The Social Security and Medicare trustees released their report on Tuesday announcing that the fiscal foundations of Social Security and Medicare are essentially unchanged since last year. Once again, they project that the Social Security trust funds will be depleted in 2041, at which point payroll taxes flowing into the program will be large enough to pay only 78 percent of the benefits that would go to beneficiaries if the program was fully funded.
Of course, many Americans might be surprised to learn that any program is funded, on paper anyway, for the next 33 years, so most future retirees are probably reacting calmly to this announcement, as they should. It's difficult to project revenues and expenditures of any sort out more than a decade, since these projections are extremely sensitive to changes in the economy and other factors. Further, under current rules Social Security benefits increase annually to match the growth in wages, which generally increase more rapidly than inflation, meaning that even if the unlikely worst case scenario came true and benefits were reduced in 2041, they might still be greater, in real terms, than those benefits received today.
Medicare is a different story. As the report itself says, "Medicare's financial difficulties come sooner -- and are much more severe -- than those confronting Social Security." This is because Medicare is not just facing the coming retirement of the baby boomers in large numbers, which is the only challenge facing Social Security. Medicare costs are rising because health care costs generally are rising. The trust fund for Medicare hospital insurance will be exhausted in 2019 and payroll taxes flowing into the program will only cover 78 percent of projected expenditures. Medicare benefits are not automatically cut if this happens. Rather, it would put a huge strain on the rest of the budget, as more general revenues are diverted from other services.
The cabinet officials who presented these figures on Tuesday seemed to be uninterested in answering any detailed questions about them. The figures don't exactly support the administration's approach, which has been to play up the alleged "crisis" in Social Security to somehow justify siphoning money out of the program and into private accounts, while opposing Medicare reforms proposed by the Medicare Payment Advisory Commission (MedPAC), a panel of experts created by Congress in the late 1990s.