The Concord Coalition says this year‘s reports from the trustees of Social Security and Medicare tell a familiar tale of generational unfairness: Both programs contribute to higher budget deficits even while consuming a growing share of resources and squeezing out other priorities. At the same time, neither program can pay the full amount of promised benefits under current law.
“Today the trustees once again warn that Medicare and Social Security are not on sound financial ground,” said Robert L. Bixby, Concord’s executive director. “Sudden and substantial benefit cuts await beneficiaries in less than 20 years — well within the lifetimes of many current beneficiaries — if lawmakers fail to act. Any ‘political leader’ worthy of that title, including those out on the 2020 campaign trail, should make it a priority to find solutions that are both fiscally and generationally responsible.”
Bixby added: “The trustees’ warnings seem all the more alarming because the country is not in a position of current or projected fiscal strength. Delaying reforms, however, would simply exaggerate the generational inequities of reform. For example, the trustees say it would now take an immediate and permanent benefit cut of 17 percent to keep the Social Security trust fund solvent for 75 years. Waiting until 2035 to take action would increase that benefit cut to 23 percent.”
It is important to remember that neither of these important programs “pay for themselves.”
The trustees’ reports confirm that Social Security and Medicare Part A (Hospital Insurance) will experience growing cash deficits in the future as they pay out more than they receive from their respective payroll taxes.
General federal revenues also support Medicare Part B, which provides various medical services, and Part D, which helps pay for medicine. By design, the premiums that older Americans pay for these parts of Medicare only cover about 25 percent of their costs.
According to the trustees, the general revenue subsidies for Social Security and Medicare are projected to total $431 billion this year, or 2 percent of GDP. This would consist of $81 billion for Social Security and $350 billion for Medicare. If full benefits were maintained in both programs, by 2043 the subsidies would more than double to 4.4 percent of GDP.
Key drivers of these rising costs are the large numbers of retiring baby boomers and growing health care costs. This means the government must spend more each year just to provide the same level of entitlement benefits to more people.
The trustees’ projections on how long the Medicare and Social Security trust funds will remain solvent receive considerable attention each year. Today’s reports say the combined Social Security trust funds will be exhausted in 2035, a year later than last year’s estimate. However, the projected depletion date for the largest Social Security trust fund — for old age and survivors’ benefits — remains 2034, the same as last year.
Medicare’s Hospital Insurance trust fund is expected to run dry in 2026, also reflecting no change from last year’s estimate.
These trust funds, however, are not the pots of ready cash that many people believe them to be. They are merely internal government accounting mechanisms that do not provide meaningful information about the fiscal and economic effects of these programs as their growth puts more pressure each year on the overall federal budget.
The Concord Coalition also notes that for the fourth year in a row, the public trustee positions have been left vacant. This is very serious omission.
The public trustees play a vital role in ensuring objective oversight of Social Security and Medicare finances. The two public trustees are the only trustees who are not members of the president’s administration, and by law one must be a member of the opposing party. Concord urges the president and Congress to agree on two credible candidates to fill these crucial positions in time for them to have a meaningful role in preparing the 2020 report.