The financial outlook for Social Security is eroding more quickly than previously expected, as the coronavirus pandemic has drained government revenues and put additional strain on one of the nation’s most important social safety net programs. The overall finances for Medicare, however, are expected to hold steady, though the health program is still forecast to face financial pressure in the coming years.
Annual government reports released Tuesday on the solvency of the programs underscored the questions about their long-term viability at a time when a wave of baby boomers are retiring and the economy faces ongoing uncertainty as variants of the coronavirus surge. The U.S. economy already faces soaring federal debt levels in the coming decades, but both Democrats and Republicans have been wary of making significant structural reforms to the popular programs.
“Having strong Social Security and Medicare programs is essential in order to ensure a secure retirement for all Americans, especially for our most vulnerable populations,” Treasury Secretary Janet Yellen said in a statement. “The Biden-Harris Administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans.”
Senior administration officials said that the long-term effects of the pandemic on the programs are unclear. The actuaries were forced to make assumptions about how long COVID would continue to cause unusual patterns of hospitalizations and deaths and whether it would contribute to long-term disabilities among survivors.
The Social Security Old-Age and Survivors Insurance Trust Fund will now be depleted in 2033, a year earlier than previously projected, according to the report. At that time, the trust fund will run out of reserves and the program will be insolvent, with new tax revenues failing to cover scheduled payments. The report estimated that 76% of scheduled benefits will be able to be paid out unless Congress changes the rules to allow full payouts.
The Disability Insurance Trust Fund is now expected to be depleted by 2057, which is eight years earlier than previously thought, at which time 91% of benefits will be paid.
Medicare’s finances are effectively holding steady. While tax revenue for the Medicare program did decline as a result of the COVID-related recession, Medicare also ended up spending less money than usual last year, as people avoided elective care.
Medicare’s hospital trust fund is projected to be unable to pay all of its bills beginning in 2026. This estimate is similar to those from Medicare’s trustees in recent years. Fixing that gap now could be achieved by increasing the Medicare payroll tax rate from 2.9% to 3.67% or by reducing Medicare spending by 16% each year, the report notes.
But the report highlighted that the official estimate may be unrealistically optimistic. If certain policies set to expire in the next 10 years are extended, or if other expected policy changes occur, the projections would look substantially more worrying.
Long-term, the actuaries said they did not think COVID-19 itself would have substantial influence on Medicare spending on hospital care. On the one hand, the death of many vulnerable, older Americans from the virus may reduce future spending they would otherwise have received. On the other, the actuaries expect that some people may have additional health care needs from the syndrome known as long COVID.
The actuaries declined to make any estimates on the effect of Aduhelm, a very expensive Alzheimer’s treatment that was recently approved by the Food and Drug Administration. The report said that officials were waiting for Medicare to issue guidance on how the drug will be covered before making any calculations. The drug could represent tens of billions of dollars in spending each year.
Democrats in Congress are considering a host of changes to the Medicare program, such as adding new benefits, including coverage for dental, hearing and vision care. While these changes are expected to influence Medicare’s overall finances, none of them are likely to have major effects on the trust fund, which covers only hospital care.