It is no secret that Social Security and Medicare will soon be insolvent. The updated Social Security and Medicare Trustees Report released earlier this month has confirmed that insolvency is still imminent, and will come even sooner than anticipated.
According to the report, Social Security’s costs are expected to exceed revenues in 2018 for the first time since 1982, facing a shortfall of up to $13.2 trillion. This is not only damaging for the decades to come, but will force the U.S. government to borrow money from the retirement system’s trust fund to pay benefits to participants.
However, Social Security trust funds will run out by 2034, making it simply impossible to pay full benefits on a timely basis. About 23 percent of older married couples rely on Social Security as their main source of income. Social Security also provides workers and their families with retirement, disability, and survivors insurance benefits. Workers earn Social Security benefits by paying into the system during their working years before retirement.
Social Security’s two trust funds are the Old-Age and Survivors Insurance (OASI) Trust Fund, which pays survivor and retirement benefits, and the Disability Insurance (DI) Trust Fund, which pays disability benefits. The projected reserve depletion dates for OASI and DI are 2034 and 2032, respectively. These are changed from last year’s projections of 2035 and 2028, respectively, but the hypothetical combined projection of 2034 remains the same.
Medicare’s trust fund will run out in 2026, three years earlier than previously projected. Medicare’s two separate trust funds are the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund. HI handles Medicare Part A which helps pay for hospital and home health services. SMI handles Medicare Part B and D which helps pay for physician and outpatient hospitals and provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries. It is stated that the HI will be depleted in 2026. This is less than ten years from now.
As Treasury Secretary Steven Mnuchin said on Tuesday , “The Administration’s economic agenda – tax cuts, regulatory reform, and improved trade agreements – will generate the long term growth needed to help secure these programs and lead them to a more stable path.” This agenda will certainly help, but more change is needed. House Speaker Paul Ryan (R-Wisc.) has been pushing entitlement reform since he joined Congress in 1999 but has been unable to achieve that goal.
It is politically difficult to address the out of control costs of mandatory spending, the bulk of which is driven by Social Security and Medicare spending, but fiscal conservatives cannot give up on this now. Mandatory spending now consumes an ever-growing portion of the federal budget , and now sits just above 60 percent of all federal spending yearly. This is unsustainable.
Lawmakers have many options that would help reduce the long-term financing shortfalls in Social Security and Medicare and they must be addressed as soon as possible. Social Security and Medicare spending has grown so excessive that the government has no other choice but to reach into funds or borrow to pay for the exceeded costs. When these programs become insolvent, the government will no longer be able to fund its obligations. As entitlements take up a larger and larger percentage of the budget each year, our federal government will be in danger of default absent serious reform.
Earlier this year, Milton Ezrati stated in Forbes , “Entitlements — Social Security plus Medicaid and Medicare plus unemployment insurance and, for the time being, Obamacare — already absorb 70% of all federal spending.”
Both Social Security and Medicare are in places, and have been for awhile, where they need serious reform to make them solvent. Solutions can vary from a strong leader in Congress pushing to reform these programs while making sure they still provide for those in need, to changing the incentives within the programs that drives their excessive spending. Either way, entitlement reform must come soon, as 2026 and 2034 loom over our heads and a hypothetical crisis moves ever closer to a reality.