Financial Challenges Facing Social Security and Medicare Largely Unchanged From Last Year, Except for Improvement in Disability Insurance
The financial outlook for Social Security as a whole is much the same as last year, with full benefits payable until 2035, while the program’s trustees have dramatically revised their estimate for the Disability Insurance (DI) trust fund, projecting an additional 20 years of solvency. The outlook for Medicare’s Hospital Insurance (HI) trust fund is largely unchanged, according to new reports from the program’s trustees, with the HI Trust Fund projected to be depleted in 2026.
Social Security’s DI trust fund is now projected to be depleted in 2052. That is 20 years later than projected last year and 29 years later than projected three years ago. DI applications have been declining since 2010, and the total number of disability beneficiaries has been declining since 2014. This year, the trustees incorporated that downward trend into their long-term assumptions regarding the percentage of future workers who will claim DI.
Both Social Security and Medicare face long-run financing challenges that policymakers must address, though the challenges should be manageable, especially if policymakers don’t wait too long to act. The programs are not “going bankrupt” or “running out of money,” as some critics have suggested. Even if their trust funds were depleted, Social Security could still pay about three-fourths of scheduled benefits, using its annual tax income, and Medicare HI could pay almost 90 percent, though such outcomes should not be acceptable.
The aging of the population is the major driver of the projected growth in Social Security and Medicare costs. The share of Americans 65 or older will grow by more than a third between now and 2040 as the baby boomers continue to retire. That alone will raise Social Security spending from nearly 5 percent of gross domestic product (GDP) today to about 6 percent of GDP in 20 years, where it is expected to remain for the remainder of the 75-year projection period. Together with rising health care costs, the demographic shift will raise Medicare spending by a considerably larger amount, from 3.7 percent to 6.5 percent of GDP over the same period.
Social Security and Medicare benefits are not overly generous. The average Social Security retired-worker benefit is about $17,600 a year, and aged widows and disabled workers typically receive less. Medicare has significant cost-sharing requirements and gaps in coverage; as a result, Medicare households, on average, spend a much larger share of their budgets on health care costs than other households.
Policymakers need to take further steps to curb the growth of health care costs throughout the U.S. health care system, both in public programs — particularly Medicare — and in the private sector. But even with reasonable efforts to limit their growth, Medicare and Social Security will require a larger share of our nation’s resources in the coming decades as the population ages. Social Security and Medicare are highly popular programs, and polls show a widespread willingness to support them through higher tax contributions.
Full report: Center on Budget and Policy Priorities