Al Charlson is a North Central Iowa farm kid, lifelong Iowan, and retired bank trust officer.
We have heard for years that the Social Security and Medicare trust funds are running out of assets. The projected dates when both will be depleted are now clearly visible.
The trustees of the Social Security Trust Fund now project that it will be depleted by late 2032. Republican Senator Bernie Moreno of Ohio and Democratic Senator Elizabeth Warren of Massachusetts warned in a recent New York Times guest column that if nothing is done, Social Security benefits could then be cut by more than 20 percent. That would be a jolt and a real hardship for many of our older neighbors.
Moreno and Warren are working together on legislation to remove the current $184,500 payroll tax cap, which they estimate would increase revenue by $3 trillion over the next 10 years and extend Social Security solvency for another generation.
The potential cut in Social Security benefits is a real concern, but at least it would be predictable and understandable. The Medicare picture is much more complicated and potentially more threatening.
The “2026 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Supplementary Medical Insurance Trust Funds” released on June 9, is available on the cms.gov website. It’s complex material; the logical starting point is the Overview, and even that’s not easy reading. For a helpful “snapshot” of the structure of Medicare I would suggest Table II.B1 “Medicare Data for Calendar Year 2025” on page number 12.
There are two basic segments of Medicare which are funded differently and face different challenges. The Hospital Insurance Trust Fund (HI) funds Part A which covers hospital services, hospice care, and skilled nursing or home health care following hospitalization. It accounts for 36.5 percent of total Medicare spending. All Medicare payroll taxes go into this fund, and it receives the portion of income taxes paid by beneficiaries attributable to their Social Security benefits.
The HI fund has a functioning trust fund, and it is the segment of Medicare subject to benefit cuts when that trust fund runs out. The Trustees’ Report projects that the HI trust fund will run out in early 2033 and experience a 2023 shortfall of 11 percent.
The other basic segment of Medicare is the Supplementary Medical Insurance Trust Fund (SMI) which funds Part B (covering physician, outpatient, and home health care services) and Part D (which covers drug costs). Together Parts B and D account for 63.5 perecent of total Medicare spending. (Part C Medicare Advantage plans pull money out of Parts A, B, and D.)
The SMI trust fund receives about 22 percent of its revenue from premiums paid by beneficiaries and 75 percent from the general federal budget. Federal general budget contributions to the SMI trust fund have increased from 5.4 percent of personal and corporate income taxes in Fiscal Year (FY) 2000 to 17.6 percent in FY 2025, and are projected to increase to 22.0 percent by FY 2030. At a time when our nation is running dangerous annual federal budget deficits, that is a significant vulnerability.
Younger readers may be tempted to shrug and say, “that’s an old folks’ problem.” Don’t kid yourself. The American “system” for funding health care is like a teetering tower of Jenga blocks. (For those not familiar with it, Jenga is a game we play with our grandkids. Players take turns removing one block at a time from a tower constructed from 54 blocks. Each block removed is placed on top of the tower until the increasingly unstable structure finally topples.) Our current elected leaders’ strategy appears to be: keep pulling out strategic blocks and hope.
The architects of the 2025 budget reconciliation bill (the so-called “One Big, Beautiful Bill”) made a 12 percent cut to Medicaid over the next 10 years; it was the largest offset to their massive income tax cuts. Their subsequent decision not to continue the enhanced Affordable Care Act marketplace premium subsidies beyond December 31, 2025, is expected to result in up to 5 million more uninsured Americans.
The impact of these “Jenga-style” health care policy decisions have begun to spread like ripples from a stone thrown in a pond. There are anecdotal reports of increased traffic in emergency rooms as fewer people have health insurance protection. MercyOne closed down its labor and delivery services at the Clinton Medical Center in May, forcing expectant mothers from this city of 24,000 to spend critical minutes on the highway at the time when they most need care. The hospital’s decision was strongly influenced by low Medicaid reimbursement rates – with about 41 percent of births in Iowa reimbursed by Medicaid.
There are reports of other providers across Iowa reducing services or closing locations, most recently in Council Bluffs. The reduction in health care services is particularly acute in rural areas of our state, and they affect young and old alike.
I am very grateful to have had both comprehensive employer sponsored health insurance and access to providers for myself and my family throughout my working years, and for the protection of Medicare since retirement. Our government’s health care policies have been essential in keeping that system of protection in place. Our elected leaders now need to do the work necessary to sustain an effective system of health care protection for both Medicare beneficiaries and younger Americans. This needs to be a top priority – time is running out.