Social Security and Medicare: Troubling math, tough politics
WASHINGTON >> It seems no one wants to cut Social Security or Medicare benefits.
Not President Joe Biden, who is already telling voters his upcoming federal budget proposal will “defend and strengthen” the programs. Not Republican House Speaker Kevin McCarthy, who has declared cuts to the programs off the table in negotiations to raise the federal debt limit.
There’s just one glitch with these declarations: Social Security won’t be able to pay out its promised benefits in about a dozen years, while Medicare won’t be able to do so in just five years. Economists have done the projections and say both programs will drive the national debt higher in the decades to come, forcing teeth-gritting choices for the next generation of lawmakers.
Here’s a breakdown of the dilemma, the potential fixes and the harsh politics around Social Security and Medicare:
It’s a math problem that requires a political solution.
Payroll taxes largely fund Social Security and Medicare. They generally get deducted from workers’ paychecks, which is why Biden, a Democrat, says people are merely getting back what they’ve already paid into the system.
But as more baby boomers age and retire, there are more beneficiaries and not enough tax revenue to fund the programs. Payroll taxes are expected to generate $1.56 trillion this year, but the combined costs of Social Security and Medicare are likely to be $2.16 trillion, according to a Congressional Budget Office report last week. The office warned in its report that Social Security benefits may need to be cut even earlier than past projections, beginning in 2032.
CBO Director Phillip Swagel said Friday at a Bipartisan Policy Center event that “benefits today are being paid in full as promised, drawing down on the Social Security trust fund.” But when the government is unable to pay full benefits, “that’s a challenge,” he said.
The number of people enrolled in Medicare has more than tripled to roughly 65 million since its inception in 1966. More than 10 million new retirees and disabled people joined in just the past decade, according to data from the Centers for Medicaid and Medicare Services.
The shortfall in tax revenues combined with a rising number of recipients would eventually lead to Social Security’s trust fund being unable to fully pay benefits in 2035, a Social Security and Medicare trustees report predicted last June, though the CBO said it could happen sooner. Medicare’s trust fund would be unable to pay full benefits starting in 2028.
This forces the inevitable choice of whether to shore up the trust funds’ finances or reduce people’s benefits. Continued delays by Congress and the president in addressing this math problem could narrow the number of potential fixes.
What are the solutions?
There is basically some combination of four options:
• Raise taxes.
• Change benefits such as the eligibility age.
• Cut costs.
• Rely more on general revenues to cover the gap, which could mean higher budget deficits or cuts to other programs.
Biden took a step last year with his Inflation Reduction Act, which would allow Medicare to negotiate lower prices on a handful of drugs and charge drug companies when they raise the price of drugs faster than inflation. The law also makes vaccines free, caps monthly out-ofpocket insulin costs at $35 and limits out-of-pocket drug expenses at $2,000 starting in 2025.
The CBO said the prescription drug components of the law would save $237 billion over 10 years, prompting some Republican lawmakers to say it was a spending cut that would dig into pharmaceutical companies’ profits, forcing them to limit how much they spend developing new treatments. But the law aims to lower the cost people pay for medication, rather than ax benefits.