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Each year the Social Security and Medicare Trustees issue updated reports on the trust fund status for these two programs. The 2020 reports released on April 22, 2020; however, the data was finalized before the COVID-19 outbreak. The coronavirus could speed up the insolvency date of the Social Security program because of fewer payroll taxes being collected to fund the program. The bottom line is the Social Security program is still a stable source of income for keeping many retirees out of poverty and a good retirement cushion for others.
You can use the summary table to see many of the 2020 Social Security and Medicare figures along with the 2021 projections. The actual 2021 figures typically release in September for Medicare and in October for Social Security.
The Social Security projection is that reserves will last until 2035, with 79% of benefits still payable at that time — the same as the 2019 report. This means the trust fund reserves that have been saving up through the years will be gone in 2035. After this date, payroll taxes will be the only source for benefit payments.
The cost for the Social Security program was more than the tax revenues collected (including interest) and will continue throughout the long-range period. The shortfall in revenue and cost growth is mostly due to the rising number of beneficiaries as the baby-boom generation retires, lower birth rates (resulting in fewer workers), and people living longer. Currently there are 2.8 covered workers for each beneficiary (was about 5 to 1 in 1960) — decreasing to 2.3 covered workers by 2035 when most baby boomers will have retired. To prevent the shortfall, more money needs to be put in the system or benefits need to be cut.
The program covered about 178 million workers in 2019. About 64 million people were receiving monthly Social Security benefits at the end of 2019 — totaling about $1.048 trillion in payments. Administrative costs were a very low 0.6% of total expenses in 2019.
The 2021 cost-of-living adjustment (COLA) is projected to be a 2.3% increase (compared to 1.6% in 2020). With an increase in the COLA, the estimated taxable earnings base and retirement earnings test limits will increase — see the summary table that follows for the 2021 estimates.
The projection for Medicare Part A Hospital Insurance (HI) is that it will remain solvent until 2026, the same as last year’s report. At that time, dedicated revenues will be able to pay 90% of HI costs, dropping to 78% in 2044. Health care reform is an important tool to control costs, provide physician incentives, and prevent fraud. Work still needs to occur to guarantee the future of Medicare and historically, Congress has always taken action to prevent the depletion of these assets.
The Part A program pays benefits for inpatient hospital and other care. In 2019, the program covered 61.2 million people (52.6 million age 65 or older and 8.7 million long-term disabled people under age 65). About 37% of HI beneficiaries have enrolled in Part C private health plans that contract with Medicare to provide Part A and Part B health services. HI is financed primarily by payroll taxes from about 181.9 million covered workers in 2019, which includes some government workers who pay the HI tax only. The initial hospital inpatient deductible for 2021 is projected to be $1,452 ($1,408 in 2020). See the summary table for other relevant figures.
The Part B program pays benefits for physician services, outpatient hospital services, and certain other medical expenses for the aged and disabled who have voluntarily enrolled. The Part D program is a voluntary outpatient prescription drug benefit. Because of the automatic financing provisions for Parts B and D, this trust fund is expected to be adequately financed into the indefinite future.
The Part B premium is projected to increase by $8.70 to $153.30 in 2021 ($144.60 in 2020). The “hold-harmless” provision in the law can cause the Part B premium rate for some current enrollees who have their premiums deducted from their Social Security benefit limited to the dollar increase in the Social Security benefit. New and high-income Medicare beneficiaries and those whose Medicare premium is paid by Medicaid would pay the new year’s premium. The Part D base monthly premium in 2021 is estimated to be about $33.91 ($32.74 in 2020). Several key 2021 Part D limits were released by the Centers for Medicare and Medicaid Services on April 6, 2020, for certain retiree drug subsidy purposes. See the summary table for all the Part B and Part D figures including the projected premiums for high-income beneficiaries.
Some solutions to fix Social Security’s financial issues could include one or a combination of the following:
New legislation is needed for the Medicare program to ensure that the growing number of beneficiaries have the health care benefits they need in the next 50 years. Part A could be brought into balance over the next 75 years by an immediate increase in the payroll tax from 2.9% to 3.66%, or an immediate 16% reduction in expenses or some combination of the two. These changes could be made gradually but would ultimately have to be at a higher level to eliminate the deficit. Parts B and D are adequately financed because premiums and general revenue income are set each year to cover expected costs.
For the long-term stability of the Social Security and Medicare programs, lawmakers need to evaluate the policy options to reduce or eliminate the long-term shortfalls in both programs. For changes to be phased in over more generations, any actions need to be taken sooner rather than later. With informed decisions, creative thinking, and new legislation, Social Security and Medicare can continue to protect future generations in the event of retirement, disability, or death.
2020 Guide to Social Security,
48th Edition (64 pages)
2020 Medicare booklet,
37th Edition (32 pages)
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