Event Recap: What's Going on With the Social Security and Medicare Trust Funds?

On September 1, the Committee for a Responsible Federal Budget hosted “What’s Going on With the Social Security and Medicare Trust Funds.” The event featured two panels of experts: one focused on the Social Security trust funds and one focused on the Medicare Part A trust fund. Representative John Larson (D-CT), Chairman of the House Ways and Means Social Security Subcommittee, and Senator Bill Cassidy (R-LA), Ranking Member of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, also provided remarks. 

You can find a video of the full event here or below. 

Committee for a Responsible Federal Budget senior vice president and senior policy director Marc Goldwein opened the event by providing the key takeaways from the 2021 Social Security and Medicare Trustees’ reports. The Medicare Part A Hospital Insurance (HI) trust fund is projected to deplete its reserves by 2026, while the Social Security Old-Age and Survivors Insurance (OASI) trust fund will do so by 2033 and the Social Security Disability Insurance (SSDI) trust fund will do so by 2057. On a theoretical combined basis, the Social Security trust funds will be exhausted by 2034. Upon insolvency, Medicare Part A spending will be cut by 9 percent and Social Security benefits by 22 percent. 

The event continued with remarks from Chairman Larson, who noted that Social Security is the nation’s most important income security and anti-poverty program. 65 million Americans currently receive monthly Social Security benefits and nearly 180 million American workers pay into the program through the 12.4 percent Social Security payroll tax. He noted that the COVID-19 public health and economic crisis highlighted just how important Social Security is to the nation’s retirees, the disabled, survivors, and children – it’s a sacred trust between the American people and their government. He mentioned he’s actively working with his colleagues in Congress and President Biden to strengthen Social Security (Chairman Larson’s Social Security 2100 Act would make Social Security sustainably solvent). 

The event then moved into the Social Security panel moderated by Kate Davidson of the Wall Street Journal and featured Goldwein, Kathleen Romig of the Center on Budget and Policy Priorities, and former Congressman Reid Ribble (R-WI). Davidson opened the panel by asking panelists to provide an overview of the Social Security Trustees’ latest findings. Romig noted that Social Security weathered COVID-19 better than most expected. When payroll plummeted, there was a real concern that Social Security’s finances would deteriorate, but the economy bounced back relatively quickly, and the K-shaped recovery meant high-income earners were still paying Social Security payroll taxes. She pushed back on the argument that time is running out to save Social Security by noting that today’s workers pay for today’s beneficiaries and that tomorrow’s workers will pay for tomorrow’s beneficiaries and this will remain true even after the trust funds run out. Social Security is not in mortal peril, but policymakers must improve its financial outlook to maintain full benefits. 

Goldwein argued that time is running out to sensibly save Social Security and enact gradual trust fund solutions. Acting now would allow policymakers to implement reforms that are more targeted, phased in, pro-growth, and give people more time to adjust. If policymakers wait until 2034 to act, the necessary adjustments will be much larger and more painful. Goldwein noted that saving Social Security from a 22 percent cut upon insolvency is an opportunity to make enhancements to the program, make a better and fairer payroll tax, improve the long-term fiscal outlook, and show the American people that policymakers can come together and enact big reforms. Ribble noted policymakers have known for years that the Social Security trust funds are running out and that steep benefit reductions will happen without action to restore solvency. Now, the timeframe to enact trust fund solutions is shorter and the partisan divide in Washington stronger. He argued Republicans need to recognize that Social Security can’t be saved by making changes on the benefit side alone, while Democrats need to see that Social Security can’t be saved through revenue increases alone. To enact meaningful reform, everything needs to be on the table, and it’s up to the American people on both sides of the political aisle to make lawmakers fearful if they don’t save Social Security.  

The conversation then moved into the effects of COVID-19 on Social Security. Romig noted she thought the pandemic would accelerate retirement and early retirement claims. But because of the emergency measures policymakers took – including enhanced and extended unemployment benefits and three rounds of Economic Impact Payments – not as many people needed to claim early retirement as expected (in fact, COVID relief has bolstered personal income). She also expected disability claims to increase because of long-term COVID-19 symptoms; in reality, disability claims are lower than last year. At the same time, birth rates appear to be going down. Goldwein noted that Social Security’s finances have deteriorated relative to the 2020 Trustees’ report, though most of the long-term deterioration is due to changes in methodology and programmatic data. Some of the near-term deterioration, however, stems from a year of reduced payroll tax revenue (many thought the reduction would last several years due to the pandemic and recession). He noted the Trustees’ economic forecast does not account for the high inflation and rapid economic growth expected this year, so their economic assumptions may be slightly off. On inflation, Goldwein noted that higher inflation means higher cost-of-living adjustments for beneficiaries, but only to pay for their higher cost of living. At the same time, this year’s increased Consumer Price Index means higher wages, so the money flowing into the Social Security trust funds is going to be higher. The panelists then fielded a series of audience questions. 

