This week on Facing the Future, host Bob Bixby spoke with Mark Warshawsky, Senior Fellow at the American Enterprise Institute, about the implications of the 2026 Social Security and Medicare Trustees Report. Their conversation delved into the challenges facing these vital programs, focusing on trust fund exhaustion, demographic assumptions, budget deficits, and potential policy solutions.
Warshawsky highlighted the urgency of the situation, noting that the exhaustion date for Social Security’s Old Age and Survivors Insurance trust fund had been moved up by a year, bringing the program closer to a critical funding shortfall. He explained that once the trust fund is exhausted benefits would need to be cut because “by law, you can only pay what revenues you have available.” According to the trustees, that cut would be the equivalent of a 22% reduction across-the-board. He noted, however, that “in fact, the commissioner and the administration at the time, would have discretion as to how to allocate those cuts. Some people say, let’s just set a cap. In other words, if people are getting above X amount of money they can’t get any more. But people who are below that, they can get their full benefit. That’s one way of doing it. Hopefully, it would be done in a strategic way to make the debate in Congress productive.”
A major theme of the discussion was the demographic changes that have worsened the long-term outlook for Social Security and Medicare. Warshawsky pointed out that the trustees lowered their long-term fertility rate assumption from 1.9 children per woman to 1.75, an adjustment he acknowledged was an improvement but still overly optimistic. “It is an unrealistic assumption,” he said, noting that last year’s fertility rate was below 1.6. “In order to get a 1.75 rate from what the current lower number is, you basically have to have an increase in fertility, and you have to ascribe that to women who are getting married and having children at older and older ages. At some point, it becomes implausible,” he concluded.
Warshawsky also addressed the broader fiscal context in which these programs exist. He noted the confluence of large budget deficits, Social Security and Medicare trust fund exhaustion dates, and a high national debt projected to surpass World War II levels soon. He emphasized the complexity of the challenges, saying, “We’re in a potentially very sensitive, and could be dangerous, time around then, where you have all these exhaustion dates, you have the budget deficits, which have still not been dealt with.”
Turning to Medicare, Warshawsky highlighted a brewing problem with Medicare Part D, the prescription drug benefit program. He explained how recent policy actions had temporarily capped premium growth but warned of a looming sharp increase due to statutory requirements that premiums cover at least 20% of program costs by 2030. He described the situation as politically problematic: “When you look at the projections, that means that there’s going to be a massive increase, 48% increase in 2030 in the premium that’s charged.”
Warshawsky also discussed the impact of productivity gains from technological advances like artificial intelligence, noting the paradoxical effect on federal finances. While AI could boost productivity and incomes, it also requires significant capital investment, potentially driving up interest rates. This increase in interest rates would exacerbate federal budget pressures since debt service costs would rise. “Interest rates are very likely to go up if we see these productivity increases from AI, and that is bad for the budget, because the federal government … has to pay interest.”
A recurring topic was the inefficiency and waste in the healthcare sector, which contributes significantly to rising costs. Warshawsky acknowledged the presence of fraud and misuse in healthcare programs but distinguished Social Security as having very little fraud. He suggested that improving healthcare efficiency could offer a path to cost containment. “Healthcare is more important and more difficult. But in a way, maybe there’s more hope there, because it’s a lot of inefficiency and a lot of unnecessary care.”
Regarding policy solutions, Warshawsky emphasized the necessity of a balanced approach. “We really are talking about a mix of revenue enhancements and benefit changes realistically,” he said. He noted that raising the retirement age remained a politically viable and natural adjustment, reflecting longer life expectancies and higher labor force participation among older workers. “It’s a totally natural adjustment to raise the retirement age.”
The discussion also touched on inflation measurement and cost-of-living adjustments (COLAs). Warshawsky supported using more accurate inflation measures, such as the chained Consumer Price Index (CPI), across government programs to achieve consistency and savings. “It seems to me that you want to be consistent and use it throughout all government programs” .
Warshawsky painted a sobering picture of the political challenges ahead, expressing hope that a better public understanding of the costs of deficits could spur meaningful action. He lamented the current lack of crisis perception, saying, “Unfortunately, from the political point of view, it’s not a crisis. But maybe if people have a better understanding of what those costs are, it might lead to change.”
The conversation underscored the critical state of Social Security and Medicare finances, driven by demographic shifts, fiscal pressures, and healthcare costs. Warshawsky’s insights emphasized the need for honest, balanced reforms and greater public awareness to address these challenges before they become unmanageable. His perspective combined realism about the political difficulties with cautious optimism that pragmatic solutions could be found if stakeholders accept the complexity of the problem and move beyond single-issue fixes.
He concluded, “Maybe when that realization comes through, there’ll be, hopefully, some movement in Congress to really deal with the problem.”
