Director, Policy Futures
The Social Security and Medicare trustees will release their annual reports on the programs’ finances Wednesday. Though we don’t know how the projections may change from last year’s, we expect that they will tell a similar story: that Social Security and Medicare face real but manageable financial challenges, and they are not unaffordable or “bankrupt.”
The trustees last year estimated that Social Security’s combined trust funds — the Old-Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund — will be exhausted in 2034. That was well within the range that they have projected for the past two decades (see table). Although the trustees projected last year that the DI trust fund faced imminent depletion, the 2015 Bipartisan Budget Act moved DI’s depletion date to around 2022 by temporarily reallocating payroll tax revenues.
Even after the combined trust funds are exhausted, Social Security could still pay about three-fourths of scheduled benefits using its tax income. Likewise, the trustees estimated last year that Medicare’s Hospital Insurance Fund — which health reform and other factors have strengthened financially — would be able to pay 86 percent of scheduled benefits after exhaustion in 2030.
Fluctuations from year to year in the trustees’ long-term estimates are normal, as the table shows. A variety of demographic factors (such as fertility, mortality, and immigration) and economic variables (including wage growth, inflation, and interest rates) affect Social Security, and the actuaries constantly improve their methods. The same variables, as well as the growth of health care costs, also drive the Medicare projections.
Revisions of a year or two, in either direction, therefore aren’t a cause for alarm (or celebration). In fact, the trustees caution that their projections are uncertain. For example, last year they judged that there was an 80 percent probability that Social Security trust fund exhaustion would occur sometime between 2030 and 2040 — and a 95 percent chance that it'd happen between 2029 and 2046. More recently, the Congressional Budget Office (CBO) estimated that exhaustion would occur in 2029. In short, all reasonable estimates show a manageable long-run challenge but not an immediate crisis.
A big uncertainty in the projections is future mortality, whose effects will take decades to compound. Longer lifespans are good news for Americans, but they worsen Social Security and Medicare’s financial outlook. CBO thinks that longevity will increase by much more than the trustees assume, while the 2015 Technical Panel — an independent advisory group — stands in the middle.
Mortality improvement rates vary significantly, so policymakers should avoid overreacting to the latest ups or downs. Average American lifespans have grown over time, but the greatest gains are accruing to higher earners. At the same time, poorer women’s lifespans have actually shrunk, some studies show. And the overall U.S. death rate rose last year for the first time in a decade.
We’ll be back with our reactions after the new Social Security and Medicare reports are released.
|Social Security Trustees’ Estimates Have Fluctuated, But Tell a Consistent Story|
|Year of report||Year of trust-fund exhaustion|
Source: 2015 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, Table VI.B1.