Medicare trustees formally warned the program has become excessively dependent on general revenue transfers from the Treasury rather than its dedicated revenue streams, such as payroll taxes and premiums.
When this happens in just two consecutive years, the president and Congress are required – by law – to act. Specifically, the president must present, within 15 days of submitting his annual budget, a legislative proposal for putting Medicare’s fiscal house in order. And Congress must then consider the legislation on an expedited basis.
Yet, neither the White House nor Congress has moved to slow the cost increase and decrease Medicare’s growing dependence on general revenue financing.
It’s important to remember that Medicare was created as a traditional social insurance program, not a welfare program. The original arrangement was that beneficiaries would finance the Part A program through payroll taxes and pay premiums to cover half of Part B program costs. In 1970, when the program had been just four years in operation, general revenues accounted for 25% of Medicare’s total income; the rest was funded by payroll taxes (62%) and beneficiary premiums (14%).
That mix no longer exists. General revenues have shouldered the largest share of Medicare financing since 2009. By 2016, general revenues passed the 45% mark – the level deemed sufficiently “excessive” to warrant the Medicare trustees to issue an official “funding warning.”