Biden’s plan for fixing Medicare: Raise taxes on Americans earning over $400,000

President Joe Biden said he has a plan to shore up the finances of Medicare, the health insurance plan for America’s seniors: Raise the Medicare tax on people earning more than $400,000 to 5% from its current 3.8%. 

Biden, writing in a Tuesday guest essay in The New York Times, said the proposal would “extend the Medicare trust fund for more than another generation, an additional 25 years or more of solvency — beyond 2050.” The plan will be part of his budget proposal, which will be released Thursday in Philadelphia.

The plan to bolster Medicare’s financial health comes as the nation’s old-age social safety net programs are increasingly under financial strain, partially as the baby boom generation is retiring in force and as the cost of health care has rapidly increased. Under current spending patterns, Medicare’s Hospital Insurance trust fund will be depleted in 2028. That means that the portion of coverage which covers hospital stays and other costs will face a 10% shortfall starting in 2029.

“When Medicare was passed, the wealthiest 1% of Americans didn’t have more than five times the wealth of the bottom 50% combined, and it only makes sense that some adjustments be made to reflect that reality today,” Biden wrote.

The proposal echoes other ideas from Democratic lawmakers on stabilizing Social Security, which is also facing challenges to its trust fund, potentially leading to a cut in benefits.

In February, Senator Bernie Sanders, an Independent from Vermont, and Senator Elizabeth Warren, a Democrat from Massachusetts, introduced legislation that would stabilize the Social Security trust fund for the next 75 years. Their plan involves raising taxes on people earning more than $250,000, as well as introducing a new tax on investment and business income which currently is exempt from the Social Security tax.

The proposal to raise the Medicare tax on high earners to 5% is unlikely to progress, however, given that the House is controlled by Republican lawmakers. 

Biden also proposed giving Medicare more power to negotiate drug prices, which he said could save $200 billion. The president also wants to limit cost sharing for some generic drugs to only $2. The idea would lower out-of-pocket costs for treating hypertension, high cholesterol and other ailments.

—With reporting by the Associated Press.