The financial health of Social Security and Medicare, two of the nation’s most crucial safety net programs, improved slightly in 2021 thanks to a strong economic recovery during the coronavirus pandemic, according to two new government reports.
However, both programs continue to face significant longer-term shortcomings that could slash retirement benefits for millions of retirees and limit payments to hospitals providing care to Medicare patients if Congress does not act. to strengthen them.
Government annual reports released Thursday by administrators of the government’s social security and health insurance programs said the economic recovery from the 2020 recession was “stronger and faster” than projected in the year’s projections. last.
But directors warned that the economic outlook had become more uncertain since mid-February when actuaries made their assumptions for the current reports. For now, they also assume the pandemic won’t affect the programs’ long-term solvency.
Tens of millions of aging Americans, including 47 million retirees, depend on Social Security and Medicare to supplement their incomes and health care expenses. However, both programs — which are funded by payroll taxes and other taxes — will face shortfalls in the future, and lawmakers have taken little action to address the problem.
The Social Security Old Age and Survivors Trust Fund, which pays benefits to retirees, will run out in 2034, a year later than expected. At that time, the fund’s reserves will be exhausted, meaning that incoming tax revenue will only be enough to cover 77% of planned benefits.
This is largely the result of demographic changes. More baby boomers are collecting Social Security payments while a falling birth rate produces fewer workers to pay taxes.
“Legislators have many policy options that would reduce or eliminate long-term funding shortfalls in Social Security and Medicare,” the trustees said in a summary of the reports. “Acting as soon as possible will allow a wider range of solutions to be considered and allow more time to phase in changes so that the public has enough time to prepare.”
The outlook for the program’s disability fund has also improved and, for the first time since 1983, it is no longer expected to run out over the 75-year projection period. By contrast, last year’s report projected that the fund would only be able to pay planned benefits until 2057. That may seem like a big change, but administration officials have said even modest changes – in this case, slightly fewer people with disabilities coming onto the rosters – can have a big effect because program costs and revenues are so closely aligned.
Forecasts for the Medicare Hospital Trust Fund have improved. It is now expected to run into a deficit in 2028, two years later than predicted in last year’s report. This change is mainly due to improved economic forecasts, since the program is funded by payroll taxes.
Actuaries do not expect the pandemic to have a substantial long-term impact on the trajectory of Medicare spending, according to the report. Spending on many elective services has fallen during the pandemic, while spending on vaccines and treatment for Covid-19 has increased. Actuaries said they expect medical spending to return to its normal trend in a few years. But they noted there was “a great degree of uncertainty” about the future of virus-related spending.
“The pandemic is an example of the uncertainty inherent in projecting health care funding and spending over any time horizon,” the report said.
Of course, health insurance is not entirely financed by the trust fund. Medicare benefits that cover doctor’s visits and prescription drugs are funded by general tax revenues. The report notes that spending on these programs is expected to increase significantly in coming years and that some current policies on what Medicare pays doctors may need to be revised as the cost of medical care rises, a change that could make the even more expensive program. in the future.