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Article Title

Medicare "Bankruptcy"

Document Type

Article

Abstract

Medicare, the social insurance program for the elderly and disabled, is once again facing insolvency. Spending from the program’s hospital insurance trust fund is predicted to exceed the accumulated payroll taxes and other revenues that support the fund within the next five years, leaving Medicare unable to honor some of its obligations. Yet, what happens if and when Medicare becomes insolvent has not previously been explored in legal scholarship and is not addressed in statute or regulation. This Article confronts for the first time the major legal questions that Medicare insolvency would present. It explains what policymakers could do to make insolvency less unfair, less harmful, less likely, and more effective as a tool to promote compromise and cost control in the program. In short, this Article argues for the establishment, by law, of rules to govern Medicare bankruptcy.

The Article’s analysis of how an insolvent Medicare program would work reveals several unsettled legal questions, resolution of which would determine insolvency’s harms, who would pay them, and when. Uncertainty surrounding the consequences of insolvency would be problematic from the ex-post perspective because it would increase the unfairness and magnitude of the associated harms. Further, such uncertainty is already problematic from the ex-ante perspective of a program in a five-decade cycle of insolvency because it inhibits compromise and disincentivizes Medicare’s powerful industry constituents from using their influence to promote cost control. In developing this normative insight, this Article for the first time applies the structural, ex-ante theoretical perspective developed in the municipal bankruptcy literature to the law and political economy of a federal spending program. It concludes by addressing the roles of Congress, the Department of Health and Human Services, and courts in clarifying the consequences of Medicare insolvency. Although a partial framework could and should be established by regulation in the short term, this Article calls for a Medicare bankruptcy provision ultimately to be included as a failsafe in future legislation, if and when it comes, to address the current crisis.

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