The Trustees of Medicare and Social Security who are four members of the Obama Administration issued their annual report on Wednesday on the health of both programs. The Trustees said that Social Security has enough funding to continue to pay full benefits to 2034 and would then be able to pay 79% of benefits. (This is an important point since many times, media reports characterize the system as going “broke” when full benefits can’t be paid). The trustees’ report said that combined employee-employer payroll taxes would have to be increased to 14.98% from the current 12.2% to make up for the shortfall or else raise payroll taxes, lift the cap on earnings subject to the taxes (currently $118,500) or a combination of these changes or others.
The Social Security Trust Fund includes a retirement fund and a disability fund. The disability fund was set to be short of money to pay full benefits later this year. The budget agreement passed by Congress earlier this year extended its full solvency until 2023.
The Medicare Trust fund lost two years from last year’s report and Part A can pay full benefits through 2028 instead of 2030. This is still much longer than projections a few years ago that showed funding for full benefits running out later in the current decade. Rising health costs, largely driven by prescription drugs and the aging of the population led to the report saying that the Medicare funds will come up short two years earlier than projected last year.
Part B which covers doctor visits and outpatients services and Part D which covers prescription drugs are mandated by law to be fully funded and include a combination of beneficiary payments and federal budget expenditures.
“Social Security and Medicare remain secure in the medium-term,” said Treasury Secretary Jacob Lew. “But reform will be needed, and Congress should not wait until the eleventh hour to address the fiscal challenges given that they represent the cornerstone of economic security for seniors in our country.”