The public trustees for Social Security and Medicare have been essential to the oversight of the programs’ finances since the positions were established in 1983. These Senate-confirmed, presidential appointees are tasked with ensuring that the trustees’ reports for Social Security and Medicare—the primary sources of information on the programs’ finances—are developed in an objective manner.
Unfortunately, for the past three years, the public trustee positions have gone unfilled. As the most recent holders of these positions, we have partnered with the Bipartisan Policy Center to provide independent analysis of the trustees’ reports while the positions remain vacant.
The following is a summary of our conclusions upon review of the 2018 Social Security and Medicare trustees’ reports, published by the ex officio trustees earlier this year.
Over the trustees’ long-range (75-year) valuation window, both Social Security’s and Medicare’s trust funds have a substantial gap between their scheduled benefits and the revenues collected to fund them. Closing the shortfall in the combined Social Security trust funds would require the equivalent of an immediate increase in its payroll tax rate from 12.40 percent to 15.18 percent or a 21 percent reduction in benefits for all future claimants. Closing the shortfall in the Medicare Hospital Insurance (HI) trust fund would require the equivalent of increasing its payroll tax rate from 2.90 percent to 3.72 percent or a 17 percent reduction in all scheduled benefits. The costs of closing these financial shortfalls will only grow over time.
Both Medicare and Social Security will reach important adverse milestones this year: Medicare HI and Social Security’s combined trust funds will begin drawing down assets on their ways to eventual depletion. The near-term decline is primarily attributable to lowered projections of payroll tax revenues. The outlook for Medicare HI has worsened a bit more than it has for Social Security. The Medicare HI trust fund is now projected to be depleted in 2026, three years earlier than projected in last year’s report.
By the dates at which the trust funds are depleted, the changes required to restore financial balance will be so large that making such corrections within the programs’ traditional financing frameworks will be programmatically, economically, and politically unrealistic.
Current projections assume the Affordable Care Act’s (ACA) “Cadillac plan tax” will successfully dampen the growth of health insurance premiums, thereby increasing worker wages subject to payroll taxation and the revenues of both programs. If this assumption proves incorrect, there will be a further deterioration of future program finances. This is but one example of the fluid policy environment that unavoidably injects uncertainty into the trustees’ projections.
Congressional Budget Office projections published earlier this year warned that federal debt held by the public could grow within a decade to exceed the entire U.S. gross domestic product. Correcting Social Security’s and Medicare’s financial imbalances would not only benefit those specific programs; it would have large ancillary benefits for the federal budget as a whole.