The Social Security program is expected to run short of cash to pay promised benefits in about ten years, while a key trust fund for Medicare will run out of funds by 2031, according to new forecasts issued Friday by trustees of both programs.
The projections serve as an annual reminder that the popular programs rest on shaky financial footings. While any effort to patch them is sure to face stiff political opposition, doing nothing is likely to be worse.
Social Security benefits for retirees and others are primarily paid for through payroll taxes on current workers, and are supplemented by a trust fund.
Benefits paid out by the program have exceeded money coming in since 2021, and the trust fund is now expected to be depleted by 2033. That's a year earlier than forecast last year, thanks in part to slower economic growth.
Unless changes are made before then to shore up the program, 66 million Social Security recipients would see their benefits cut by 23-25%.
Meanwhile, the Medicare trust fund, which supplements payments to hospitals and nursing homes, is also running out of cash. That could result in an 11% pay cut to health care providers unless changes are made by 2031. That deadline is three years later than had been forecast last year.
Trustees anticipate some cost savings for Medicare, thanks to a switch to less-expensive outpatient treatments and because some people who would have required the most costly care died prematurely during the pandemic.
Millions depend on Social Security, Medicare
Treasury Secretary Janet Yellen, who leads the trustees, stressed the importance of propping up both trust funds to avoid draconian cuts in benefits and provider payments.
"Social Security and Medicare are two bedrock programs that older Americans rely upon for their retirement security," Yellen said in a statement. "The Biden-Harris Administration is committed to ensuring the long-term viability of these critical programs so that retirees can receive the hard-earned benefits they're owed."
As part of its budget, the Biden administration proposed extending the life of the Medicare trust fund by 25 years, largely through higher taxes on wealthy individuals. The administration has not proposed similar fixes for Social Security.
The primary challenge for Social Security is demographic. As aging baby boomers retire, there are fewer workers paying into the program to support the rising cost of benefits. As of last year, there were just 2.7 workers paying into the system for each person drawing Social Security benefits.
Additionally, a smaller fraction of income is now subject to the payroll taxes that support Social Security.
Patching the program will require higher taxes, lower benefits or some combination of the two.
"The only responsible thing to do is admit that we've got to make changes and we disagree about how to do it but let's sit down and try to figure those out," said Maya Macguineas, president of the Committee for a Responsible Federal Budget. "If we wait until the last minute, they'll be much, much harder."
ADRIAN FLORIDO, HOST:
Social Security has been called the third rail of American politics - anyone who tries to tinker with it is likely to pay a big political price. But we were reminded again today that, if nothing is done, Social Security recipients are on track for a steep cut in benefits in about a decade. NPR's Scott Horsley joins us now to explain. Hi, Scott.
SCOTT HORSLEY, BYLINE: Hi, Adrian.
FLORIDO: Every year, about this time, we get an update on Social Security's finances. What is today's telling us?
HORSLEY: Once again, Social Security is paying out more in benefits than it's collecting in payroll taxes and interest. That's no surprise. As the baby boom generation ages, there are fewer people working and paying into the system for every retiree. What we learned today is that the trust fund that helps to make up the difference is projected to run out of cash in about 10 years - or a year earlier than had been projected. And if that happens, everyone who relies on Social Security would automatically have their benefits cut by about 23%. So this is our annual wake-up call that something's got to be done to shore up this popular program. That means raising taxes, cutting benefits or some combination of the two.
FLORIDO: It seems like the issue of Social Security has been invoked a lot in Washington over recent months, but are politicians actually tackling this problem?
HORSLEY: No, they're not. President Biden, in his budget, did propose propping up the Medicare trust fund, mostly by raising taxes on the wealthy. But Republicans rejected that idea, and Biden has not offered any fix for Social Security. In fact, you might remember, during his State of the Union address last month, Biden accused Republicans of trying to monkey with both programs, and the ensuing protest in the House chamber just illustrates how politically toxic this is.
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PRESIDENT JOE BIDEN: As we all apparently agree, Social Security and Medicare is off the books now, right? They're not to be touched?
HORSLEY: And if politicians aren't willing to touch these third rails, then both programs are headed for a trainwreck. Medicare's hospital trust fund is set to run out of money in eight years. And if that were to happen, hospitals and nursing homes will be looking at an 11% cut in payments.
FLORIDO: What would it take to fix these programs?
HORSLEY: Well, there are lots of different levers you could pull. For Social Security, you could raise the payroll tax rate. You could make more income subject to the payroll tax. You could have less generous benefits for upper-income people. You could raise the retirement age, although you saw how that went over in France. If you use some combination of levers, you don't have to push as hard on any one of them. Maya MacGuineas, who's with the Committee for a Responsible Federal Budget, warns the longer policymakers wait, the harder this fix is going to be.
MAYA MACGUINEAS: The only responsible thing to do is to admit that we've got to make changes. And we disagree about how to do it, but let's sit down and try to figure those out because not doing anything means across-the-board benefit cut for retirees and huge provider cuts, which means there will be much less health care available for people who need it.
FLORIDO: OK, Scott. But not doing anything, as she said, seems to be where politicians are right now, at least on Social Security. So what might change that?
HORSLEY: Yeah, maybe some spirit of compromise. You know, back in the 1980s, President Reagan and Democratic House Speaker Tip O'Neill did not agree on very much, but they did make a deal to preserve Social Security for another 40 to 50 years. Kathleen Romig, who's with the Center on Budget and Policy Priorities, thinks something like that has to happen again. You know, Social Security represents 21% of the federal budget, so Romig says it's just too big to let it fail.
KATHLEEN ROMIG: There are over 60 million people receiving Social Security now. About half of a typical worker's retirement income comes from Social Security. It's just an incredibly important program. It's worth strengthening, and policymakers absolutely will strengthen it when the time comes.
HORSLEY: You know, politicians often need a deadline to act, and now we know when that deadline is.
FLORIDO: NPR's Scott Horsley, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.