The 2018 Social Security and Medicare Trustees’ Reports are expected to be released within the next few weeks. In anticipation of this, two former public trustees have issued a preview that includes a list of items to watch for.
Charles P. Blahous III and Robert D. Reishauer, who served as public trustees for Social Security and Medicare from 2010 to 2015, do not sugarcoat their expectations or advice in their preview, released last week. They warn that, as with past trustees’ reports, the 2018 version “will undoubtedly show these two vital programs in troubled financial conditions.”
“Moreover,” they write, “the projections are likely to show that their funding shortfalls have grown more difficult to correct with another year of legislative neglect. The continuing failure to address these programs’ problematic finances creates mounting threats to beneficiaries, tax-paying workers, employers, health care providers, federal finances, and the economy as a whole, with the greatest risks falling on the most economically vulnerable among us.”
In explaining the harsh consequences of doing nothing, Blahous and Reishauer said: “There is still time to enact a solution that would substantially reduce projected poverty among American seniors, while improving the program’s work incentives and requiring smaller revenue increases than existing benefit growth schedules would. However, as more time passes it will become nearly impossible for these competing objectives to be met.”
They note that “each successive year of delay excludes another large cohort of baby boomer retirees from contributing to the solution, thereby reducing the numbers of those among whom the burdens of balancing system finances must be spread.”
For example, if policymakers wait to act until the combined Social Security trust funds are exhausted in 2034, even a 100 percent benefit reduction for those entering the system at that time would be insufficient to close the gap (assuming no payroll tax increase or benefit reduction for those already collecting benefits). Alternatively, the combined employer-employee payroll tax would need to be raised from 12.4 percent to 16.4 under the 2017 assumptions.
Among the items to watch for in the upcoming report, Blahous and Reischauer list:
How large are the financing shortfalls in both programs? How large are the adjustments to benefits and/or taxes required to restore Social Security and Medicare to long-term solvency?
Are Social Security and Medicare cost growth continuing to outpace broader economic growth? If so, by how much and for how long?
Are any of the individual trust funds nearing depletion?
What changes have the trustees made to critical economic and demographic assumptions?
Have the trustees changed their presentation in significant ways?
Have the trustees made significant changes to their projection methodology?
Are there any important caveats or warnings in the reports?
In addition to expressing concerns about the continued failure of policymakers to address the programs’ undoubted financing problems, Blahous and Reischauer observed, “Troublingly, this is the third consecutive year that the trustees’ reports have been developed and published without the participation and oversight of public trustees.”
The two public trustee positions were added to the statutory Board of Trustees in 1983 to increase confidence in the integrity of the trust funds. The public trustee must not be of the same political party. Their presence can help to ensure that the methods, assumptions and conclusions of the trustees are based on objective analysis.
Blahous and Reishauer see no reason to doubt the integrity of recent reports that have been prepared in the absence of public trustees. But they warn: “Lack of public oversight is always troubling, but becomes more so when, because of economic, demographic, or policy changes, the trustees must consider whether to change assumptions critical to the projections. Nominating and confirming public trustees would signal to the public that analysis of these programs’ finances continues to be developed in an objective and nonpartisan manner.”
President Trump and Congress would do well to listen to and act on that advice.