Dr. Oz Is Sounding the Alarm on a Medicare Threat Most Seniors Don't Know About

Everybody knows that the nation's Social Security system is in rough financial shape. But fewer people may be aware that Medicare also faces a money shortfall.

In just seven years, the Medicare Trust Fund will be unable to meet its cost obligations unless something is done to shore up the program.

Mehmet Oz, the administrator of the Centers for Medicare and Medicaid Services, says there may be a fix for the program. But is he right that a few good moves now can fix past financial mistakes?

What does the trust fund cover?

The trust fund pays for Medicare Part A, which is the part of the program that covers the cost of inpatient hospital stays.

In addition to covering hospitalization costs, Medicare Part A also covers things such as:

• Home health care
• Hospice care
• Rehabilitation services

The bleak picture for Medicare

The trust fund is in trouble because health care spending is increasing, but the amount of money workers contribute to Medicare via payroll taxes is lagging. This problem is likely to get worse as our society ages, and there are fewer workers to support older Medicare beneficiaries.

The latest Medicare trustees' annual report to Congress pegs the date of the trust fund's shortfall to the second quarter of 2033, three months earlier than last year's projection.

If and when the trust fund runs dry, Medicare Part A will only have 89% of the tax revenue it needs to cover benefits.

Oz suggests a solution to the problem

Oz believes that cutting waste and fraud can help fix Medicare's financial crisis. In fact, he has stated that such an effort could "double the life expectancy of the Medicare trust fund."

The Trump administration has taken steps in this direction by promising to crack down on what it views as abuses by hospices and home health agencies.

As part of this effort, there has been a six-month suspension of approvals for new hospices and home health agencies.

Experts respond to the CMS plan

Some critics have charged that the Trump administration's crackdown on bad actors has ensnared hospice agencies that are acting legitimately.

But at least one expert says the effort to crack down on fraud and abuse has merit.

Zach Gaumer, vice president of health policy at the Bipartisan Policy Center, told Investopedia that eliminating payments that are not proper could get Medicare at least halfway to where it needs to be.

But he suggests that more needs to be done.

Among other fixes, the Bipartisan Policy Center has suggested bringing in additional revenue to the program by making more Medicare beneficiaries subject to the income-related monthly adjustment amount (IRMAA) that raises Medicare premiums.

Additional ways to shore up Medicare's finances

In the past, there has been no shortage of suggestions for how to fix Medicare's finances.

Some have recommended increasing the payroll tax that workers pay to fund Medicare. Others have suggested that the government needs to bow to financial realities by cutting back on benefits.

As with the Social Security program, the problem is clear, but the way to fix it remains murky. There is heated debate about the best path forward.

What happens if the trust fund runs out of cash?

So, what is the likely impact if the Medicare trust fund runs dry? No one really knows.

Medicare's trustees have not explicitly stated what would happen after such an event. This differs from the Social Security trust fund, where depletion of funds would simply result in smaller checks to retirees.

Is it likely that the trust fund will be depleted?

Again, no one can say for sure whether depletion of the trust fund will come to pass. Some experts feel it is unlikely.

And yet, the day of reckoning continues to approach, and nothing has been done so far.

It's possible that politicians would react to an empty trust fund by reducing payments to some or all medical providers. That would inevitably reduce access to health care services for some retirees.

So, even if you believe depletion of the trust fund is unlikely, it's important to remember that the possibility of that outcome remains.

How you can prepare for any outcome

Perhaps the worst plan is to expect politicians and the government to do the right thing. Leaving your fate in the hands of others is rarely the best option.

Instead, prepare now. Make sure you have savings tucked away for medical services and emergencies. If you are younger, consider putting extra money into a health savings account (HSA).

Once you enroll in Medicare, you can no longer fund an HSA. However, you can tap any money that is already in the account at any point during your retirement.

And of course, do what you can to stay healthy. Eat well and exercise regularly. Avoid smoking and drinking alcohol. Don't take any other foolish risks with your health.

The healthier you are, the less medical care you are likely to need. That alone can help trim your health care costs substantially.

Bottom line

Like Social Security, Medicare is headed for a fall unless politicians do something to address its financial woes. While optimists are hopeful that a solution is coming, the clock is ticking.

Instead of waiting on politicians to set things right, take matters into your own hands. Prepare yourself financially so you are ready to thrive regardless of the trust-fund outcome.