We can fix Social Security, Medicare

When we’re old and sick and poor, we might be forced to keep warm by burning all the government reports that we ignored, warning us that Social Security and Medicare are running out of money; the latest such report was issued last week.

According to the Social Security Administration, the Medicare trust fund will run dry in 2026 and Social Security funds in 2034. They will still be supported by payroll taxes, but those taxes will not cover full benefits, and recipients will likely experience severe benefit cuts if the funds aren’t replenished. The implications are dire. Marketwatch.com put it best, saying that if the funds aren’t replenished, “we will soon be facing rates of elderly poverty unseen since the Great Depression. Of the 18 million workers between ages 55 and 64 in 2012, 4.3 million were projected to be poor or near-poor when they turn 65. That grows to 20 million in 2035 and 25 million in 2050.”

This isn’t a new warning. But since pensions are disappearing and Americans aren’t saving enough money to cover their retirements, the consequences could be disastrous. The Harvard Business Review reports, “Among Americans between 40 and 45 years of age, the median retirement account balance is just $14,500 — less than 4 percent of what the median-income worker will require in savings to meet his retirement needs.” Increasingly, retirees are depending on Social Security in the absence of pensions, but also because wages have not kept pace with everyday living expenses, leaving workers less able to save enough for retirement.

But the situation can be fixed. In a study based on 2011 figures, the American Association of Retired Persons proposed a dozen ways Social Security could be mended. Of all 12, the most efficient would be to lift the cap on income subject to the Social Security tax. Right now people stop paying the 6.2 percent Social Security tax on incomes above $128,700. That would fill 86 percent of the shortfall. Other suggestions like raising the retirement age to 68 would fill 18 percent of the shortfall; cutting benefits would fill less than 13 percent of the gap.

Fixing Medicare, however, is a lot trickier. Medicare’s hospital-care trust fund is sagging, in part because payroll taxes were lower than expected in 2017 and because President Trump’s changes to the Affordable Care Act are raising hospital costs. In particular, his abandonment of the requirement that people get insurance or pay a fine means hospitals are going to be seeing more uninsured patients, for which paying and insured patients bear the burden.

The administration has yet to rein in drug costs, another drain on Medicare, and Republicans did away with the ACA’s requirement to reduce overall Medicare costs by deriding cost review boards as “death panels.”

The long cold winter of retirement will hit us all. How long and how cold depends on who takes leadership now on fixing these critical systems.