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Will Biden's Tax Hike Plan Extend Medicare's Life to 2050?

A significant element of the White House’s 2024 budget proposal is expected to be the extension of the life of the Medicare program for another 25 years. U.S. President Joe Biden’s budget is expected to propose a tax hike on high-income Americans to make the Medicare trust fund solvent beyond 2050. The President published an op-ed in the New York Times, highlighting the plans.

The proposal will likely include an increased tax of 5% from 3.8% on earned and unearned income of more than $400,000 per annum. It is also expected to enhance Medicare’s ability to negotiate prices for drugs. Last year’s Inflation Reduction Act authorized Medicare to negotiate prices, while the new plan is likely to boost that power.

More high-cost drugs are expected to be considered by the insurance program and negotiations can start sooner after they hit the market. This is predicted to save $200 billion over the next 10 years, enhancing the program’s reserves. Per the latest Medicare Trustees Report, the trust fund is expected to reach insolvency in 2028, without any boost.

It is to be seen how the Congress reacts to the President's budget as Republicans are expected to ask for federal spending reduction. A discussion on raising the U.S. debt ceiling is also expected to take place.

Companies Likely to Witness Membership Growth

With an aging population, demand for Medicare is expected to rise in the coming days. Managed care players who can gain from membership growth and volumes include UnitedHealth Group Incorporated UNH, Elevance Health, Inc. ELV, Humana Inc. HUM, Centene Corporation CNC and others.

UnitedHealth’s government business, which consists of Medicaid and Medicare Advantage, is expected to witness significant jumps going forward. This Zacks Rank #2 (Buy) company expects strong growth in individual MA and when combined with its group Medicare gains, the year 2023 is expected to deliver further market-leading growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health targets Medicare-eligible individuals by providing great value-affiliated health plans. Last year, it acquired Integra Managed Care to expand its Medicaid business. With high inflation, demand for its affordable products is expected to rise. Adding members to the government business can provide the company with a steady revenue source.

Humana has a significant presence in the Medicare space. It does not expect any tightened government grip in the space to harm the company. In fact, the company expects to grow better than the market despite such tightening moves, highlighting HUM’s confidence in its government business. The company’s acquisition of iCare in Wisconsin expanded its Medicare business a few years back.

Centene’s membership has been rising over the past several years due to the increase in Medicaid and Medicare businesses, contract wins and expansion across different regions. CNC’s total membership came in at 27.1 million as of Dec 31, 2022, which increased 4.8% year over year. The growth came on the back of strength in Medicaid and Medicare businesses.

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