The trustees of the Social Security and Medicare trust funds on Monday released their annual report on the current and future financial status of the two programs. The report projects that the cost of the two Social Security funds — Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) — will exceed the funds’ incomes (including interest payments) in 2020. That has not happened since 1982.
When that happens, the funds will need to begin redeeming the funds’ assets, currently valued at $2.9 trillion, to pay full Social Security benefits. By 2034, the combined assets of the OASI and DI funds will be fully depleted.
It is important to note that this does not mean that Social Security payments from either fund will drop to zero in 2035. According to the trustees’ report, tax income is expected to be sufficient to pay about 75% of scheduled benefits through the end of the report’s 75-year projection period in 2093. Under the assumptions used in this year’s report, the OASI fund will be able to pay full benefits until 2034, the same depletion date projected in last year’s report. The DI fund will be able to pay full benefits until 2052, fully 20 years longer than forecast last year.
Like Social Security, Medicare also comprises two trust funds — the Hospital Insurance (HI) fund, better known as Medicare part A, and the Supplementary Medical Insurance (SMI) fund, better known as Medicare parts B (outpatient services) and D (prescription drug coverage). The HI fund is expected to be depleted in 2026, unchanged from the depletion projection in last year’s report.
Again, benefits do not drop to zero. Dedicated revenues are expected to be enough to pay 89% of HI costs in 2026, declining slowly to 77% in 2046 before rising to 83% in 2093.
The SMI trust fund is adequately financed indefinitely because it is financed by general revenue and premiums paid by beneficiaries that are sufficient to meet expected costs.
As a share of taxable income, Social Security benefits will rise from 13.8% in 2018 to around 16.6% in 2040, before declining slightly after 2051. Social Security equaled 4.9% of U.S. gross domestic product last year and is forecast to rise to 5.9% of GDP by 2039, before reaching 6.0% in 2093.
Total (HI plus SMI) costs accounted for 3.7% of U.S. GDP last year, and that total is expected to rise to 5.9% by 2038 before reaching 6.5% of GDP in 2093.
The trustees conclude that there are “many policy options” lawmakers could invoke to reduce or eliminate the long-term financing problems in Social Security and Medicare. There is also time, but the challenges would be better addressed “as soon as possible” so that the widest range of options remains open.
The funds’ trustees are Secretary of the Treasury Steve Mnuchin, Labor Secretary Alexander Acosta, Secretary of Health and Human Services Alex Azar and Acting Social Security Commissioner Nancy Berryhill. Two other trustee positions are available for public representatives appointed by the president. These two positions have been vacant since July 2015. For additional details and a link to the full trustees report, visit the Social Security website.