A new report from the trustees of the Social Security and Medicare trust funds underscores that the programs are on the path to fiscal insolvency, but proposals to reform them remain the “third rail” of American politics as the White House emphasizes the positive.
While still dire overall, with Medicare expected to become insolvent in six years and Social Security in 13, the numbers were slightly improved from a year ago, a point underscored in a statement from President Joe Biden.
“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,” said Biden. “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.”
Though the strong economic recovery pushed back the go-broke dates for both programs, each is still very much on that path. Social Security’s trust fund is estimated to zero out in 2035, back from last year’s estimate of 2034, while Medicare’s trust fund for hospital care moved from 2026 to 2028.
The trustee’s report said the long-term impact of COVID-19 on the programs was expected to be a wash, with increased mortality offset by expected rises in other healthcare costs in future years.
While praising the slightly improved financials, Biden also lashed out at Republicans, in particular a plan released by Sen. Rick Scott (R-FL) that would have all federal funding come up for a vote in Congress every five years.
“That’s not the way to strengthen these programs,” Biden said. “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.”
Roughly 65 million people receive Social Security benefits, and Medicare covers 64 million. A 2020 report from the National Institute on Retirement Security found that 40% of older people rely solely on Social Security for retirement income, though that figure has been disputed.
Scott’s plan has not caught on with congressional Republicans, and Senate Minority Leader Mitch McConnell (R-KY) has said it will not be part of the GOP’s agenda if Republicans win back the majority.
But experts and most politicians agree something will be done in order to protect the financial integrity of both programs.
In that sense, the report could be seen as a negative if it gives the impression that Social Security’s financial woes are not so bad.
“If they’d stuck to last year’s report, they’d have to deal with this in the next Congress,” said Bill Hoagland, senior vice president with the Bipartisan Policy Center. “This [new report] will give legislators and the Biden administration an opportunity to say, ‘We don’t have to worry about this right now.'”
An analysis from the nonpartisan Committee for a Responsible Federal Budget says Social Security cannot currently guarantee full benefits to current retirees, who can expect a 20% cut in benefits on the expected 2035 insolvency date. The program is expected to run a cash deficit of nearly $2.5 trillion over the next decade.
“Time is running out to save social security,” the analysis reads. “Policymakers have only a few years left to restore solvency to the program, and the longer they wait, the larger and more costly the necessary adjustments will be.”
Marc Goldwein, CRFB’s senior policy director, argues that the trustees’ report may also be overly rosy. For one, it assumes inflation of 3.8% for 2022, which would require substantial deflation in the coming months in order to be accurate, and similarly projects normalized inflation in the coming years that is far from guaranteed.
For Social Security, fixing the problem boils down to relatively simple math. Taxes can be raised and benefits can be cut, with many experts suggesting that a cut for high-income earners coupled with a tax hike may be the best approach. Another option is raising the age requirement both for partial and full benefits.
In any case, Goldwein said Biden’s praise of the report may be premature at best given the current state of the programs.
“It’s sort of silly that the administration is taking credit for this improvement when all it means is that instead of a 62-year-old grandpa facing insolvency when he turns 74, it’ll happen when he turns 75,” he said. “That’s better, but we haven’t fundamentally solved anything.”
If recent history is an indicator, politicians will remain wary of touching the third rail, and any financial fixes for Social Security or Medicare may not come to fruition until after Biden’s first term is over.
“The fact that we are so polarized legislatively means we will not address this when we need to. We’ll address it when it’s a crisis, and that’s the unfortunate situation,” said Hoagland. “We’ll end up going right up to the edge before deciding what to do.”