Social Security and Medicare Reform

 The Impact of Social Security and Medicare Reforms on  Colorado Retirees​

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Social Security and Medicare aim to provide financial protection and healthcare coverage for Americans aged 65 years and older. Data shows that approximately 1,001,428 Coloradans are enrolled in Medicare and 732,528 Colorado retirees receive Social Security benefits, averaging around $1,800 per month. While Social Security and Medicare have existed for close to 90 years and 60 years respectively, they each face challenges in their ability to meet the needs of Americans and remain financially solvent. Lawmakers have introduced different proposals to address these challenges. 

 

These proposals, if enacted, would have a significant impact on Colorado, which is home to over 870,000 residents aged 65 years and up. Retirees, many of whom live on a fixed income from savings, investments, Social Security and pensions, faced rising costs over the past year on housing, food and healthcare, among others. Social Security and Medicare are in place to mitigate these costs and reduce the risk of poverty among older Coloradans. 

 

Proposals to reform Medicare and Social Security target two main challenges: 1) the programs’ ability to meet the needs of beneficiaries and 2) long-term solvency. For example, as the cost of living increases in states like Colorado, benefits must also increase to cover the same percentage of costs. In addition to ensuring adequate support, Social Security and Medicare are projected to be unable to pay full benefits scheduled under current law within the next 10 years. To address these challenges lawmakers have introduced several proposals.

 

On March 20, 2024, the Republican Study Committee (RSC), a committee that includes House Republican Leadership and 80% of House Republicans, released a budget which includes proposals affecting Social Security and Medicare. The budget proposal, titled “Fiscal Sanity to Save America” aims to reduce government spending by $17.1 trillion, balance the budget and reduce taxes over 10 years. As it relates to Social Security, the RSC’s budget calls for over $1.5 trillion in cuts to Social Security by gradually raising the retirement age to 69 and slashing disability benefits. This plan would raise the retirement age for everyone currently 59 years old and under, affecting over 4.6 million people in Colorado who would see their Social Security benefits cut.

 

As the RSC budget relates to Medicare, the Committee’s proposal would end cost controls, including the $35 insulin cap and $2000 out-of-pocket prescription drug cap, provisions of the  Inflation Reduction Act (P.L. 117–169), and introduce a “premium support model”, where the government would provide subsidies to beneficiaries who then choose between traditional Medicare and private health insurers. In 2015, only twenty six percent of people supported a shift to premium support. Seventy percent said, “Medicare should continue as it is today, with the government guaranteeing seniors’ health insurance and making sure that everyone can get the same defined set of benefits.”
 

The Medicare related provision of the RSC’s budget would also eliminate the Secretary of Health and Human Services’ ability to negotiate drug costs, ending potential savings for over 100,000 Coloradans who take medications selected for negotiation like Eliquis, Xarelto, Jardiance, Januvia, and Farxiga. Moreover, ending the policy that caps out-of-pocket prescription drug costs, which the budget outlines, would eliminate $48 million in expected savings for over 177,000 Coloradans. The RSC budget opposes policies to increase taxes to fund Medicare and does not address tax loopholes that are used by high-income business owners to avoid paying into Medicare. The tax would contribute to more than $200 billion in revenue for Medicare over 10 years. Overall, the proposed budget by the RSC includes significant cuts to Social Security and Medicare, potentially affecting millions of beneficiaries in Colorado, and places the tax burden on middle and lower income Americans rather than high-income earners.  

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Another potential reform was introduced in H.R. 5779, the Fiscal Commission Act of 2023. This act proposes the creation of a fiscal commission to address the national debt. While specific measures are not yet detailed, there is concern that the commission will recommend cuts to Social Security and Medicare as part of its debt-reduction strategy, including concern from groups representing Coloradans. Over the past 15 years, three fiscal commissions have been proposed, each failing to reach an agreement or make a recommendation. 

 

Alternative proposals have been introduced with the aim of protecting Social Security and strengthening Medicare without cutting benefits. For example, the Biden Administration's budget includes a tax increase of 1.2% for high income earners making over $400,000 annually in order to fund Medicare, closes Medicare tax loopholes, and directs revenue from the Net Investment Income Tax to the Hospital Insurance (HI) trust fund which, in part, funds Medicare. The budget also directs savings from prescription drug reforms, like the Inflation Reduction Act, into the HI trust fund and supports efforts to improve Social Security benefits for seniors and people with disabilities. The President's budget increases taxes on high income Americans to fund Social Security and raises the Social Security Administration’s budget by 9% to, among other things, improve quality of service. 

 

Separate from the President’s budget, lawmakers have proposed standalone legislation, including the Social Security 2100 Act (H.R. 4583)  which would increase Social Security benefits by 2% across the board and tax all earnings above $400,000 to help fund the program. Currently Social Security payroll tax is capped at around $169,000, which means middle-class and lower-income Americans pay Social Security taxes on all of their earnings, while  higher-income Americans do not. This legislation and the Biden budget proposal would make the wealthy pay taxes on their full income, in line with middle-class and lower-income Americans, in order to fund Social Security. 

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For Colorado, these proposals have significant implications. The state’s growing population of retirees rely on Social Security and Medicare, and cuts or cost increases will have real world implications for program beneficiaries. Congress will continue to consider these and other proposals as it finalizes spending bills for Fiscal Year 2025.