Social Security will not be able to pay full benefits in 2035 if Congress does not act. Medicare has a little more time

CNN
–

Social Security and Medicare will not be able to fully pay benefits in just over a decade if lawmakers do not act to address outstanding deficiencies, according to reports released Monday by administrators of the benefits programs. Although trust fund finances have improved slightly, they remain in a precarious situation.

Social Security’s combined trust funds — which help support monthly payments to seniors, survivors and people with disabilities — are expected to run out in 2035, a year later than previously predicted, according to its trustees’ annual report. After that, revenue from payroll taxes and other sources of income will only be able to cover 83% of the benefits owed.

Meanwhile, Medicare’s financial situation improved further. It is expected to be able to cover scheduled hospital benefits for inpatients through 2036, five years later than last year’s projection, according to its trustees.

The reports will likely become a topic of discussion in this year’s presidential campaign. Both President Joe Biden and his presumptive Republican rival, former President Donald Trump, have promised to protect Social Security and Medicare, both beloved but threatened benefit programs.

However, even with this reminder from administrators, it is unlikely that Congress will delve deeper into the contentious issue anytime soon, even though the growing programs are putting additional pressure on the federal budget and contributing to widening deficits.

But the longer lawmakers wait, the fewer options they will have, experts warn.

Looking only at the trust fund that covers retirement and survivor benefits, Social Security will only be able to cover scheduled payments fully by 2033, approximately the same projection as last year. At that time, the fund’s reserves will be depleted and ongoing income will cover only 79% of the benefits owed.

The Disability Insurance Trust Fund is expected to be able to cover all benefits until at least 2098, when the projection period ends. Merging the two trust funds would require an act of Congress, but the combined projection is often used to show the overall state of the trust.

About 67 million Americans received Social Security benefits in 2023.

As for Medicare, its hospital insurance trust fund, known as Medicare Part A, still has a few more years before it runs dry. But by 2036, Medicare will only be able to pay 89% of total Part A scheduled benefits, which also cover hospice care, short-term skilled nursing services and home health services after hospitalizations.

Medicare covered 66.7 million elderly and people with disabilities in 2023.

The fate of Social Security and Medicare is once again an issue in the presidential campaign.

Immediately after the release of the trustees’ reports, Biden released a statement drawing a contrast between his plans for the entitlement programs and the efforts of Republicans.

“Medicare is stronger and Social Security remains strong,” he said in a statement. “As long as I am president, I will continue to strengthen Social Security and Medicare and protect them from Republican attempts to cut the benefits Americans have earned.”

Biden has repeatedly criticized a budget proposal from a conservative House Republican group for containing benefit cuts and criticized Trump for being open to cutting both programs. Biden’s campaign pointed to a CNBC interview that Trump gave in March, where he said there was a lot that could be done in terms of reducing rights.

Trump said he was referring to combating theft and mismanagement of the programs and repeated his promise to protect the programs. His campaign did not immediately release a statement about the trustees’ reports.

Neither Biden nor Trump have offered detailed proposals to address the looming Social Security deficit, although Biden has said he would raise taxes on higher-income Americans to help bolster the program.

Biden issued a plan that he said would solve Medicare’s financial problems by increasing certain taxes on the wealthiest individuals and funneling some savings from proposed Medicare drug reforms into the trust fund. Trump has not suggested a solution for Medicare.

Social Security and Medicare have been in shaky financial shape, in large part because the country’s population is getting older and living longer. The number of beneficiaries is increasing, but fewer workers are contributing to the programs. Furthermore, healthcare is becoming more expensive.

Monthly Social Security checks are a lifeline for many retirees, representing about 30% of income for people over 65.

Financial forecasts for the combined Social Security trust funds have improved primarily because administrators now forecast a higher level of labor productivity, given that economic growth in 2023 was stronger than predicted in last year’s report. Additionally, they are now assuming a lower incidence rate for long-term disability benefits, which increases the projected employment rate for working-age Americans. But these improvements are partially offset by lower fertility projections.

The outlook for Medicare hospital trust fund finances has been strengthened due to several factors, including a policy change that corrects the way medical education expenses are factored into Medicare Advantage rates starting this year, higher tax returns on payroll resulting from a stronger-than-expected economy and lower-than-projected expenses in 2023.

While program trust funds could become insolvent if lawmakers don’t act, that doesn’t mean entitlements will cease to exist entirely, said Joel Eskovitz, director of Social Security and savings at the AARP Public Policy Institute.

“As long as people pay into the system and pay payroll taxes, Social Security will be there,” he said. “If nothing changes, the program will not pay 100% of the benefit as expected. That’s the concern.”

Benefits programs also weigh on the federal budget at a time when lawmakers are increasingly concerned about growing federal debt. The federal budget deficit will increase from $1.6 trillion this fiscal year to $2.6 trillion in fiscal 2034, according to the latest forecasts from the Congressional Budget Office.

Contributing to this increase is projected growth in Social Security and Medicare spending. Spending on the former is expected to jump from $1.3 billion in fiscal 2023 to $2.5 billion in fiscal 2034, while Medicare spending will more than double from $832 billion. from dollars to 1.7 billion dollars in the same period, according to the CBO.

Still, the administrators’ latest report is unlikely to force Congress to address the thorny issue of entitlement reform. Over the years, lawmakers have put forward a number of proposals — including raising the retirement age, increasing the income threshold for payroll taxes and reducing benefit growth. But few wanted to insist on the subject, since it is such a controversial subject.

House Speaker Mike Johnson has said he will address benefits reform as part of a tax commission he lobbied for, though some consumer advocates fear the end result will be recommendations to cut benefits.

If Congress acts sooner, it could choose from a broader range of solutions, experts say.

“They can be implemented gradually. They may be less draconian,” said Linda Stone, senior retirement researcher at the American Academy of Actuaries. “There is a way to share the burden among more generations.”

This story has been updated with additional information.