Event Recap: Checking in on the Social Security and Medicare Trust Funds

On April 4, the Committee for a Responsible Federal Budget hosted "Checking in on the Social Security and Medicare Trust Funds." The event featured opening remarks from Committee senior vice president and senior policy director Marc Goldwein and a panel discussion on the state of the Social Security and Medicare trust funds following the release of the 2023 Trustees' reports. The panelists included Joe Albanese of the Paragon Health Institute, Andrew Biggs of the American Enterprise Institute, Richard Frank of the USC-Brookings Schaeffer Initiative for Health Policy, Kathleen Romig of the Center on Budget and Policy Priorities, and Josh Gordon of the Committee for a Responsible Federal Budget. 

A video of the full event is available below or here

Goldwein opened the event with an overview of the key findings from the 2023 Social Security and Medicare Trustees' reports. He mentioned that the theoretically combined Social Security Old-Age and Survivors Insurance and Disability Insurance (OASDI) trust fund will exhaust its reserves by 2034, one year earlier than the Trustees' 2035 projection in their 2022 report. The OASI trust fund will deplete its reserves by 2033 while the SSDI trust fund will remain solvent through the 75-year projection window. The expected 2033 insolvency for the OASI trust fund marks the first time since the landmark 1983 reforms that one of Social Security's trust funds is within a decade of insolvency. Meanwhile, the Medicare Hospital Insurance (HI) trust fund is projected to exhaust its reserves by 2031. Goldwein noted that while HI trust fund insolvency is now expected to occur three years later than projected in the Medicare Trustees' 2022 report, a year has been lost by the failure to act and put in place trust fund solutions to restore solvency to the Social Security and Medicare programs. 

As policymakers continue to wait to restore solvency to the Social Security and Medicare trust funds, the necessary adjustments will become larger and more costly. For example, 75-year Social Security solvency could be restored today with a 28 percent (3.4 percentage points) payroll tax increase, a 21 percent across-the-board benefit cut for all beneficiaries, a 25 percent benefit cut for new beneficiaries, or some combination. Delaying action until 2034 would increase the necessary payroll tax increase to 33 percent (4.2 percentage points) and the necessary benefit cut for all beneficiaries to 25 percent. Meanwhile, restoring 75-year solvency to the Medicare HI trust fund today would require raising the HI payroll tax rate by 21 percent (0.6 percentage points) or reducing spending by 13 percent. 

The event then moved into a panel discussion on the Social Security and Medicare trust funds. 

Biggs began by noting that the Social Security Trustees' projection of growing Social Security costs is driven by changes in demographics. Whereas in 1950 there were 17 workers paying into the program for every one beneficiary, that ratio has fallen to three workers per beneficiary and will fall further to two workers per beneficiary by 2031 and beyond. The policy issue is the growth in the real value of benefits. A new retiree today is getting roughly one-third greater benefits than a new retiree 20 years ago, even adjusting for inflation. And benefits are going to continue to grow over time. Biggs worries that even though Social Security insolvency is only 11 years away, policymakers are going to wait until the 11th hour to act and continue to use the program as a political weapon instead of coming together and fixing it. 09He noted that the landmark 1983 reforms were done at the last minute, but those reforms were made under very different circumstances. Whereas beneficiaries faced a 4 percent cut if the trust funds ran out in 1983, they face a 20 percent cut when they run out in 2034. The 1983 reforms used easier options such as raising the retirement age. Reforming the program is harder now because the policy changes that are needed are more difficult. 

Romig continued the Social Security dialogue by noting that the Social Security Trustees' report has told a consistent story over time; for over a decade now, the Trustees have projected Social Security insolvency to occur between 2033 and 2035. So while the outlook for the Social Security trust funds hasn't changed much over the past decade, the looming insolvency of the trust funds is a problem. People love Social Security, and its benefits provide about half of the income for the average retiree. Public opinion polls have repeatedly marked it as one of the top priorities for Americans. The public is eager to restore solvency to the program, and policymakers would be wise to listen to the public. 

