Social Security and Medicare affect nearly every American at some point in their lives. Reflecting these programs’ importance, every year the Social Security and Medicare Trustees release a report outlining their financial condition. Unfortunately, the Trustees warn that both programs will face financial shortfalls in coming years. What does all of this mean?
No, but both programs are on an unsustainable path. The Trustees warn that predictable demographic trends will cause a significant imbalance between funding coming in, and spending going out in the form of benefits.
What happens if the Social Security and Medicare HI Trust Funds are depleted?
Projected spending growth is driven primarily by two factors: growing numbers of beneficiaries and rising healthcare costs per beneficiary.
The elderly population in the United States is growing rapidly and living longer. In 1990, there were 32 million people ages 65 and older. Today, there are 51 million; within 25 years, the Trustees project there will be 82 million people ages 65 and older.
As the baby boom generation of 76 million people turns 65, enrollment in these programs will balloon. The Trustees project that:
Americans have also been living longer, which increases the length of time that people receive benefits from the program. In 1970, the average 65-year-old male was expected to live until age 79; today, he is expected to live until 84. The comparable life expectancies for women are 84 in 1970 and 87 today. While this is a welcome trend, it means that recipients will receive benefits for longer than they have in the past.
At the same time, as the population ages, fewer workers will be paying taxes will be paying taxes to support each beneficiary, creating an imbalance between projected spending and revenues.
In addition to these demographic factors, the average cost of healthcare for Medicare beneficiaries is growing, and has been growing for more than four decades. In fact, the average cost per Medicare beneficiary (after adjusting for overall inflation) has more than tripled over the last forty years: the annual cost is now approximately $13,000 per beneficiary.
The good news is that many policy solutions are available to address these predictable challenges and improve the financial outlook of Social Security and Medicare — solutions that have been proposed and supported by members of both parties through the years:
You can try your own hand at fixing Social Security with this online tool from the Committee for a Responsible Federal Budget, which allows you to select from various policy options.
Importantly, if policymakers act sooner rather than later, they will have more and better options, which can be gradually implemented to reduce the impact on current and future beneficiaries. Conversely, every year of delay and inaction limits options and makes reform more difficult, which will require larger benefit cuts, higher taxes, or both.