Americans will stop receiving their full Social Security benefits in about 13 years if lawmakers don’t act to address the pending shortfall, according to an annual report released Thursday by the Social Security and Medicare trustees.
That’s when the combined Social Security trust funds – which help support payouts for the elderly, survivors and disabled – are projected to run dry. It’s one year later than the trustees projected in 2021, thanks to the nation’s economy, employment and earnings recovering from the Covid-19-fueled downturn stronger and faster than anticipated last year.
Looking solely at the trust fund that covers retirement and survivors benefits, Social Security will only be able to afford scheduled payments until 2034. At that time, the fund’s reserves will be depleted, and payroll taxes will only cover 77% of benefits owed. Some 56 million people received these benefits in 2021.
The trust fund for disability insurance, by contrast, should have sufficient funds through the 75-year projection period. Last year, it was forecast to be depleted by 2057, but the trustees have since lowered anticipated long-range disability incidence rates. Some 9.2 million people received disability payments in 2021.
Medicare, which covered nearly 64 million senior citizens and Americans with disabilities last year, is in more dire shape.
Its hospital insurance trust fund, known as Medicare Part A, will only be able to pay scheduled benefits until 2028, two years later than reported last year because both the number of workers subject to payroll taxes and average wages are now projected to be higher. At that time, Medicare will only be able to cover 90% of total benefits.
There is currently no consensus among experts on the lasting impact of the pandemic on the entitlement programs’ finances. While Medicare has faced additional costs to cover Covid-19 patients, that amount was more than offset by the reduction in utilization as Americans deferred care, an administration official told reporters Thursday. The trustees assume that it will have no net effect on long-range projections.
Still, the cost of both Social Security and Medicare is projected to grow faster than the nation’s economy through the mid-2030s, driven mainly by the rapid aging of the US population. Medicare costs will grow faster than the gross domestic product through the late 2070s because of the projected increases in health care services provided.
Last year, an estimated 179.3 million workers paid Social Security payroll taxes and 183.1 million paid Medicare payroll taxes. Employers and workers each pay a levy of 7.65% to finance the entitlement programs. Social Security’s payroll tax rate is applied to earnings up to $147,000 in 2022, while there is no cap for Medicare’s tax. Higher-income workers pay an additional 0.9% Medicare tax.
The trust funds also receive income from the taxation of Social Security benefits.
Among the changes Congress could make to improve the solvency of Social Security would be to raise revenues by one-third, cut costs by one-quarter or some combination of the two, Stephen Goss, chief actuary of the Social Security Administration, said on a panel Thursday.
Raising the retirement age would have less of an impact because the main problem is demographic – there are not enough workers paying into the system compared with the number of senior citizens, most of them baby boomers, who are collecting benefits.
As for Medicare, Congress should not take the program’s slight solvency improvement as a sign to wait an additional two years to address the problem, said Cori Uccello, senior health fellow at the American Academy of Actuaries.
“If we wait too long, then our menu of options dwindles,” she said. “Providers would not be able to be paid in full. And because it’s never happened, we don’t know what would happen. … That could affect access to care.”
Next year’s adjustments
The trustees reports and administration officials also gave an early look at Social Security’s cost of living adjustment for 2023, as well as Medicare Part B premiums, though officials warned the numbers could change before the final determinations are made in the fall.
Social Security recipients could see an increase of about 8% in monthly payments next year, due to high inflation, an official said. The adjustment, which was 5.9% for 2022, will be determined by the Consumer Price Index for July, August and September.
Meanwhile, Medicare trustees are projecting no premium increase for 2023, after hiking the amount 14.5% for this year. In fact, the Centers for Medicare and Medicaid Services recently announced that savings from a price reduction and limited coverage determination of the Alzheimer’s drug Aduhelm could factor into lowering 2023 premiums.
This story has been updated with additional information.