This week on Facing the Future we took a close look at Social Security and Medicare, the two largest programs in the federal budget. Between them they cost nearly $2.2 trillion dollars in 2023, roughly 36 percent of total federal spending. They also affect the retirement income and healthcare of millions of Americans.
On Monday, May 6, the Social Security and Medicare trustees issued their 2024 report, which again indicated that both programs have serious challenges ahead, and those challenges are not too far off.
The Social Security Old Age and Survivors trust fund (OASI) is facing insolvency by 2033, unchanged from last year. If combined with the Disability Insurance (DI) trust fund, the insolvency date would be 2035, one year later than last year.
Medicare’s Hospital Insurance trust fund (HI) is facing insolvency in 2036, five years later than last year.
Doing nothing to address these pending insolvency dates would result in a 21 percent across the board cut for Social Security OASI benefits in 2033, or 17 percent in 2035 for the combined OASDI trust funds, and an 11 percent cut for Medicare HI providers in 2036.
Concord Coalition Chief Economist Steve Robinson, a former senior advisor at the Social Security Administration, joined me to discuss the outlook for Social Security. Later in the show, Jim Capretta of the American Enterprise Institute joined us to discuss the outlook for Medicare.
“The thing that stands out the most is how little things have changed,” Robinson said. “The Social Security Administration’s been predicting trust fund insolvency for the past 30 or 40 years and that hasn’t changed. For the last 10 years or so the window has bounced around between 2033, and 2035. It’s a much smaller window than it has been in the past, and it’s been fairly consistent as we get closer and closer. It’s now basically less than 10 years out in terms of the retirement trust fund insolvency.”
Robinson explained what would happen if the trust fund becomes insolvent. “Once the trust fund is depleted, there’s no extra money, and that means that benefit payments will be limited under current law to the amount of payroll tax income, and when that happens Social Security can no longer pay benefits in full and on time because the payroll tax is not sufficient to cover the cost of benefits.”
He noted, for example, if the trust fund is insolvent, “people who are expecting to get $1,000 only get $830, or people who expect to get $1,000 in June don’t get their $1,000 until July.”
“The reality,” he said, “is that Congress would step in at some point before the checks are unable to go out, and either change the law and allow general revenue to go into the trust fund, or they would raise the payroll tax, or they would do something, presumably, to prevent those benefit payments from being reduced or delayed. But again, it would require Congress to do something, and under current law, that wouldn’t happe, and therefore benefits would be reduced or delayed.”
Regarding Medicare, Capretta said, “it’s hard to look at these things and not try to take a little bit of good news out of it. On the hospital insurance side of Medicare there’s been a trend over the last seven or eight years toward the revenue keeping up with the spending roughly and the long term outlook has not been as bad as people were fearing it might become. This year’s report pushed back the Insolvency date by five years.”
On the other hand, Capretta warned that the growing cost of Medicare’s Supplemental Medical Insurance (SMI) trust fund is cause for concern.
“We have this other trust fund which is always solvent,” Capretta said. “People don’t realize that it gets 75 percent of its money from the Treasury’s general fund, which is essentially the checking account for the U.S. government. If it runs short, they borrow money to pay the bills. And by law it has to send money to the SMI Trust Fund to make sure SMI is always solvent, with 25 percent covered by premiums and 75 percent covered by this general fund contribution. That money coming out of the general fund is a major reason why we have fiscal challenges in the country today already, and in the future. It’s gone up very dramatically compared to where it was 30 years ago, and it’s expected to go up even more in the coming decades because of population aging and continued rises and expenses per beneficiary. So we’re essentially subsidizing Medicare out of the Treasury, which is OK but we don’t have a dedicated revenue source to cover that expense. It’s essentially borrowed money, paying for this part of Medicare.”
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
