Social Security and Medicare, the two most expensive entitlement programs, are facing severe financial challenges, but lawmakers from both parties are pledging not to cut either program’s benefits.
Complicating matters is the annual fight over raising the federal debt ceiling. Failure to lift the debt limit by sometime this summer raises the specter of the U.S. defaulting on its gigantic debt. President Biden has said repeatedly he will not negotiate with Republicans over raising the debt limit, demanding instead a “clean” increase with no conditions, such as spending cuts, attached.
What’s At Stake
In a December 2022 report, the Congressional Budget Office (CBO) projected Social Security will be insolvent in about a decade and, absent congressional action, benefits would be cut automatically by 23 percent, on average, by 2033.
Medicare’s problems are even more urgent. Hospital Insurance (HI) trust fund reserves are projected to be exhausted by 2028, when payroll taxes and other revenues will cover only 90 percent of Medicare HI costs, according to a 2022 report by the boards that oversee the program.
Politicians who propose program reforms risk being accused of trying to cut the care seniors have come to expect. In recent weeks, President Biden has warned in speeches around the country that Republicans’ plans to cut federal spending threaten entitlement programs, but these official reports show that keeping Medicare solvent without making fundamental changes to the program is virtually impossible.
‘Heated Rhetoric Is Dishonest’
White House spokesman Andrew Bates called commissions to save entitlement programs, “death panels for Medicare and Social Security,” on February 6. Bates was referring to the 2021 “Trust Act” sponsored by Sen. Mitt Romney which would establish “rescue committees.”
Action is required, Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget, said in a statement.
“Washington has only a decade to save Social Security, before the law calls for a 20 percent across-the-board benefit cut,” said MacGuineas. “They have even less time for Medicare,” her statement said. “This kind of heated rhetoric is dishonest, counterproductive, and totally unacceptable.”
Tax Hike Fix
The White House released a fact sheet outlining how the Biden administration wants to deal with Medicare’s funding problems, on March 7.
Released in advance of the president’s fiscal year 2024 budget proposal, the three-part plan would raise the net investment income tax created by the Affordable Care Act from 3.8 percent to 5 percent for those earning more than $400,000 per year. The president’s proposal would also require pharmaceutical companies to pay into Medicare for certain price hikes, and impose a cap on what Medicate Part D pays for many popular drugs.
“The proposals in the President’s Budget would extend the solvency of the Medicare Hospital Insurance (HI) Trust Fund by at least 25 years, the Medicare Office of the Chief Actuary estimates,” the fact sheet states. “While the most recent Medicare Trustees Report projected that the HI Trust Fund would be insolvent by 2028, the President’s Budget would extend solvency to at least the 2050s.”
With Republicans controlling the U.S. House of Representatives, where all tax bills must originate, Biden’s plan is given little chance of being enacted.
‘A Viable Proposal’
The funding shortfalls for Medicare and Social Security are far more serious than public officials are willing to admit, says Terry Nager, a certified financial planner and founder of the reform group Plan For America.
“Social Security and Medicare are already insolvent,” said Nager. “The trust funds are funded with non-negotiable government notes that cannot be sold. They can only be redeemed with cash. Because the government is so in debt, it has no cash and must borrow the money to redeem the notes.”
Plan For America is an alternative to the political gridlock, says Nager.
“Neither political party has put forward a viable proposal to deal with the $150 trillion in unfunded liabilities these programs represent,” said Nager. “Plan For America is a public-private partnership that will safeguard and even enhance the benefits under these major social programs and release the government from the unfunded liabilities.”
Time Running Out
Given the dire financial straits in which Medicare and Social Security find themselves, the time to act is now, says John C. Goodman, president of the Goodman Institute for Public Policy Research and co-publisher of Health Care News.
“According to the latest Trustees Report, the unfunded liability in Social Security and Medicare is almost seven times the size of our entire economy. More than 60 percent of that amount is Medicare,” Goodman said.
“An unfunded liability is the difference between the benefits we have promised current and future retirees and the expected tax revenues that will be needed to pay for those benefits. The longer we wait to deal with this problem, the worse it will get.”