25 Jun Ten Things to Know about the Fiscal Health of Social Security and Medicare in Budget and Appropriations, Entitlements, Health, Retirement and Social Security
The long-term fiscal trajectory of the Social Security and Medicare programs looks grim, and are facing years of deficits. Former Social Security and Medicare public trustees Charles Blahous and Robert Reischauer teamed up with the Bipartisan Policy Center to review the trustees’ reports.
They were joined recently by Social Security Administration Chief Actuary Stephen Goss for a lively discussion on the 2018 trustees’ reports at the BPC. We listened in. Here are the top ten things we learned:
- The Social Security trust funds are still projected to run short in 2034. “Social Security” is the combination of two programs: Old Age and Survivor’s Insurance (OASI) and the Disability Insurance (DI). Together, they are referred to as OASDI. The theoretical combined reserves for the Social Security trust funds are projected to be depleted by 2034, matching the projections of the 2017 report. The drawdown of both trust funds will begin this year, four years sooner than projected in last year’s reports.
- When the trust funds are depleted, revenues would be insufficient to cover full benefits. Assuming Congress does not act by 2034, continuing income to OASDI will be able to pay 79% of the full scheduled benefits, two percent higher than last year’s projection.
- Old Age and Survivor’s Insurance’s finances worsened slightly in comparison to last year’s report. Under current law, OASI will be exhausted in 2034, one year earlier than projected last year. The decline reflects less revenue coming in than anticipated. The share of gross domestic product (GDP) that goes to employee compensation, and is therefore taxed, was at a lower level than expected in 2017.
- Disability Insurance experienced a dramatic decline in applicants since 2010, dropping from over 2 million to roughly 1.4 million. This is partially related to the health of the economy, as there are no new laws that could explain this large of a change. DI is projected to fully fund benefits through the year 2032, as opposed to last year’s projection of 2028.
- The Medicare Hospital Insurance (HI) Fund is projected to start tapping into its reserves this year, considerably sooner than last year’s projection of 2023. This is the beginning of the drawdown period for the trust fund. Lower than expected payroll tax revenue played a significant role in these numbers.
- The Medicare HI trust fund’s financial shortfall increased significantly. This measure of the HI deficit increased from -.64 to -.82 of taxable payroll. This makes an increase in standard payroll taxes or a reduction in expenditures much more urgent. As one expert stated, the challenge is “not only sooner, but also larger than it was a year ago.”
- Medicare will run out of money three years sooner than prior projections. The report shows a dramatic acceleration of trust fund depletion for Medicare Hospital Insurance. The depletion date has moved forward three years to 2026.
- Two demographic shifts occurred that affect Social Security finances but largely offset one another. First, the birth rate was lower than projected and does not look to be rising to the estimated rate. Second, the death rate has been higher than expected since 2009, affecting the number of projected program beneficiaries.
- To make Social Security solvent through benefit cuts alone without affecting current beneficiaries, benefits would need to be cut by 21 percent for those who have yet to become eligible. Continued delay in policy reform will inevitably lead to a large population of economically vulnerable individuals at great risk of losing financial security.
- Since the Public Trustee Position was established in 1983, 2015 to 2018 is tied for the longest period the Board of Trustees has gone without filling the vacant Trustee positions. These positions are integral to the function of the Board, given their responsibility of non-partisan, objective oversight.
The Board of Trustees has long recommended that lawmakers take swift action; however, the reality is that the necessary policy changes to create lasting impact have not been made. While this report may feel like good news, the experts warned that slight improvements in projected depletion dates mislead the public from recognizing the urgent need for action. Legislative reform is necessary to ensure program solvency for taxpayers, providers, and beneficiaries.