Mar 31, 2023
Social Security Insolvency Seen Coming a Year Earlier Than Before
(Bloomberg Law) -- The Social Security system’s retiree fund will be able to fully pay scheduled benefits until 2033, one year sooner than reported last year.
The increase is due mainly to a roughly 3% downward revision of gross domestic product and labor productivity over the projection window, the Treasury Department reported Friday.
Meanwhile, Medicare’s hospital insurance trust fund, which helps pay for “Part A” inpatient hospital care, will be able to pay full benefits until 2031, three years later than last year’s projection.
“At that point, that fund’s reserves will become depleted and continuing program income will be sufficient to pay 89 percent of total scheduled benefits,” according to the annual report of the Medicare and Social Security trustees.
The findings offer a mixed bag of data from the 2023 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. The annual report offers a detailed look at the finances of the financially troubled Medicare and Social Security programs.
Health-Care Spending Lower
The hospital fund’s long-term financial picture improved mainly because of lower expected health-care spending based on updated analysis that uses more recent data.
Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100% of total scheduled benefits until 2033, one year earlier than reported last year. The SS system’s Disability Insurance (DI) Trust Fund is estimated to pay all scheduled benefits through at least 2097, the last year of this report’s projection period.
If both funds’ projections were added together, the resulting OASDI projected fund could pay all scheduled benefits until 2034, a year earlier than reported last year, the report said.
“At that time, the projected fund’s reserves would become depleted, and continuing total fund income would be sufficient to pay 80 percent of scheduled benefits,” the report said. A change in law would be needed to combine the two funds, but that combined projection is often used to reflect the overall health of the Social Security program.
The difference between Medicare’s total outlays and its financing sources is expected to exceed 45% of outlays within 7 years, the report said. Because the same determination was made last year, it triggers a “Medicare funding warning,” requiring the president to submit legislation to Congress to address the warning within 15 days after the fiscal 2025 budget is submitted. It’s the sixth straight year that a Medicare funding warning has been issued.
Congress has assorted options—like increasing taxes and reducing benefits—to reduce or eliminate both programs’ long-term financing shortfalls, but lawmakers have made it clear action isn’t imminent.
Some Republicans initially called for a debt-limit deal this summer to also address entitlement solvency, possibly setting up a bipartisan panel to negotiate policy changes. But President Joe Biden and Speaker Kevin McCarthy (R-Calif.) have since said changes to Social Security and Medicare aren’t under discussion in debt-limit talks.
Republicans have said they won’t support cuts to Social Security or Medicare benefits for those at or near retirement age. Some, including the House’s Republican Study Committee, have proposed an increase in the eligibility age for both programs. And Republicans including House Budget Chairman Jodey Arrington (R-Texas) and Sen. Mitt Romney (R-Utah) have broadly said they would focus their efforts on reducing the trajectory of the programs’ expenses.
Biden proposed raising Medicare-supporting taxes on those earning more than $400,000 a year in his budget proposal. Romney criticized the plan, saying in a hearing it’s unrealistic to think “that Republicans are going to raise taxes – only – as a way to save Medicare.”
A bipartisan group of senators, led by Sens. Bill Cassidy (R-La.) and Angus King (I-Maine), have held informal discussions about entitlement solvency but haven’t produced an agreement.
Senate Budget Chairman Sheldon Whitehouse (D-R.I.) has said bipartisan discussions on entitlement solvency are still possible outside of debt-limit negotiations. He said he’d like to raise the cap on taxable income to support Social Security, which is set at $160,200 for 2023.
“Down the road, could there be conversations about Social Security? Yes,” Whitehouse said in a March interview. “It is facing a solvency issue. To me, the most obvious solution is to pick up the Social Security contributions.”
The report urged Congress to consider policies like the Medicare proposal in Biden’s budget. “With each year that lawmakers do not act, the public has less time to prepare for the changes,” the report said.
To contact the reporters on this story: Tony Pugh in Washington at email@example.com; Jack Fitzpatrick in Washington at firstname.lastname@example.org
To contact the editors responsible for this story: Cheryl Saenz at email@example.com; Sarah Babbage at firstname.lastname@example.org
(Updates with debate in Congress beginning in 12th paragraph.)
©2023 Bloomberg L.P.