Forecast for Social Security and Medicare Brightens a Bit, but Time Still Running Out

The financial outlook for Social Security and Medicare improved a bit this year as the result of a stronger-than-expected economic recovery from the Covid pandemic, according to annual reports released Thursday by the program’s trustees. But both still face financing shortfalls that threaten their ability to pay full benefits in the not-too-distant future.

Among the key data points in the reports:

• Social Security’s Old-Age and Survivors Insurance Trust Fund, which pays retirement and survivors benefits, will be able to cover promised benefits until 2034, one year later than projected last year. After that, with the fund’s reserves depleted, it will only be able to pay 77% of scheduled benefits.

• Social Security’s Disability Insurance Trust Fund is no longer forecast to be exhausted within the 75-year timeframe used in the projections — a significant improvement over last year’s report, which said that the fund would only be able to pay scheduled benefits until 2057. This is the first time since 1983 that the disability reserves are not depleted within the 75-year projection period.

• While the two Social Security trust funds are separate entities, the report also looks at the combined reserves to provide a sense of the actuarial status of Social Security as a whole. (The programs would likely become more tightly linked in the event of a shortfall.) The combined trust funds are now projected to run out by 2035, one year later than reported last year. After that, the program will be able to pay 80% of scheduled benefits.

The Social Security report concludes: “Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

• The Medicare trust fund that covers inpatient hospital care for beneficiaries will be able to pay full benefits until 2028, two years later than reported last year. The program would then be able to pay 90% of expected costs. “The financial projections in this report indicate a need for substantial changes to address Medicare’s financial challenges,” the health insurance program’s trustees wrote, calling on Congress and the White House to act with a sense of urgency. “The sooner solutions are enacted, the more flexible and gradual they can be.”

Biden touts the new numbers: President Joe Biden issued a statement touting the improved forecast for the programs. “Today’s report from the Trustees of the Social Security and Medicare trust funds shows that the strong economic recovery driven by my economic and vaccination plans has strengthened programs that millions of Americans rely on and has put our nation in a better fiscal position,” he said. He also used the opportunity to take another swipe at a plan released earlier this year by Republican Sen. Rick Scott of Florida, which proposed to have all federal programs, including Social Security and Medicare, sunset after five years unless renewed by Congress. “That’s not the way to strengthen these programs,” Biden said.

The bottom line: Despite the projected improvements in this years’ report, Social Security faces insolvency in 13 years; Medicare is just six years away. The trustees continue to warn that lawmakers must act to address the long-term shortfalls both programs face — and that continued inaction could mean more dramatic and painful benefit cuts.

“Policymakers need to get their heads out of the sand and stop pretending these vital programs’ funding issues will fix themselves,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.