Event Recap: What's New in the 2022 Social Security and Medicare Trustees Reports?
On June 6, the Committee for a Responsible Federal Budget hosted "What's New in the 2022 Social Security and Medicare Trustees Reports?". 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 2022 Trustees' reports. The panelists included Jeannie Fuglesten Biniek of the Kaiser Family Foundation, Charles Blahous of the Mercatus Center at George Mason University, Brian Miller of Johns Hopkins University, and Kathleen Romig of the Center on Budget and Policy Priorities. Josh Gordon, Director of Health Policy at the Committee for a Responsible Federal Budget, moderated the discussion.
A video of the full event is available here or below.
Goldwein opened the event with an overview of the key findings from the 2022 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 become insolvent by 2035. The OASI trust fund will deplete its reserves by 2034 while the SSDI trust fund will remain solvent through the 75-year projection window – the first time since the 1983 Trustees' report. Meanwhile, the Medicare Hospital Insurance (HI) trust fund is projected to exhaust its reserves by 2028. Goldwein noted that even though the insolvency dates are later than the Trustees' projected in their 2021 reports, a year has been lost by the failure to act. While revenues as a percent of payroll are projected to remain steady, costs will continue to rise and exceed revenues.
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, restoring 75-year solvency to Social Security could be achieved with a 26 percent payroll tax increase or a 20 percent across-the-board benefit cut for all beneficiaries today, which increases to 24 percent if limited only to new beneficiaries. Were action delayed until 2035, the payroll tax would need to be increased by 33 percent or benefits for all beneficiaries would need to be cut by 25 percent. Meanwhile, restoring 75-year solvency for Medicare would require a 24 percent revenue increase or a 15 percent spending cut.
The event then moved into a panel discussion on the Social Security and Medicare trust funds.
Blahous gave an opening statement on the Social Security trust funds. He explained that 90 percent of the funding for the OASI and SSDI trust funds comes from payroll tax revenue and the other 10 percent comes from interest and taxes on benefits. The trust funds are not subsidized by general revenues, which provide both financial discipline and political protection for benefits. He mentioned that both OASI and SSDI benefits are "earned benefits," meaning that workers pay into the programs today to receive benefits in the future. Because Social Security is funded through trust funds, it does not have to compete for funding from general revenue like other programs in the federal budget.
He then gave four choices for restoring 75-year Social Security solvency today: increasing the payroll tax rate from 12.4 percent to 15.64 percent; cutting benefits for beneficiaries by 20 percent; reducing benefits for new beneficiaries by 24 percent; or some combination of the first three options. The magnitude of these policy options would be much larger if action were delayed to 2035.
Blahous also pointed to the economic and policy assumptions that underlie the Trustees' projections. He explained that the Trustees assumed 4.5 percent inflation in calendar year 2022 and 2.3 percent in 2023 -- both likely too low. They also assumed higher wage growth and increased fertility rates. Blahous mentioned that if these assumptions were incorrect, the outlook for Social Security solvency would be much worse. He concluded his remarks by providing three levers for restoring solvency: increasing qualification ages, formula changes for benefits, and/or increasing incentives to remain in the workforce.
Romig continued the Social Security dialogue by explaining how inflation has impacted beneficiaries, as Social Security's annual cost-of-living adjustment (COLA) has increased due to higher-than-expected inflation. She explained that the automatic COLA was put in place because of the high inflation that plagued the 1970s.
She then pointed to the decreasing ratio of workers to beneficiaries. One of the reasons for the declining ratios is that both birth rates and immigration are lower. Regarding SSDI specifically, Romig expressed concern over how "long COVID," where some people experience COVID symptoms for an extended period of time, may impact SSDI claims. She also mentioned that this is the first time since the 1983 report that the Trustees' expect the SSDI trust fund to remain solvent through the turn of the century.
Fuglesten Biniek shifted the conversation to the Medicare trust fund. She opened her remarks by making three main points: the insolvency date for the HI trust fund has improved but only slightly (from 2026 to 2028); Medicare Advantage (MA) growth will play a larger role in finances going forward; and it will likely take a combination of revenue increases and spending cuts to address the trust fund shortfall.
She mentioned that over the past five Medicare Trustees' reports, insolvency has remained within a ten-year window. She cited demographic changes as the root of the problem, with more seniors claiming benefits and fewer workers paying into the program. In 2026, MA enrollment will surpass 50 percent, with spending on extra benefits projected to grow faster than traditional Medicare services. As solutions to address MA payments, she proposes either 2 percent lower payments that would result in $125 billion of savings through 2031 or restricting per-enrollee payment growth rates to the same level as traditional Medicare, producing savings of $264 billion through 2031. While these reforms would not close the solvency gap alone, they're a place to start and other options exist to address the chronic gap between spending and revenue. Fuglesten Biniek concluded by noting that recent discussions in Congress have centered on addressing current gaps in the Medicare program instead of addressing its long-term financing gap, which would mean even more federal spending on the program. Such proposals put forth in Congress include creating an out-of-pocket cap in Medicare Part D, the prescription drug benefit; expanding benefits to include dental, hearing, and vision; and lowering the Medicare eligibility age.
Brian Miller continued the Medicare conversation by outlining the fiscal challenges within the program. He suggested that prior system reforms have been largely unsuccessful, such as 30 years of delivery system reform efforts, fee-for-service (FFS) price controls, and a decade of operations at the Center for Medicare and Medicaid Innovation. He noted the differences between FFS and MA, including their network design, provider network inclusion, price negotiation, and utilization review. Some policy options he outlined include transferring services from Part A to Part B and enacting policies that would increase birth rates and immigration. Specific Medicare program reforms he outlined include transforming the Centers for Medicare and Medicaid Services from being largely a plan operator to becoming a market regulator, enacting risk adjustment capitation within MA, and reforming MA with competitive bidding, including by making FFS compete with MA while making MA the default insurance for Medicare beneficiaries.
Following each panelist's remarks, they fielded a series of audience questions. Such questions asked about reforms to MA and removing the wage tax cap on Social Security payroll taxes. The panelists mentioned that restoring Social Security and Medicare solvency cannot be done on the revenue side alone. Restoring solvency with revenue increases only would limit the burden of fixing the programs only to those currently in the workforce and paying taxes (or will be in the future) while freeing current retirees from having to make any contributions towards solvency. The TRUST Act, which would establish bipartisan commissions to restore solvency to federal trust funds, was also discussed. There was a consensus that the longer policymakers wait to address trust fund solvency, the more difficult it will be.
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:
- Trust Fund Solutions
- Analysis of the 2022 Medicare Trustees' Report
- Analysis of the 2022 Social Security Trustees' Report
- Trustees: Social Security and Medicare Headed for Insolvency in 13 and 6 Years
- CBO Updates Major Trust Fund Baselines
- "A Sacred Trust" Would Weaken Social Security
- 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