Medicare isn’t just facing a trust fund shortfall—it’s threatening America’s entire fiscal future. While headlines warn that the Hospital Insurance (HI) Trust Fund will run out in 2033, the real danger comes from a different part of the program: Supplementary Medical Insurance (SMI). SMI refers to Medicare spending by Part B (doctors’ visits and outpatient services) and Part D (prescription drugs). Unlike the HI fund, SMI is set up to take whatever it needs from taxpayers—no limits, no debate. In 2024 alone, Medicare Parts B and D financed under SMI added $498 billion straight onto the national credit card. Unless Congress makes fundamental reforms to Medicare, federal healthcare spending will drive the US toward a catastrophic fiscal crisis.

The SMI “Credit Card” ProblemThe SMI “Credit Card” Problem

Reform OptionsReform Options

Congress can strengthen Medicare by shifting power away from Washington and allowing market forces to work. A market-based system would give seniors more choices while putting downward pressure on prices. Michael Cannon suggests Medicare should operate like Social Security: instead of paying hospitals and insurers directly through fee-for-service, Medicare would provide seniors with a fixed cash benefit. Beneficiaries could then use that subsidy to buy insurance and pay for care directly.

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