The Senior Citizens League is closely paying attention to recent reports from the U.S. Congressional Budget Office, and economic policy groups such as the Bipartisan Policy Center. These reports confirm that the insolvency dates for both the Medicare and the Social Security Trust Funds have moved forward due to the impacts of COVID-19 and the coronavirus-caused recession.
Even prior to the pandemic, the finances of both programs were under pressure for well-known reasons —the aging of the U.S. population, and the gap between the cost of benefits paid versus the revenues received by each program. In April of 2020, the Social Security Trustees projected that Social Security reserves would be depleted in 2034. But the Bipartisan Policy Center recently released a series of models estimating that Social Security reserves may run low as early as 2028.
Most of the money used to pay Social Security benefits and Medicare claims comes from payroll taxes. Some additional income comes from the taxation of Social Security benefits, and interest earned on the non-marketable U.S. bonds held by the trust funds. All three of these funding sources have been reduced by the 2020 coronavirus recession.
First, with large numbers of people unemployed, or only working part time, the payroll tax revenues received by Social Security are reduced or not collected at all. Second, less revenue from the taxation of Social Security benefits will be collected for the 2020 tax year, because the recession caused lower incomes for many retirees. Third, the Federal Reserve has responded to the economic crisis by cutting interest rates, which will mean that the non-marketable Treasury bonds held by the Social Security and Medicare Trust Funds will earn lower yields, reducing interest income.
Meanwhile, claims for both programs are growing faster than anticipated. Waves of unemployed older workers have been forced to file for benefits sooner than planned. Older Americans are at highest risk for contracting COVID-19, and Medicare outlays are expected to be twice as high as estimated prior to the pandemic.
The Medicare Trustees estimated that Medicare would become insolvent by 2026, but last fall the Congressional Budget Office estimated that Medicare’s Hospital Insurance Trust Fund will be exhausted in fiscal year 2024 (which starts October 1, 2023).
The closer these depletion dates get, the greater the chance that measures to address financing will need to be drastic. Tax increases would need to be greater and, if action is not taken in time, benefits will have to be adjusted to match the amount of revenues received. Estimates from the Bipartisan Policy Center indicate that Social Security benefit cuts of as much as 25% may occur unless Congress acts to make changes.
There is something you can do. Please take our annual 2021 Senior Survey. Tell us a little more about your costs, how COVID-19 is affecting you, and how you think our new Congress should address Social Security and Medicare funding shortfalls.