A stronger-than-expected economic recovery from the pandemic has pushed back the go-broke dates for Social Security and Medicare, but officials warn that the current economic turbulence is putting additional pressures on the bedrock retirement programs.
The annual Social Security and Medicare trustees report released Thursday says Social Security’s trust fund will be unable to pay full benefits beginning in 2035, instead of last year’s estimate of 2034. The year before that it estimated an exhaustion date of 2035.
The projected depletion date for Medicare’s trust fund for inpatient hospital care moved back two years to 2028 from last year’s forecast of 2026.
“Economic recovery from the 2020 recession has been stronger and faster than assumed in last year’s reports, with positive effects on the projected actuarial status of the trust funds in these reports,” the report states.
President Joe Biden said in a statement that the report “shows that the strong economic recovery driven by my economic and vaccination plans has strengthened programs that millions of Americans rely on and has put our nation in a better fiscal position.”
"The Social Security and Medicare Hospital Insurance Trust Funds will be able to pay benefits on a timely basis for longer than previously projected before the American Rescue Plan passed," Biden wrote. "The Trustees report says that those improvements are a result in part of a faster recovery in employment, earnings, and economic growth than previously projected."
"Last month, the nonpartisan Congressional Budget Office projected that the deficit will fall by $1.7 trillion this year – the largest deficit reduction in a single year on record – and that the deficit this year will be lower than CBO projected before passage of the Rescue Plan," he added.
Forecasters said in the report that the ongoing COVID-19 pandemic will have no net effect on their long-range projections. But they also noted that assumptions for their latest report were made in February, which was before cases began climbing again nationally and inflation rose even higher.
Social Security pays benefits to more than 65 million Americans, mainly retirees as well as disabled people and survivors of deceased workers. Medicare covers roughly 64 million older and disabled people.
When the Social Security trust fund is depleted the government will be able to pay 80% of scheduled benefits, the report said. Medicare will be able to pay 90% of total scheduled benefits when the fund is depleted.
Income for Medicare’s hospital insurance fund is projected to be higher than estimates from last year because the number of covered workers who help fund it and their average wages are both expected to be higher.
A main source of financing is payroll taxes on earnings paid by employees and employers. About 183 million people paid those taxes in 2021.
The report projects the Medicare “Part B” premium for outpatient coverage to remain stable at $170.10 a month. But administration officials said that projection, based on information from earlier this year, doesn’t reflect an expected drop due to an overestimation of the cost of covering the Alzheimer’s treatment Aduhelm.
The trustees of Social Security and Medicare include the secretaries of Treasury, Health and Human Services, and Labor, as well as the Social Security commissioner. They are supposed to be joined by two “public trustees,” however those positions have been vacant since 2015.
A representative from the White House did not respond to an email inquiry about whether the president intends to nominate new public trustees.
The trustees report is an added reminder of the U.S. government’s financial troubles, as it juggles historically high inflation, recovery from a pandemic and the war in Ukraine.
AARP CEO Jo Ann Jenkins said the reports “send a clear message to Congress: despite the short-term improvement, you must act to protect the benefits people have earned and paid into both now and for the long-term.”
“The stakes are too high for the millions of Americans who rely on Medicare and Social Security for their halth and financial wellbeing,” she said.
This year, Social Security retirees got a 5.9% boost in benefits, the biggest cost-of-living adjustment, also known as COLA, in 39 years.
A Treasury official said this year’s high inflation could prompt an 8% percent increase in benefits next year.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement that “policymakers need to get their heads out of the sand and stop pretending these vital programs’ funding issues will fix themselves.”
A new Congressional Budget Office report states that the biggest drivers of debt rising in relation to GDP are increasing interest costs and spending for Medicare and Social Security. An aging population drives those numbers.
Charles Blahous, a senior economic adviser to former President George W. Bush and a public trustee of Social Security and Medicare during the Obama administration, told The Associated Press that “the first thing that’s important to do is grasp the baseline, it’s very dire,” he said.
Blahous says failing to finance Social Security and Medicare under its current structure “would subject the programs to perpetual renegotiation,” with the threat of benefit cuts or elimination in the future.
Sen. Rick Scott, R-Fla., is proposing an 11-point governance plan that would require Congress to come up with a proposal to adequately fund the programs or potentially phase them out.
Biden slammed Scott’s plan: “That’s not the way to strengthen these programs.”
"While my economic agenda has put us in a better fiscal position – cutting the deficit by the largest amount in a single year on record and strengthening Social Security and Medicare – Congressional Republicans have put forward a different approach," Biden said. "Led by Chair Rick Scott, their plan would put these programs on the chopping block every five years."
“I will work with anyone willing to have an open and honest conversation about growing our economy, bringing down inflation, improving our fiscal position, and strengthening the programs that millions of Americans rely on,” Biden said.
“If we were to wait until the 2030s” to take action, Blahous said, “the annual shortfall would be so large — so many times larger that it’s not possible to fathom.”
House Ways and Means Chairman, Richard E. Neal, D-Mass., said in a statement that “Democrats will continue to fight to ensure that these essential programs remain strong, through good times and bad.”