What a Recession Would Mean for Medicare

As the worry that the United States could be headed towards a recession is growing, so is the concern about what impact this could have on Medicare.

Why It Matters

Medicare is federal health insurance for anyone age 65 and older and for some people under 65 with certain disabilities or conditions.

Shifting trade policies, that have left the U.S. in a trade war with China and Canada, and enhanced stock market volatility are provoking fears of a recession, which could mean heightened economic pressure for the insurance program.

While President Donald Trump's route to the White House was filled with promises of lowering costs for American consumers on "Day One," as well as sparking a revival for domestic business, economists have expressed fears that the economy may be on a path toward recession or a downturn that could rival those of 2008 and 2020.

In addition to the substantial effects on the economy itself, including high unemployment, reduced household incomes, increased government borrowing, and business closures, a recession could also hold major political repercussions for the incumbent administration.

This could mean policymakers could look for ways to cut health care spending to manage federal deficits, at a time when the GOP's budget has already sparked concern of possible cuts to health care spending.

What To Know

One of the first things to happen during a recession is people losing their jobs, which was the case during the Great Recession in 2008 and during the short-lived COVID-19 pandemic-era recession, where tens of millions were laid off.

Finding new employment during a recession isn't easy, so people are often stuck in unemployment for prolonged periods.

Some people would therefore lose their employer-sponsored health insurance, resulting in higher rates of uninsured individuals, which could increase the strain on hospitals and health care providers.

Meanwhile, others could become eligible for Medicare or Medicaid due to the job losses, increasing enrollment numbers and financial pressure on the programs.

As Medicare is also primarily funded by payroll taxes, general revenue and beneficiary premiums, having fewer people in the workforce due to job losses could reduce the funds normally provided by taxes.

This could in turn accelerate the depletion of Medicare's Hospital Insurance (HI) trust fund, which covers Medicare Part A, and therefore hospital stays, skilled nursing facilities, and hospices for eligible beneficiaries, given that payroll taxes accounted for 88 percent of Part A revenue in 2023, according to the health policy research center KFF.

In order to compensate for the possible financial pressures facing government during a recession, policymakers could then look to make cuts to federal programs like Medicare, likely meaning there would be higher premiums and out-of-pocket costs for beneficiaries.

What People Are Saying

Gerald Anderson, professor at Johns Hopkins Bloomberg School of Public Health, told Newsweek: "The main impact of a recession will be reduced revenues for the Medicare program. The Medicare trust fund, that funds hospital services, is projected to become insolvent in 11 years and a recession will reduce this time to 10 years or less."

He added: "In the short run there will be minimal impacts on beneficiaries, but in the long run the program needs serious reform and a recession will make the problem more acute."

Maria A. Polyakova, an associate professor of health policy at Stanford University School of Medicine, told Newsweek: "Overall, my guess is that an average patient who uses Medicare is unlikely to see any dramatic changes in their care. Medicare payment rates are not market-set, so they do not change with recessions."

She added that there is some research showing that "aggregate population health is actually better in recessions," which studies have found could be linked to a reduction in pollution. "So, if any upcoming recession were to lead to lower morbidity this may on aggregate mean less spending for Medicare and patients," she said.

Jeffrey Harris, professor of economics at Massachusetts Institute of Technology, told Newsweek: "A recession could impact many critical decisions of federal lawmakers, private insurers, healthcare providers, and patients. The U.S. Congress may decide to let stand the Medicare physician payment cut that became effective on January 1 of this year. Reduced physician payments under conventional Medicare may cause doctors, hospitals and other providers to shift their resources toward the care of younger, commercially insured patients."

Melinda Buntin, professor at Johns Hopkins Bloomberg School of Public Health, told Newsweek: "Since most Medicare recipients are not in the workforce, the primary effect would be through the payroll taxes and general revenues that finance the program. If those funding sources are reduced, tough choices might have to be made or other funds found to maintain current benefit levels for Medicare enrollees and payment rates for health care providers and Medicare Advantage plans."

What Happens Next?

It's not yet certain whether a recession is definitely on the cards for the U.S., but several upcoming economic reports will offer further insight into the economy's trajectory.