Social Security, Medicare Get Modest Boost From Strong Economy

Solid economic growth in the wake of the pandemic has strengthened some of the nation’s leading social safety net programs, as robust employment increases the flow of payments into the Social Security and Medicare trust funds, according to reports released Monday.

The annual report from the Social Security Board of Trustees says the combined Social Security trust funds are now projected to remain fully funded until 2035, a year later than the previous projection.

Once the combined Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund are depleted, the trustees estimate that Social Security will be able to cover 83% of scheduled benefits. (As the trustee’s report notes, “The two funds could not actually be combined unless there were a change in the law, but the combined projection of the two funds is frequently used to indicate the overall status of the Social Security program.”)

On a stand-alone basis, the Social Security retirement trust fund is projected to run dry in 2033, the same estimate as last year. At that point, retirees will receive just 79% of scheduled benefits.

Social Security Administration Commissioner Martin O’Malley said the improved outlook overall is “good news” for Americans who receive Social Security, about half of whom rely on the payments to remain above the poverty line.

“More people are contributing to Social Security, thanks to strong economic policies that have yielded impressive wage growth, historic job creation, and a steady, low unemployment rate,” O’Malley said. “So long as Americans across our country continue to work, Social Security can — and will — continue to pay benefits.”

O’Malley called on Congress to act now on a bipartisan basis to eliminate the threat of trust fund insolvency in 2035. “Eliminating the shortfall will bring peace of mind to Social Security’s 70 million-plus beneficiaries, the 180 million workers and their families who contribute to Social Security, and the entire nation,” he said.

Medicare sees a bigger boost: According to the annual report from the trustees of Medicare, the hospital insurance trust fund is now projected to be fully solvent until 2036 — five years longer than in the previous projection. The trust fund has been strengthened by more workers and higher wages in the overall economy than previously projected, as well as lower expenditures.

Once the hospital trust fund is depleted, the trustees estimate that Medicare will be able to pay 89% of total scheduled benefits.

Benefit cuts still loom: Although the trustee reports show some improvement in the outlook for Social Security and Medicare, the long-term picture is still fairly gloomy. Trust funds for both programs will run dry in just over a decade, threatening beneficiaries with automatic cuts unless Congress acts in the meantime to shore up the programs’ financing.

The projected shortfalls in the trust funds are already playing a role in the upcoming election. President Joe Biden on Monday said he has proposed to extend Medicare and Social Security solvency by raising taxes on the wealthy and reducing drug costs. And he repeated that he does not want to cut Social Security benefits as part of the effort to improve its finances.

“Republicans in Congress have a very different vision,” Biden added. “Their budget sides with the wealthy and special interests to cut Social Security by over $1.5 trillion, increase the retirement age, raise prescription drug costs, and transition Medicare to a system that would raise premiums for many seniors. These changes are cruel and unnecessary.”

For their part, Republicans have sent mixed messages on the issue. Most Republican lawmakers have backed plans to cut benefits in the safety net programs to restore long-term viability, but former President Donald Trump, the presumptive GOP presidential nominee, has been less clear in his policy preferences. In March, he seemed to say that he was open to reining in “entitlements,” but then backed off, claiming he would defend the programs from benefit reductions.

The bottom line: Modest improvement in the Social Security and Medicare trust funds does little to obscure the looming deadlines. Monday’s trustee reports highlight the need for lawmakers to act on plans to stabilize the financing for the country’s most popular and essential safety net programs.