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” Problem

Reform 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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