WASHINGTON -- The Concord Coalition said today that this year’s reports from the Social Security and Medicare trustees again show that these programs need substantial reforms to put them on sustainable paths without squeezing other national priorities out of the federal budget.
“Over the years the trustees have been very consistent in warning policymakers that failure to address the financial challenges of both programs risks harmful consequences for future beneficiaries,” says Robert L. Bixby, executive director of The Concord Coalition.
He added: “It would be a nice change if this year Congress and the president actually took these warnings seriously enough to do something. The longer the delay, the more difficult the challenges become. Yet President Trump and Congress have shown little or no interest in anything other than the ‘Do Nothing Plan.’”
The basic challenges are clear: With an aging population and rising medical costs, the federal government must spend more each year just to provide the same level of Social Security and Medicare benefits to a larger group of beneficiaries.
“It is a dangerous but widespread fallacy to suggest that these two programs are in fine financial shape for years to come,” Bixby said. “On the contrary, the need for change is urgent.”
Undue complacency is sowed each year by focusing too much attention on the projections of when the Social Security and Medicare trust funds will be exhausted. Today’s Medicare report projects that its Hospital Insurance fund will be exhausted in 2026, three years earlier than last year’s projection. Exhaustion of the combined Social Security trust funds is projected for 2034, the same as in last year’s report.
It must be kept in mind, however, that these trust funds are merely internal government accounting mechanisms that do not provide meaningful information on the growing costs of Social Security and Medicare or their impact on the rest of the federal budget.
From a budgetary standpoint, both programs are already running annual cash deficits. Having a positive trust fund balance simply means that the U.S. Treasury must come up with the money to make good on the benefit obligations.
The trustees say that general revenue demands for Social Security and Medicare will total $416 billion this year, or 2 percent of GDP. Of that total, $85 billion would go to Social Security and $331 billion for Medicare. By 2042, the trustees estimate that this financing gap will more than double to 4.4 percent of GDP.
The trustees encourage lawmakers to act sooner rather than later to allow time for phasing in changes, utilizing the broadest range of possible policy solutions. The longer lawmakers wait, the greater the policy challenges and risks of adverse impacts on the most vulnerable.
Two former public trustees for Social Security and Medicare recently wrote about this problem using an analysis of last year’s reports. Looking at just the changes needed with Social Security, if we wait until 2034 to fix the problem, even a 100 percent reduction in benefits for newly eligible people would be insufficient to close its financing gap (assuming no payroll tax increase or benefit reductions for those already collecting benefits). Alternatively, the combined employer-employee payroll tax would need to be raised to 16.4 percent from 12.4 percent.
Elected officials should be moving as quickly as possible to put Medicare and Social Security on a more responsible path. In addition, voters this year should expect congressional candidates to understand the need for such reforms and to clearly explain how they would pursue them.