The event then moved into the Medicare portion with Ranking Member Cassidy providing remarks. He noted that the Medicare HI trust fund is just a few years from insolvency, at which point provider payments will be reduced to match the revenue coming into the trust fund. As a result, doctor’s offices and hospitals will see a reduction in Medicare payments and patient access could be limited. He noted that any policy solution needs to empower patients, including by aligning benefits and employing gains sharing. Cassidy mentioned that more and more Medicare beneficiaries are enrolling in Medicare Advantage (MA), which attempts to do just that. His remarks concluded with a call for policy experts to put forth thoughtful trust fund solutions that can ultimately be included in legislation.

The event continued with the Medicare panel moderated by Margot Sanger-Katz of the New York Times and featuring Committee for a Responsible Federal Budget director of health policy Josh Gordon, Michael Chernew of Harvard Medical School, Gretchen Jacobson of the Commonwealth Fund, and Erica Socker of Arnold Ventures. Sanger-Katz opened the panel by asking panelists to provide an overview of the Medicare Trustees’ latest findings. Gordon noted the Trustees’ findings are similar to last year’s – the insolvency date is still 2026 and the 75-year actuarial imbalance is 0.77 percent of taxable payroll rather than 0.76 percent. The 2026 insolvency date is the closet the trust fund has been to depletion since 1997. Upon insolvency, Medicare spending will be cut by 9 percent, and that spending reduction will grow over time, reaching 22 percent by 2045. At the same time, total Medicare spending is expected to grow rapidly, from 4.1 percent of Gross Domestic Product (GDP) in 2021 to just above 6 percent of GDP by 2040 and roughly 6.5 percent of GDP from 2070 onward. Importantly, the Trustees’ projections assume a ratcheting down of provider payments that may not be sustainable; that is, doctors and hospitals may stop seeing Medicare patients if payments go that low. The Trustees’ illustrative alternative – which assumes policymakers update provider payment formulas over time so they remain sufficient to ensure continued Medicare beneficiary access – projects Medicare spending of nearly 6.3 percent of GDP in 2040, 7.2 percent of GDP in 2070, and then greater spending as a percent of GDP for the remainder of the projection window. Gordon concluded by noting that addressing HI trust fund solvency can foster opportunities to reduce health care costs and reduce budget deficits. The sooner policymakers act, the less costly and painful the necessary adjustments will be. 

Jacobson noted that the health of the HI trust fund is essential to the wellbeing of millions of Americans. She mentioned a Commonwealth Fund series – Options for Extending Medicare’s Trust Fund – that features policy solutions from a group of Medicare thought leaders that would generate at least $500 billion of savings or new revenue. The solutions include redirecting Net Investment Income Tax revenue to the trust fund, which has gained traction since it would redirect an existing revenue source to a new purpose instead of levying a new tax. 

The discussion then turned to the difficulty the Trustees face in making their projections. Socker noted the level of uncertainty in this year’s report stuck out. There’s a lot of uncertainty surrounding repayment of loans made to providers during the pandemic and new drugs coming into the market (such as a new Alzheimer’s drug). Chernew stressed the importance of understanding the components that contribute to the Trustees’ spending projections: demographics, prices, and utilization.

Sanger-Katz then asked the panelists if trust fund solutions are being overemphasized and other problems in Medicare overlooked. Gordon thought that HI insolvency within five years is a big deal in the health care space. He noted hospital care accounts for a large share of health care spending. while MA is becoming a larger and larger part of the Medicare program. He mentioned the traditional way the Trustees report on the seperate parts of Medicare loses sight of the fact that Medicare beneficiaries have an insurance product that collectively covers all parts together, not just Part A. He did note that something has to be done about MA as well as turning to reforms of traditional fee-for-service Medicare. 

Sanger-Katz then asked if it’s hard to make the case that shoring up Medicare’s finances is an important public policy goal. Chernew didn’t think so and noted that MA discussions are as robust as ever, as is debate over adding dental, vision, and hearing benefits to traditional Medicare. Chernew believes the problems in Medicare are centered around managing the program’s enrollment growth and that increasing efficiency is key. Gordon noted that any additional benefits added into Medicare likely need to be paid for by other health savings or else they’ll be temporary if done through the reconciliation process. The panelists were also asked if there’s a benefit to maintaining a Part A trust fund, with Socker mentioning that the trust fund is a leading indicator of Medicare's financial health. The panelists then fielded a series of audience questions to close out the panel. 

The Committee for a Responsible Federal Budget is thankful to all those who participated in and attended the event.

Learn more about the 2021 Social Security and Medicare Trustees’ reports and trust fund solutions by checking out our in-depth analyses: 

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