Medicare Fund Solvent Till 2036, Social Security Until 2033

Key Takeaway

• Medicare's hospital insurance trust fund solvency extended to 2036, five years longer than last year's projection, due to higher income and lower expenditures.
• From 2036, without Congressional action, the fund will cover only 89% of benefits; Social Security can fully pay until 2033 then drops to 79%.
• A "Medicare funding warning" is triggered, necessitating presidential action by fiscal 2026 to address a projected financing shortfall.

Medicare and Social Security Outlook Improves

The Treasury Department's recent report highlights a significant improvement in the financial outlook for Medicare's hospital insurance trust fund, now able to pay full benefits until 2036, five years longer than previously projected. This positive shift is attributed to higher income from an increased number of workers and higher average wages, alongside lower expenditures. However, from 2036, without Congressional intervention, the fund will only manage to pay 89% of total scheduled benefits. Similarly, the Social Security system's retiree fund is projected to fully pay scheduled benefits until 2033, maintaining last year's estimates, after which it can only cover 79% of benefits.

Economic Growth Bolsters Trust Funds

Solid economic growth post-pandemic has played a crucial role in strengthening the nation's leading social safety net programs. The Social Security Board of Trustees now projects the combined trust funds to remain fully funded until 2035, a year improvement from previous projections. This is largely due to robust employment, impressive wage growth, and a steady, low unemployment rate, as noted by Social Security Administration Commissioner Martin O’Malley. O'Malley emphasized the importance of Congressional action to prevent trust fund insolvency, aiming to secure peace of mind for beneficiaries and contributors alike.

Looming Benefit Cuts Despite Improvements

Despite the modest boost in the outlook for Social Security and Medicare, the long-term picture remains challenging, with trust funds for both programs expected to deplete in just over a decade. This situation threatens beneficiaries with automatic cuts unless Congress acts to improve the programs' financing. President Joe Biden has proposed extending Medicare and Social Security solvency through tax increases on the wealthy and reducing drug costs, contrasting with some Republicans' plans to cut benefits to restore long-term viability. The trustee reports underscore the urgent need for legislative action to stabilize these essential safety net programs.

Management Quotes

• Michael Peterson, CEO of the Peter G. Peterson Foundation:

  "Today’s Trustees reports drive home the fact that the clock is ticking down on automatic cuts to Social Security and Medicare. It’s actually harmful to promise not to touch these essential programs, because failing to act will mean significant, immediate cuts that affect millions of Americans."