Social Security funding crisis will arrive in 2033, U.S. projects
March 31, 2023 Updated Fri., March 31, 2023 at 8:26 p.m.
Medicare recipients will face automatic benefit cuts starting in 2031 and Social Security won’t be able to make full retirement payments starting in 2033 unless Congress intervenes, according to a new government report released Friday.
The latest yearly forecast serves as a warning for lawmakers on Capitol Hill – and for the public – of the fragile financial health of the federal government’s two most expensive programs, on which tens of millions of seniors depend for medical care and retirement benefits.
Medicare is the federal health insurance program for Americans 65 and older and those with disabilities, while Social Security provides critical monthly benefit checks for retirees, workers’ survivors and some people with disabilities. Social Security and Medicare’s coverage of hospital care are paid for by trust funds consisting of dedicated taxes paid by workers and employers, not from general tax revenue like most of the rest of the government. Unless lawmakers approve changes before the deadlines, Medicare and Social Security will be forced to cut benefits sharply for seniors because both programs are paying out more than they take in.
The report is released annually by the boards of trustees of the Social Security and Medicare trust funds, a body composed of top administration officials such as Treasury Secretary Janet L. Yellen and Health and Human Services Secretary Xavier Becerra.
“Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls,” the trustees state in the report. “With each year that lawmakers do not act, the public has less time to prepare for the changes.”
The report projects that Medicare funds will be exhausted in 2031, three years later than the trustees previously estimated, which would give lawmakers more time to address the program.
The date for Social Security benefits to be exhausted, however, was moved up to 2033, or one year earlier than the trustees projected last year.
Benefits won’t stop when the programs reach insolvency, but the government will be able to pay only a portion of the amount to which people are entitled. The trustees report predicts that, starting in 2033, Social Security’s old age and survivors insurance trust fund will be able to pay 77 percent of that amount. Starting in 2031, Medicare’s hospital insurance will be able to pay 89 percent of the scheduled benefits for hospital services, the report states.
The average monthly Social Security benefit check this year is $1,827. More than 60 million people are collecting benefits now. About 65 million Americans are on Medicare, with either an original version of the program in which they can choose their own doctors and other providers of care or an increasingly popular version that relies on managed-care plans.
Despite broad agreement among experts of the danger posed by the looming shortfall, policymakers in Washington have largely agreed this year not to address it amid fierce partisan divisions about how to solve the problem – warring that has surrounded the question for decades as insolvency has grown more imminent. In the late 1990s and early 2000s, commissions created by Congress or the White House tried to come up with plans to secure the programs’ future, but the efforts dissolved in dispute, and there have been no similar high-wattage efforts in years.
“Lawmakers who insist they won’t touch this programs are endorsing a 20 percent cut to Social Security benefits and major disruptions to health care services,” the Committee for a Responsible Federal Budget, a D.C.-based think tank calling for lower deficits, said in a statement ahead of the report’s release. “Given that we can’t guarantee full benefits for current retirees under the law, this cynical approach is doing a tremendous disservice to those who rely on these programs the most.”
The report provides the latest estimate on just when the U.S. may reach these impasses. Medicare has become strained as higher health-care costs and an increase in the number of seniors weaken its finances, the report states. Social Security faces a similar funding crunch due to the aging of the American population.
Administration officials said the coronavirus pandemic “dramatically affected” the Medicare program’s finances for a variety of reasons, including how much care people are getting inside hospitals, the fact that Americans are not yet seeking as many medical services as before COVID and the reality that the nation’s excess deaths from COVID involved people with other ailments who had been getting expensive medical treatment that now won’t be needed.
An administration official also acknowledged substantial uncertainty about how the programs’ finances would be affected by future fertility rates, calling it a “big question mark.” A decline in U.S. birthrates would make it harder to keep the program funded, but it is unclear to what extent parents are waiting longer to have children as opposed to deciding not to have them altogether, the official said, speaking on the condition of anonymity on a background call with reporters.
The report said the insolvency date for Social Security was moved up because economic growth is now projected to be slower than previously estimated. The Medicare insolvency date was extended primarily because of declines in projected health-care costs “stemming from updated analysis that uses more recent data,” the report states.
Lawmakers are divided over the programs’ future. Democrats have largely argued that the programs can stay financially stable without cutting benefits through higher taxes, and President Biden released a plan earlier this year to extend the life span of Medicare by more than two decades. It would increase Medicare-specific taxes on people earning more than $400,000 and make it harder for the wealthy to avoid paying those taxes.
The White House did not release a plan for extending the life span of Social Security, though.
Congressional Republicans have not coalesced around a plan to protect the solvency of either program. Dozens of congressional Republicans have endorsed plans to cut both Medicare and Social Security benefits, but appeared to back off those ideas earlier this year amid intense criticism from the Biden administration.
Although they express concern about the funding shortfall, some experts point out that Social Security is not particularly generous in its current form. The program is projected to cost less than 7 percent of the U.S. gross domestic product even decades from now, or smaller than what Germany, Austria, France and most other industrialized nations spend today on their counterpart programs, according to a statement from Social Security Works, a left-leaning think tank that opposes cuts to the program.
“The question of whether to expand or cut Social Security is one of values, not affordability,” the group said. “The threat to Social Security is not the unremarkable and easily addressed projected shortfall starting in the 2030s. The real threat is the hostility of Republicans in Congress.”
Still, conservatives were prepared to cite the report as evidence that the programs must be restructured.
“Releasing a document you’re not particularly happy about Friday afternoon is a time-honored practice in D.C.,” said Doug Holtz-Eakin, a GOP policy analyst, in an interview before the report’s release. “They’re trying to bury it, and they should, because they’re saying: ‘We don’t want to touch any of these things – and they have to, as the trustees report will say.’”
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