Highlights From This Year's Social Security and Medicare Trustees Reports

Photo courtesy of 401(k) 2012.

Yesterday the trustees of two key social insurance programs - Social Security and Medicare - released their annual reports projecting the future of the programs’ finances.

Social Security Is Not Going Broke…

The Social Security Trustees Report breaks down trust funds for two separate portions of Social Security: the retirement and survivor’s benefits (OASI) and disability benefits (DI). Together, these two programs are fully funded until 2033, the same projection the trustees put forward last year. Translation: if Congress makes no changes to the Social Security program, revenues from payroll taxes and other sources will be able to cover 100 percent of benefits until 2033 and 72 percent of benefits after 2033.

You may have also heard that the disability insurance program’s trust fund becomes insolvent in just two years – in 2016. That’s because retirement and survivor’s benefits and disability benefits are two separate trust funds, as noted above, though are often considered in conjunction. In order to prevent cuts in disability benefits, Treasury Secretary Jack Lew says Congress will likely need to temporarily reallocate some payroll tax revenue from retirement and survivor’s benefits to disability benefits, something that’s been done in the past.

In order to close Social Security’s long-term financing gap, Congress must enact program cuts, tax increases, or some combination of those. Simple tweaks that have received widespread support could put the program on sound footing for years into the future and ensure 100 percent of benefits could be paid. Examples include raising the payroll tax (currently 6.2 percent each for the employee and employer) most Americans pay into the program, or subjecting more earnings to the payroll tax (currently only the first $117,000 in wages is taxed for Social Security).

… And Neither Is Medicare

The Medicare Trustees Report found that Medicare’s hospital insurance trust fund (Part A) is fully solvent until 2030, up from 2026 in last year’s report. If no changes are made to the program before 2030, Medicare Part A payroll taxes and other revenue would be able to cover 85 percent of payments in 2030 and would slowly decline to 75 percent in 2047. Thereafter it would be flat at 75 percent. (Medicare Parts B and D – medical insurance and prescription drugs, respectively – cannot become insolvent because they’re funded with a combination of premiums and general tax revenue.)

More good news is that the Affordable Care Act – a.k.a. Obamacare – seems to be contributing to the extended solvency of Medicare’s hospital insurance trust fund. Current projections give the fund an additional 13 years of solvency beyond the pre-Obamacare estimate.

In order to close Medicare’s hospital insurance trust fund’s long-term financing gap, Congress must enact program cuts, tax increases, or some combination of those. Medicare’s deficit could be closed by increasing the payroll tax (currently 1.45 each for employees and employers) to 1.9 percent.

Stay Tuned

When will Congress act on Social Security and Medicare? We are currently developing Voter Guides to help you make smart decisions come election season in November, including fact sheets on Social Security and Medicare. In the meantime, please tell us your story.