Event Recap: Trust Fund Solutions
On February 17, Senators Angus King (I-ME) and Mitt Romney (R-UT) joined the Committee for a Responsible Federal Budget and panel of experts to discuss the state of the Social Security, Medicare, and Highway Trust Funds. The event coincided with the launch of our new Trust Fund Solutions landing page.
You can find a video of the full event here or below.
The event featured opening remarks from Senator King, a panel discussion moderated by Josh Gordon of the Committee for a Responsible Federal Budget and featuring Thornton Matheson of the Urban Institute, Sita Slavov of George Mason University, and Michael Chernew of Harvard Medical School, and a closing discussion between Senator Romney and Committee for a Responsible Federal Budget president Maya MacGuineas.
Committee for a Responsible Budget President Maya MacGuineas opened the event by providing the key facts surrounding each of the trust funds. The Medicare Part A Hospital Insurance (HI) trust fund is projected to deplete its reserves by 2026, while the Social Security Old-Age and Survivors Insurance (OASI) trust fund will do so by 2033, the Highway trust fund will do so by 2027, and the Social Security Disability Insurance (SSDI) trust fund will do so by 2057. On a theoretical combined basis, the Social Security trust funds will be exhausted by 2034. Upon insolvency, Medicare Part A spending will be cut by 9 percent, Social Security Retirement benefits by 24 percent, Highway spending by 48 percent, and Social Security Disability benefits by 9 percent.
The event continued with remarks from Senator King, a cosponsor of the bipartisan Time to Rescue United States Trusts (TRUST) Act. The TRUST Act would create bipartisan “rescue committees” for each of the major trust funds. The TRUST Act has broad bipartisan support and in fact won the endorsement of 71 senators as part of the Fiscal Year 2021 Budget Resolution amendment process. Senator King noted that the Greenspan Commission in 1983 was the last time the Social Security trust fund’s solvency was extended through significant reform. He pointed out that every day the issue of trust fund insolvency isn’t resolved, the more difficult it will be.
Senator King’s remarks were followed by the panel discussion on the major trust funds.
Michael Chernew spoke about the Medicare Hospital Insurance trust fund, pointing out that Medicare is currently serving more seniors and providing more care than ever, despite little growth in the numbers of workers paying into the program. He argued that the declining worker-to-retiree and worker-to-cost ratio is the foundation of the trust fund financing problem.
While he highlighted a number of areas that Medicare prices could be reduced he argued that (unlike in the commercial insurance market) provider prices are not the primary issue when it comes to high Medicare costs. Rather, volume and intensity are driving Medicare costs.
Chernew identified payments to Medicare Advantage plans as perhaps the largest opportunity for savings when it came to trust fund solvency. Though these private alternatives to fee for service Medicare are often more cost-effective, he argued, the savings are not shared with government. And in fact, the federal government overpays Medicare Advantage plans due to quality bonuses, upcoding, and higher benchmarks. With traditional Medicare, Chernew argued that Alternative Payment Models that improve efficiencies in how Medicare pays for services will be key to reducing costs.
Thornton Matheson spoke on the Highway trust fund. She noted that 80 percent of funding for the trust fund comes from excise taxes on gas and diesel fuel and that those tax rates have not been adjusted since 1993, reducing their value as revenue sources nearly in half. She advocated for a few different policies to increase revenues for the trust fund including taxing fuel efficiently through a vehicle-miles-traveled tax that is progressively tied to the weight of a vehicle, in addition to increasing the excise taxes on gas and diesel fuels. She also advocated for a carbon tax outside of the transportation sector because it would fix an existing market failure and would encourage innovation to develop cleaner technologies.
Sita Slavov then discussed Social Security’s looming insolvency. She explained the three variables that influence Social Security trust fund financing: the payroll tax rate, the growth of benefits that are being provided, and the amount of workers paying into the trust fund per beneficiary. While Slavov pointed to a number of possible fixes to Social Security, she raised concerns that policymakers would instead kick the can with large and fiscally irresponsible general revenue transfers. She pushed against this solution, and instead advocated for a mix of revenue and benefit changes, with a specific focus on reducing the work and delayed retirement disincentives in the current program. These solutions would not only improve solvency, she argued, but help promote economic growth.
At the end of the panel discussion, the panelists answered questions made by the audience.
Following the panel discussion, Senator Mitt Romney (R-UT) joined Committee for a Responsible Federal Budget president Maya MacGuineas for a conversation that began with a discussion about recent proposals to suspend the federal gas tax. Senator Romney stated that the policy would be “too little, too late” in attempting to combat inflation. It would barely create savings for Americans, but it would worsen the finances of the Highway trust fund and would not combat inflation.
The discussion turned to the importance of securing government trust funds. Senator Romney pointed out that the growing national debt is becoming more frightening because of how large interest costs are and will become in relation to the rest of the federal budget. He is concerned that current law requires severe cuts to benefits when trust funds become insolvent and that waiting until the last minute would make increased borrowing or large tax hikes the only available response. Senator Romney pointed to the TRUST Act as a way to bring lawmakers together to put forward solutions to secure each of the trust funds so the issue could be solved sooner rather than later.
The discussion then touched on the Senator’s support for a carbon tax because he believes it’s the only way to reduce U.S. emissions while also incentivizing a reduction in global emissions.
The discussion closed with Senator Romney expressing hope that the trust fund problems are solvable and that he has found many other members of the Senate who agree.
The Committee for a Responsible Federal Budget is thankful to all those who participated in and attended the event.
Learn more about the statuses of the trust funds and trust fund solutions by checking out our in-depth analyses:
- Trust Fund Solutions
- Ten Options to Secure the Social Security Trust Fund
- Ten Options to Secure the Highway Trust Fund
- Ten Options to Secure the Medicare Trust Fund
- The Infrastructure Bill’s Impact on the Highway Trust Fund
- Senate Finance Subcommittee Holds Hearing on the Medicare Trust Fund
- Trust Fund Solutions Would Be Pro-Growth
- Can Medicare Advantage Reforms Save the Trust Fund?
- The Case for Trust Fund Solutions