According to a report by the Social Security and Medicare trustees, the Covid-19 recession has led to Social Security’s predicted insolvency being moved up one year to 2034 from last year’s estimate of 2035. The Social Security disability fund is also now predicted to run dry in 2057, eight years sooner than previously expected. Medicare has been unaffected, retaining its depletion deadline of 2026.
There were mixed effects on the massive public insurance programs due to the pandemic. According to AP News, payroll taxes, which fund both Social Security and Medicare, were slashed due to business closures and Covid-19 restrictions costing the US approximately 22.4 million jobs. Due to these complications, for the first time in 39 years, Social Security’s costs will exceed its total income and will have to rely on its savings to pay benefits. On the other hand, the recession was far shorter than expected, with around 16.7 million jobs regained, which could mean that renewed consumer spending and further falls in unemployment will help the programs’ trust funds recover their income and mitigate the decreases in payroll collection.
Some senior officials have said that the tragic Covid-19 spike in mortality rates primarily among beneficiaries of Social Security and Medicare could reduce the program’s spending going forward. Decreases in applicants for Social Security disability benefits, stemming potentially from the greater access to unemployment benefits for Covid-19 relief created by the Biden Administration and Congress, could also be beneficial for the program’s solvency.
However, both programs face “long-term financing shortfalls,” the report says, only exacerbated by the pandemic recession. A looming issue for several decades now concerning Social Security has been how to prepare for the retirement of baby boomers. US birth rates have declined precipitously since the late 1960s, according to CBS News, presenting a long-term problem for Social Security, which relies on payroll taxes. With a declining population replacement rate producing a reduced workforce, payroll tax collection won’t be able to keep up with scheduled benefit payouts as the largest generation in US history starts retiring.
At present, the report states that in 2034, Social Security payouts will have to be reduced to 78 percent of scheduled benefits to avoid insolvency. For a program that supports over 65 million Americans, the political outrage at a reduction of this magnitude will inevitably require Congressional action. The last time Social Security faced insolvency in the early 1980s, President Ronald Reagan and congressional Democrats and Republicans collaborated to pass a bill to rescue the program. The current Congress looks unlikely to pass such a bipartisan solution, though the Biden Administration and Democratic leaders in Congress have vowed to protect the program.
Medicare is a different story, but not without its own problems. Hospitals during the pandemic were put under great strain from waves of Covid-19 patients, but Medicare’s Hospital Insurance Fund was not having to payout for nearly as many routine procedures, somewhat offsetting costs. Nevertheless, Medicare’s insolvency is on a much shorter timeline, predicted to have to reduce to 91 percent of scheduled payouts by 2026.
The White House and Democrats in Congress are currently working on a number of changes to the Medicare program, including using its projected savings to expand coverage to vision, dental and hearing services. Republicans, such as Sen. Mike Crapo (R-ID), ranking member of the Senate Finance Committee, have accused Democrats of wanting “only to expand benefits promises without generating sustainable trust fund solvency.” They have argued against Democrats’ proposals by saying projected savings should only be going towards protecting Medicare’s long-term solvency. The New York Times has reported, though, that the proposed changes will not majorly affect Medicare’s trust fund, which only concerns hospital care. Still, both parties have begun to address the program’s insolvency issue and the need for long-term solutions.
Raising payroll taxes and, potentially, Medicare beneficiaries’ premiums are the most immediate, though short-term, actions Congress can take to shore up both social insurance programs. Several long-term solutions have been proposed, though neither party has offered a plan as of now. One proposal, according to Professor Jack A. Gladstone of George Mason University, is Senator Elizabeth Warren’s (D-MA) wealth tax of “2 percent on every dollar of net worth above $50 million and 6 percent on net worth above $1 billion.” Senator Warren has estimated that this could bring in $3.75 trillion over ten years, enough to fund the $3.4 trillion Medicare and Social Security program deficits. Currently, though, it is still unclear what action Congress will take to ensure the solvency of the two pillars of America’s social safety net, or what the long-term effects of the pandemic will be on both programs.