As Congress Dithers, Social Security and Medicare Inch Closer to Insolvency – Opinion

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Congress was well aware for decades that Medicare and Social Security trust funds were in serious financial difficulties. But instead of taking action before the issue becomes overwhelming, Congress continues to focus its attention on the trivial and less urgent issues.

On June 3, Social Security Boards of Trustees and Medicare Boards of Trustees published their most recent annual reports regarding financial health of two large entitlement programs. It is clear that things do not look good for these programs’ future.

The report states:

“Social Security and Medicare both face long-term financing shortfalls under currently scheduled benefits and financing. The rapid aging process in America will cause both the cost of these programs to grow more quickly than the gross domestic product (GDP), through the mid-2030s. Medicare costs will continue to grow faster than GDP through the late 2070s due to projected increases in the volume and intensity of services provided.”

This means that both programs’ long-term viability is at risk due to rising payouts as a large number of baby boomers get older and more people use Medicare.

The report states that

“The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.”

The result is that Congress failed to perform its duties as financial stewards of Social Security. Instead of stowing funds for the future when Social Security ran surpluses over the past few decades, Congress “borrowed” that money to spend on a slew of other items.

Over the years, Congress has “borrowed” nearly $3 trillion from Social Security. While this may have been feasible during the 1970s, 1980s, 1990s, and 2000s—when baby boomers paid more into the trust fund than outgoing benefits on an annual basis—this is no longer the case because baby boomers are retiring en masse and collecting benefits while current payments cannot sustain the promised payouts.

Furthermore, the report points out that

“The OASI and DI funds are separate entities under law. This report contains information that shows how the two funds are combined to demonstrate the total actuarial situation of Social Security. One year after last year, the hypothetical OASI/DI funds combined would have been able to continue paying scheduled benefits until 2035. At that time, the combined funds’ reserves will become depleted and continuing tax income will be sufficient to pay 80 percent of scheduled benefits.”

The payroll tax is a means by which all Americans will lose their benefits. Employees and employers each contribute 6.2 percent to Social Security. Self-employed employees, however, pay only 12.4 percent. One of two options will be available: either cut benefits or increase the payroll tax. This is very bad news for anyone who has been required to contribute into trust funds that are likely to go bankrupt in the next 13 years.

The situation with Medicare is even more dire.

According to the report

“The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028, two years later than reported last year. At that time, the fund’s reserves will become depleted and continuing total program income will be sufficient to pay 90 percent of total scheduled benefits.”

Medicare won’t be able pay its bills in six years. This will mean that either Medicare’s tax (1.45 percent for employers, 1.45 percent per employee, and 2.9 percent each for the self-employed), or its benefits (currently 1.45%) will have to rise.

There is still time for Congress, on the plus side, to correct these shortcomings with common-sense reforms. It is true that Congress has been too stubborn while these programs continue to be unsustainable. It isn’t too late.

First, Congress needs to support both programs in the short-term. This will ensure that existing payees don’t get cut off via lower payouts for faithfully contributing.

In the long term, Congress should offer those who are not interested in Medicare and Social Security the chance to opt in for other plans like a private version.

Congress was well aware for many years of this program’s inevitable insolvency. Congress chose to ignore it for too long. Congress actually made matters worse by continually calling for more benefits, while raiding the trust funds to finance its current spending.

No wonder Congress’ approval rating is hovering near an abysmally low 20 percent.

Chris Talgo ([email protected]) The Heartland Institute’s senior editor.