Here’s what lawmakers want to do about it.
Two of America’s biggest financial safety nets are at risk. Unless lawmakers take action, Social Security could face a major funding crisis starting in 2033, and Medicare recipients will face automatic benefit cuts starting in 2031, according to a new pair of annual government reports.
Since both programs are considered vital sources of income for seniors, the impact of these shortfalls could be devastating. This year alone, almost 67 million Americans are set to receive a Social Security benefit per month, according to the Social Security Administration.
“Social Security and Medicare are two bedrock programs that older Americans rely upon for their retirement security,” Treasury Secretary Janet L. Yellen said in response to the report. “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.”
The challenge to addressing these threats is both Social Security and Medicare have become hot-button issues over the past few months as part of a bigger fight over the budget and debt ceiling. The two programs use up a sizable chunk of the federal budget due to the aging population and rising healthcare costs.
So just how much exactly could both programs get cut? And what are policymakers doing about it? Here’s a breakdown of what you need to know.
Will social security run out?
Younger generations have long feared that social security benefits would run out before they retired, but the new forecast is painting an even more concerning picture. The Social Security Old-Age and Survivors Insurance Trust Fund won’t be able to make full payments, which are on average $1,827 per month, to retirees after 2033 (that’s a year earlier than previous estimates). Beyond this point, the program would only be able to pay 80 percent of all promised benefits.
And when it comes to healthcare, the projections don’t look great, either. The Medicare Hospital Trust Fund is also running low on funds, which could result in an 11 percent pay cut to healthcare providers unless significant adjustments are made within the next eight years. After that, the trust will only have enough money to pay hospitals only 89 percent of their fees as required by law. Still, that’s three more years of funding than previous estimates.
Why are Social Security and Medicare funds being depleted?
The bleak financial picture for Social Security is due in large part to a drop in projected economic output and productivity estimates, which are about 3 percent lower compared to last year. One unique challenge is that there also aren’t as many workers paying into the Social Security program as there used to be because an increasing number of Baby Boomers — or those born between 1946 and 1964 — are starting to hit retirement. To put this into perspective, roughly 28.6 million Americans born in this generation reported that they retired in the third quarter of 2020 alone, according to the nonpartisan Pew Research Center. The fact that a smaller portion of income is subjected to the payroll taxes supporting Social Security also doesn’t help.
But Medicare’s projected three-year delay had to do with a decrease in healthcare spending because fewer people were getting sick in the post-pandemic era. A Biden administration official told Reuters this is because more Americans with significant health problems died prematurely during Covid, and therefore, didn’t need further care.
What are lawmakers doing about threats to Social Security and Medicare?
President Biden hopes to shore up Medicare’s finances as part of his proposed budget through at least 2050 by increasing taxes on wealthy Americans — defined as individuals who make more than $400,000 a year. But he hasn’t put forth a similar plan to save Social Security (so far, Biden has only said he opposes cutting benefits).
Meanwhile, Republicans have vowed to “save and strengthen” Social Security and Medicare. One proposal being floated is increasing Medicare eligibility to 67 years old to reflect that increasing life expectancy, which is 74 years old for men and 79 years old for women, according to the Centers for Disease Control. But several Republicans, including former President Trump, have already voiced opposition to taking this route.
Regardless of the approach, officials are warning that there’s no time to waste when it comes to ensuring the future of the two programs that millions of seniors depend on.
“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.”