Social Security benefits will be exhausted by 2033—unchanged from last year’s projections—while Medicare will only be able to pay out its obligations until 2026, two years longer than last year’s projection, according to the Social Security and Medicare Trustee reports, released Friday.
While Social Security and Medicare are meeting their commitments today, and will continue to do so in the years ahead, “these programs face long-term challenges,” said Treasury Secretary Jack Lew during a Friday press briefing. In fact, Lew said, the projections in this year’s report for Social Security are “essentially unchanged” from last year, while those for Medicare “have improved modestly.”
After 2033, the Trustees expect, the income from the dedicated payroll tax will be sufficient to finance about three-quarters of scheduled benefits through 2087.
Lew went on to note that the Medicare report demonstrates “the importance of the Affordable Care Act, which has strengthened Medicare’s finances by reining in health care costs.”
The health care law has also helped extend the life of the Medicare Hospital Insurance Trust Fund, Lew said. Overall, he said, “Medicare’s Hospital Insurance Trust Fund will have resources sufficient to cover full benefits until 2026, two years longer than what was projected in last year’s report.”
The report notes that Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, are both projected to remain “adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.”
However, the report notes that the aging population and rising health care costs cause SMI projected costs to grow steadily from 2% of GDP in 2012 to approximately 3.3% of GDP in 2035, and then more slowly to 4% of GDP by 2087. “Roughly three-quarters of these costs will be financed from general revenues and about one-quarter from premiums paid by beneficiaries,” the report states.
“But more must be done,” Lew asserted. “The president recognizes how essential reform is, and he is determined to work on a bipartisan basis to put Social Security and Medicare on a stronger footing.”
For Social Security, Lew said President Barack Obama was “ready to address future shortfalls, and has put forward a set of principles for reform. These principles underscore the need to find common ground to extend the life of the program while making it clear that changes to Social Security that involve deep cuts in benefits or privatization will be unacceptable.”
Indeed, Social Security Works, which opposes cutting Social Security benefits, says that Congress should ensure everyone pays the same Social Security contribution rate, regardless of their wages. In a statement issued before the reports were released, the group said that the “dramatic growth of income inequality, where wages at the top have grown so much faster than average wages, has caused Social Security to lose income.”
The group asserts that Congress could eliminate “almost all of the projected shortfall by raising the Social Security payroll tax cap so that the 6% of workers who make more than $113,700 a year contribute on all of their wages just like everyone else.”
The group went on to say that two-thirds of senior households rely on Social Security for a majority of their income, while more than a third rely on it for 90% of their income or more.
Read Social Security’s Old Forecasting Method Hides New Time Bomb, Researchers Say on AdvisorOne.