White House Budget Leaves Medicare On The Wrong Track

President Biden belatedly released his fiscal year 2024 budget this month, but his proposals do little to actually make the Medicare program sustainable for future generations. After weeks of back and forth with congressional Republicans, with each side accusing the other of supporting Medicare cuts, Biden’s plan to shore up the problem relies on accounting gimmicks. Even worse, the provisions to fix drug prices and raise taxes will worsen Americans’ health and finances in the years to come.

The rising cost of federal health spending is the single greatest fiscal challenge the U.S. faces. Aside from interest payments, unsustainable spending in programs like Medicare and Medicaid is the biggest driver of federal debt. Reforms to slow this spending must happen soon, or painful cuts will become inevitable to avoid a fiscal crisis. Ignoring this problem is not “protecting” Medicare.

Medicare’s unsustainability does not primarily stem from drug spending. Less than 20 percent of Medicare expenditures are on drugs. But Biden’s proposed $200 billion in Medicare savings comes exclusively from that sliver. His budget does this by expanding the federal government’s power to dictate prices, including doubling down on Inflation Reduction Act price controls and even expanding similar policies to drugs covered by private insurance.

Using the government to set drug prices lower may sound attractive, but it will have—and already is having—unintended consequences, including poorer health outcomes. By further raising uncertainty about pharmaceutical investments, these policies encourage manufacturers to launch new drugs at higher prices and reduce research and development, compromising future access to innovative cures and treatments.

Biden also proposes $4.7 trillion in tax increases. Of that, $650 billion would come from expanding a Medicare tax surcharge on investment and business income. The budget would apply it to additional forms of income and would essentially create a new, higher rate bracket for this tax. Democrats considered but did not enact such tax policies when they controlled the Senate. These increased taxes on business and investors will further harm Americans by reducing economic growth.

Ironically, Biden’s purported solution for Medicare’s hospital insurance trust fund does not actually reform hospital payments. Instead, it redirects tax revenues and drug savings from elsewhere in the budget without addressing the underlying factors that are driving fiscal unsustainability. Finding new ways to pay for overspending is not enough for the long-term. The key is stopping the overspending.

Not only does the Biden budget fail to stop overspending, but it also fails to offset the last two years’ massive new health spending. Even with the budget’s proposed total savings, the national deficits over the next decade are expected to be $17 trillion, about $4 trillion more than where Biden started.

Each of Biden’s budgets have ignored the problem of unsustainable federal health spending. Specific proposals to achieve health savings were virtually nonexistent in his first two budgets, and this budget fails to reform the vast majority of Medicare spending. Even the Obama and Trump administrations managed to identify common areas of reform, such as preventing hospitals for overcharging for services that can be performed in doctors’ offices.

Rather than seriously attempt to grapple with the nation’s health spending problem, Biden and his top advisors have mostly contributed to the debate by politicizing it. Contrary to the stale, demagogic talking points he has deployed in the halls of Congress and the pages of The New York Times, lawmakers can significantly reform health programs without “throwing grandma off a cliff.” At Paragon Health Institute, we have identified $2.1 trillion in basic health savings that don’t change benefits (or raise taxes). Our plan is a starting point that, unlike this budget, features policies that both parties have supported in the past.

The president is fond of saying “show me your budget, and I’ll tell you what you value.” Evidently, he values accounting gimmicks, tax hikes, and increased government control over American’s health care more than a truly sustainable Medicare program.

This piece had very significant contributions from Joe Albanese who is a policy analyst at the Paragon Health Institute and was previously a program examiner at the White House Office of Management and Budget.