COVID economy drains Social Security, Medicare coffers

WASHINGTON — Call it another casualty of the COVID-19 pandemic.

The Social Security and Medicare trust funds, already in ill health, are about to become sicker from the coronavirus. The economic recession triggered by the pandemic means a drop in payroll tax revenues that finance the trust funds.

While projections vary and remain highly uncertain, economists and policy analysts across the ideological spectrum say the trust funds are now likely to deplete their reserves at a quicker pace than they would have before the pandemic hit. The net effect could shave years off the time lawmakers have to find a financial fix for the trust funds before they become insolvent.

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“We should have been concerned about it even before the virus hit,” said Charles Blahous, a research analyst at the Mercatus Center at George Mason University who served as a public trustee of Social Security and Medicare from 2010 through 2015. The pandemic, he said, “is going to make things worse faster.”

The annual report from the Board of Trustees, issued in April, forecast that the combined Social Security trust funds — known as Old Age, Survivors and Disability Insurance — would be depleted by 2035. At that point, new payroll tax revenue would only be able to fund 79% of promised Social Security benefits.

And Medicare’s Hospital Insurance trust fund would run out of money by 2026, at which point it would be able to cover only 90% of incurred costs. But the trustees noted in their report that they had not accounted for the economic effects of the pandemic.

An analysis by the Bipartisan Policy Center in April showed what could happen to the Social Security trust funds, depending on the severity of any economic downturn. The Old Age and Survivors Insurance trust fund reserve, currently projected to be depleted in 2034, could now run dry by 2029 if the economy suffers something similar to the Great Recession of 20072009.

And if the pandemic produces an economic hit that is twice as severe as the Great Recession, the reserve could be depleted even sooner, by 2026, the study found.

Even more dramatic is the pandemic’s potential effect on Social Security’s Disability Insurance trust fund. The Board of Trustees, without accounting for the pandemic, projected that fund wouldn’t run dry until 2065.

But the Bipartisan Policy Center forecast suggests another Great Recession would accelerate that timeline by decades. In that case, the fund would be depleted by 2024, it said. A recession twice as severe would cause the fund to run dry by 2022.

“Disability (insolvency) is probably going to move forward by decades,” Blahous said. That’s because the disability trust fund, along with Medicare’s Hospital Insurance trust fund, operate with very little margin for error, he said. They typically hold enough reserves to pay only seven or eight months of benefits before they would run dry.

So, an unexpected drop in payroll tax revenue for those funds, he said, would have a much bigger impact than the more flush Old Age and Survivors Insurance fund. “It only takes a slight push to go from stability to drawing down rapidly,” he said.

Stephen Goss, chief actuary for the Social Security Administration, suggested in a Bipartisan Policy Center webinar discussion in April that the center’s forecast may be too pessimistic. If there is a 15% reduction in payroll tax revenue and earnings for all of 2020, he said, the combined Social Security trust funds would run dry by the middle of 2034 instead of early 2035.