Social Security and Medicare trustees reported that the nation’s safety net programs, face a financial crisis in 2033.
Unless Congress acts, the Social Security program won’t be able to pay out full benefits. Medicare’s hospital fund will face the same problem in 2031.
The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, one year earlier than reported last year.
That means that in ten years’ time, the fund’s reserves will become depleted, and income from payroll taxes on workers will be sufficient to pay only 77 percent of promised benefits.
Medicare recipients will face automatic benefit cuts starting in 2031 and Social Security won’t be able to make full retirement payments starting in 2033 unless Congress intervenes, according to a new government report released Friday.
The latest yearly forecast serves as a warning for lawmakers on Capitol Hill — and for the public — of the fragile financial health of the federal government’s two most expensive programs, which tens of millions of seniors depend on for medical care and retirement benefits.
“The 2023 Trustees Reports indicate a need for substantial changes to address Social Security’s and Medicare’s financial challenges,” the boards wrote.
“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust their expectations and behavior.”
Painful reductions in benefits that seniors rely on could become a reality if lawmakers keep ignoring the problem, warns Lisa McCormick, who has proposed a smart way to fix the system fairly and quickly.
Following up on that warning, McCormick refreshed her proposal to ‘scrap the cap’ on Social Security taxes, so wealthy Americans would contribute on all their income just like the vast majority of workers.
The maximum amount of earnings subject to the Federal Insurance Contributions Act—the payroll tax imposed on both employees and employers to fund Social Security and Medicare—is $160,200.
“Social Security’s finances worsened over the past year while Medicare’s improved slightly, but the problem could be solved if lawmakers make a smart choice within the next decade,” said McCormick, who explained her plan to ‘scrap the cap’ on Social Security taxes.
“LeBron James is paid over $40 million to play 82 basketball games each year,” said McCormick. “LeBron’s FICA tax rate is 0.021 percent. That isn’t really fair. LeBron is done paying into Social Security during the first quarter of the first game.”
“For the rest of that first game, the next 81 games, right through baseball, football & even hockey season, he doesn’t pay another cent to support Social Security while about 70 million Americans rely on it,” said McCormick. “Rich people should pay at least the same tax rate as everyone else.”
“Today, a billionaire pays the same amount of money into Social Security as someone who makes $160,200 a year because the Social Security payroll tax is capped,” said US Senator Bernie Sanders, who said his Social Security plan would lift the tax cap and apply the payroll tax on all income over $250,000.
Sanders and US Senator Elizabeth Warren introduced legislation that would expand Social Security benefits by $2,400 a year and fully fund it for the next 75 years past the year 2096 – all without raising taxes by one penny on over 93 percent of American households.
“Social Security is an economic lifeline for millions of Americans, but many seniors are struggling with rising costs,” said Sen. Warren. “As Republicans try to phase out Social Security and raise taxes on more than 70 million hardworking Americans, I’m working with Senator Sanders to expand Social Security and extend its solvency by making the wealthy pay their fair share, so everyone can retire with dignity.”
Once the reserves from Medicare’s Hospital Trust Fund are depleted, it would only be able to cover 89 percent of the expected costs.
According to the trustees, Medicare gained three extra years of solvency compared to 2022, meaning its funding will run out in 2031.
The board cited the evolving impact of the COVID-19 pandemic as part of this change, and “lower health care utilization through 2032” as one of the largest reasons for this change.
Essentially, more older and sicker individuals died during the COVID-19 outbreak, meaning Medicare beneficiaries are expected to be healthier on average and require less services to be paid for.
Hospital bills represent only a fraction of total Medicare costs, and the report looked at the projected costs for covering doctors’ visits and prescription drugs.
The expected effects of the drug price negotiation provisions included in the Inflation Reduction Act are expected to contribute to substantially lower projected spending on Medicare Part D.
President Biden proposed to extend the lifetime of Medicare’s Hospital Insurance fund into the 2050s as part of his budget rollout earlier this month. The plan included proposals to lower costs for beneficiaries and impose a higher tax rate on high earners.
“Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls,” the trustees wrote in the report. “With each year that lawmakers do not act, the public has less time to prepare for the changes.”
Medicare is the federal health insurance program for all Americans 65 and older plus those with disabilities, while Social Security provides critical monthly benefit checks for retirees, workers’ survivors and some people with disabilities.
Social Security and Medicare’s coverage of hospital care are paid for by trust funds consisting of dedicated taxes paid by workers and employers, not from general tax revenue like most of the rest of the government.
Unless lawmakers approve changes before the deadlines, Medicare and Social Security will be forced to cut benefits sharply for seniors because both programs are paying out more than they take in.
The report is released annually by the Boards of Trustees of the Social Security and Medicare trust funds, a body composed of top administration officials such as Treasury Secretary Janet L. Yellen and Health and Human Services Secretary Xavier Becerra.
“Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls,” the trustees state in the report. “With each year that lawmakers do not act, the public has less time to prepare for the changes.”
The report projects that Medicare funds will be exhausted in 2031, three years later than the trustees previously estimated, which would give lawmakers more time to address the program. The date for Social Security benefits to be exhausted, however, was moved up to 2033, or one year earlier than the trustees projected last year.
Signed into law by President Franklin D. Roosevelt, Social Security today remains one of the most popular and successful government programs in the history of the United States. Before it was enacted in 1935, more than half of the nation’s seniors lived in poverty, as well as countless Americans living with disabilities and surviving dependents of deceased workers.
More than 80 years later, the nation’s senior poverty rate is just 8.9 percent with Social Security providing an essential lifeline to the one in seven seniors who rely on the program for more than 90 percent of their income – as well as the estimated 50 percent of Americans, 55-years-old and older, living without retirement savings. In 2020 alone, during the onslaught of the Covid-19 pandemic, Social Security lifted 22 million Americans out of poverty, including more than 16 million seniors.
By requiring millionaires and billionaires to pay their fair share into the program, the Social Security solutions advocated by Warren, Sanders and McCormick would strengthen the system.
In addition to ensuring solvency to the end of the century, their plans could help low-income workers stay out of poverty by improving the Special Minimum Benefit, restore student benefits up to age 22 for children of disabled or deceased workers, strengthen benefits for senior citizens and people with disabilities, increase Cost-Of-Living-Adjustments (COLAs), and expand program benefits across-the-board.
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