No change in Social Security, Medicare finances, for now
The programs’ actuaries admit the latest projections don’t account for a likely steep drop in tax revenue associated with the COVID-19 pandemic
There was virtually no change in the financial conditions of trust funds supporting Social Security and Medicare’s inpatient hospital services over the past year, according to government reports released Wednesday.
The two huge benefit programs’ actuaries, however, acknowledged they had made no allowance for the financial impact of tens of millions of unemployed Americans no longer paying the taxes that are their primary source of funding.
Medicare’s Hospital Insurance Trust Fund will run out of money in 2026, the same as was projected last year, according to the new report. The fund is now forecast to be able to cover 90 percent of incurred program costs that year, up marginally from the 89 percent estimate in last year’s report.
Meanwhile, the combined Social Security funds — Old Age, Survivors and Disability Insurance — will be depleted in 2035, at which time beneficiaries would get a steep cut since the fund’s revenues will be able to cover only 79 percent of costs. That’s slightly worse than last year’s estimate that benefits would be cut by 20 percent when the funds become insolvent in 2035.
But neither of the reports addresses the impacts of the precipitous economic decline of March and April or the filing of unemployment insurance claims by 22 million Americans in just the past four weeks. Both reports are authored by a board of trustees anchored by Treasury Secretary Steven Mnuchin, Health and Human Services Secretary Alex Azar and Labor Secretary Eugene Scalia.
Since both programs are funded mainly by payroll taxes and millions of Americans are no longer employed and paying these taxes, just how negative the impact will be will depend on the duration and severity of the downturn.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, an independent watchdog group, noted that the Medicare fund is projected to be insolvent in six years and Social Security in 15.
“Once the Trustees incorporate the effects of the current crisis on payroll tax revenue and other factors, the situation will go from bad to worse,” she said in a release.
“The projections in this year’s report do not reflect the potential effects of the COVID-19 pandemic on the Social Security program,” Andrew Saul, Social Security’s commissioner, said in a release. “Given the uncertainty associated with these impacts, the Trustees believe it is not possible to adjust estimates accurately at this time. The duration and severity of the pandemic will affect the estimates presented in this year’s report and the financial status of the program, particularly in the short term.”
The Medicare report warned that in the short range, in particular, “the pandemic is likely to materially affect the economic, demographic, and healthcare-specific assumptions on which the intermediate projections are based.”
The two massive programs cost nearly $1.7 trillion in the fiscal year that ended Sept. 30, accounting for about 38 percent of the entire federal budget.