Frank shifted the dialogue to Medicare by mentioning that the improvement in the financial outlook for the HI trust fund stems from lower spending and revenue increases due to gains in employment and wages as well as expanded immigration. He noted that the Medicare Trustees' report acknowledges the growth of enrollment in the Medicare Advantage (MA) program – which about half of all Medicare beneficiaries are enrolled in – but provides little insight into the role MA plays in either worsening or improving the financial outlook for the HI trust fund. He argued making good policy choices today will ease addressing HI trust fund solvency in the future. One trust fund solution is reforming the Net Investment Income Tax (NIIT) by expanding the base to eliminate exemptions, such as those on S corporations and limited partnerships, and shifting NIIT revenue from the Treasury's General Fund to the HI trust fund. Another solution is reforming the MA program through reforms to quality bonus payments and risk adjustments. 

Albanese noted that the good news from the Medicare Trustees' report is that the lower spending from and higher revenue into the trust fund over the past year has bought leaders an additional three years to act. However, policymakers shouldn't rely on economic changes and changes outside of health care policy as a substitute for enacting reforms that would put the Medicare trust fund in a more stable financial position. He mentioned several policy solutions – including restricting Medigap coverage, equalizing payments for care regardless of the site-of-service, modifying Medicare payments to hospitals for uncompensated care, and eliminating Medicare's coverage of bad debt – that would close the Medicare trust fund's shortfall over the next decade and serve as a good starting point for enacting systemic reforms that would ensure long-term solvency to Medicare. 

Following each panelist's remarks, they fielded a series of audience questions. On one reform that could improve either Social Security or Medicare trust fund solvency and the Social Security or Medicare program itself, Biggs argued that capping Social Security's maximum benefit – currently $4,555 per month and projected to grow over the long term – would help close some of the solvency gap. He noted that Social Security's maximum benefit is far beyond what any retiree needs to stay out of poverty, and capping the benefit would not only close a portion of Social Security's solvency gap but also trim benefits for a group of retirees that do not need them. Romig mentioned that reforms aimed at reducing poverty for the elderly and improving benefits for low-income beneficiaries is a good place to start. 

Frank noted that reforms to Medicare Advantage could help improve the outlook for the Medicare trust fund and the Medicare program since MA is more of a reflection of what the modern health care system looks like. MA reforms present an opportunity to make changes regarding accountability and payments that would lend a hand in improving the Medicare program and dealing with the issue of Medicare trust fund solvency. Albanese mentioned that reforms to post-acute care and equalizing payments regardless of site-of-care would not only benefit the Medicare trust fund, but would also benefit all parts of Medicare. 

Another question asked whether there are revenue sources outside of the Social Security and Medicare payroll taxes that could provide income to the Social Security and Medicare trust funds. Romig noted that there's no reason why a social insurance program like Social Security can only be funded by payroll tax revenue up to a certain amount (the 12.4 percent Social Security payroll tax only applies to wages up to $160,200). Social Security has always capped the amount of wages subject to its payroll tax because Social Security effectively replaces workers' income when they retire or become disabled. She mentioned that eliminating the taxable maximum would adjust for the increasing income inequality and adjust for the fact that higher-earning workers tend to live longer and thus receive greater Social Security benefits for a longer amount of time. Frank noted that he thought changing the NIIT so that its revenue flows into the Medicare trust fund instead of the Treasury's General Fund is a good way to increase the income flowing into the trust fund. 

The event closed with asking the panelists how do we go from doing nothing to doing something to restore solvency to the Social Security and Medicare trust funds. Doing nothing means an 11 percent cut in Medicare spending in 2031 and a 20-23 percent cut to Social Security benefits in 2033 or 2034 (depending on whether you look at Social Security as theoretically combined or not). Romig is skeptical that policymakers will act before the 11th hour but has been encouraged by the discourse surrounding Social Security that's occurred over the last year. Biggs mentioned that acting on Social Security sooner rather than later is worthwhile but noted that what policymakers say about the program isn't very serious. On Medicare, Frank mentioned there's opportunity for policymakers to make reforms to provider payments, post-acute care, Medicare's coverage of bad debt, and Medicare Advantage. Albanese noted that payment reforms and finding more innovations and flexibilities within the Medicare program can help, but acting sooner rather than later is key as doing so will eliminate the pain on beneficiaries. 

The Committee for a Responsible Federal Budget thanks all those who participated in and attended the event. 

Learn more about the status of the major trust funds and trust fund solutions by checking out our in-depth analyses: