Director, Policy Futures
The Social Security and Medicare trustees will release their annual reports on the programs’ finances tomorrow and, though we don’t know how the projections may change from last year’s, we expect them to tell a similar story: Social Security and Medicare face real but manageable financial challenges and are neither unaffordable nor “bankrupt,” as critics claim.
The trustees last year estimated that Social Security’s combined trust funds, which support the Old-Age and Survivors Insurance (OASI) and Social Security Disability Insurance (SSDI) programs, will be depleted in 2034. That was well within the range they’ve projected for the past two decades. Even after the combined trust funds are depleted, 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 trust fund could still pay 88 percent of scheduled benefits after its reserves are depleted in 2029.
Fluctuations from year to year in the trustees’ long-term estimates are normal. A variety of demographic factors (including fertility, mortality, and immigration) and economic variables (including wage growth, inflation, and interest rates) affect Social Security, and the actuaries constantly improve their projection methods. Those 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 are neither a reason for alarm nor for celebration. In fact, the trustees caution that their projections are uncertain. For example, last year they estimated a 95 percent chance that Social Security’s trust fund reserves would be depleted between 2030 and 2043. The Congressional Budget Office has estimated that exhaustion would occur in 2030. In short, all reasonable estimates show a manageable long-run challenge but not an immediate crisis.
A 2015 budget agreement extended the solvency of the SSDI trust fund until 2028, according to last year’s trustees report, by temporarily allocating a larger share of the payroll tax to it as opposed to OASI. At the same time, the number of SSDI applicants and beneficiaries has declined for several years, as demographic and economic pressures on the program have eased. Although analysts anticipated this development, the number of disabled worker beneficiaries declined even more in 2017 than the trustees projected last year. As a result, this year’s Social Security trustees report may show some further improvement in the financial status of the Disability Insurance trust fund.
The new Medicare trustees report will reflect the end of the Independent Payment Advisory Board (IPAB), which Congress repealed in February. IPAB was a presidentially appointed commission charged with developing ways to slow the growth of Medicare spending if projected spending exceeded a specified target level. Legislated reductions in Medicare payment rates were expected to produce most of the savings needed to meet the targets, and IPAB served as a backstop if these other cost control efforts fell short. Repealing IPAB will worsen the status of the Hospital Insurance trust fund, although the deterioration may be small and could be overshadowed by other changes.