If you’re familiar with Free the Facts, you know we’ve been eagerly awaiting the 2021 Social Security and Medicare Trustees Reports since last April. Unfortunately, our wait was five months longer than usual this year—both reports were released on August 31st. And since you don’t have time to read hundreds of pages about these two programs, we wrote this handy Q&A-style guide to cover everything you need to know:
Could you start with Social Security? I’ve seen the Social Security Repository, so I know the program was projected to reach insolvency by 2035. Has that changed at all?
Yes, and it’s not good news. Social Security’s trust funds are now scheduled to go bankrupt by 2034, a whole year earlier than previous estimates indicated.
If no policy changes are made, we can expect to see huge benefit cuts across the board in about 13 years. For example, anyone receiving Social Security checks will see an immediate 22% cut, with continued cuts occurring each year until a more sustainable policy solution is reached.
That sounds bad. Any way we can stop that from happening?
Congress has a few options it can use to bring Social Security back to solvency: raising taxes to generate revenue, cutting benefits to decrease costs, or some combination of both. Of course, which solution you advocate for depends on your broader political beliefs.
According to the trustees, long-term solvency could be achieved by increasing payroll taxes from 12.4% to 15.76% of income. Solvency could also be achieved by cutting all benefits—for both current and future beneficiaries—by 21%.
Neither of these proposals would be particularly popular among voters, which is why we’ll need to see more innovative policy solutions come out of Congress over the next few years if we want to realistically shore up the program’s finances.
Got it. What do the trustees say about COVID-19’s effect on Social Security?
Well, to start, it is probably the reason why their report was five months late.
To produce the report, the trustees need to estimate the amounts of retirees and workers in the United States to make their short-term projections for Social Security. This year, they had to factor in higher mortality rates, a drop in birth rates, and decreased immigration rates due to the pandemic.
There was also a large drop in employment and earnings in 2020 due to COVID-19. Social Security is funded by payroll taxes, so decreased earnings means a hit to the program’s revenue. This is partly why the insolvency date has been moved up by a year.
Social Security’s insolvency date is a major cause for concern because it is the federal government’s most expensive program—but it won’t hold that title for long. Medicare will soon cost the most, and unfortunately, it hasn’t been safe from the impacts of the pandemic either.
Uh-oh. So what does the Medicare Trustees Report say?
The bad news? The trustees say COVID-19 has “dramatically affected” Medicare. The good news, though, is that most of these effects seem to be short-term.
Medicare’s Hospital Insurance (HI) Trust Fund lost a lot of its payroll tax revenue in 2020. And as COVID-19 cases flooded our country’s hospitals, the program was also forced to make advance payments to cover its health care benefits. This combination of lower revenue and higher outlays caused the trust fund to deplete much faster than anticipated.
That’s only temporary. Those advance payments will be repaid in 2021 and 2022, putting the HI Trust Fund back on track. But unfortunately, “back on track” isn’t a good thing either—the trust fund was already expected to go bankrupt by 2026.
Did the trustees talk about any solutions for Medicare?
Not as specifically as the Social Security trustees, but they did express the need for major changes in the next few years.
The pandemic upended everything about our health care system. So much of the health care consumed in 2020 was related to COVID-19, while most other routine and elective procedures were either reduced or deferred. Things will stabilize again, but once they do, Medicare will still need adjustments to become fiscally sustainable.
As the trustees put it:
“The financial projections in this report indicate a need for substantial changes to address Medicare’s financial challenges. The sooner solutions are enacted, the more flexible and gradual they can be.”
Sounds like a good bottom line.
Agreed. And we couldn’t have put it better ourselves, because that sentiment applies to both programs. The Social Security trustees even echoed it in their own report: “With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
The need for innovative, bipartisan legislation is more urgent than ever. Millions of Americans depend on Social Security and Medicare, and millions more have paid into them throughout their working lives. We must ask our elected officials what they plan to do about these two programs—our future depends on it.