US Social Security and Medicare files for bankruptcy, trustees warn
Both the Social Security and Medicare programs are headed for bankruptcy in the coming years, according to annual reports released by the trustees of the two programs.
The Social Security program will default 13 years by 2035, Social Security administrators said in their report (pdf). Although the Social Security program’s finances have improved slightly from a year ago, it still remains at risk.
At this time, the program cannot guarantee full benefits to current retirees. The trust fund of the social security old-age and survivors’ insurance (AHV) is expected to use up its reserves by 2034.
Although the Social Security Disability Insurance (SSDI) trust fund is expected to remain in strong financial health, the combined trust fund will be depleted by 2035, when today’s youngest retirees will turn 75 and 54-year-olds will reach full retirement age.
As soon as the program becomes insolvent, all beneficiaries must be reduced by a flat rate of 20 percent.
This year, the trustees estimate Social Security will have a cash flow deficit of $112 billion, or 1.3 percent of taxable payroll.
Over the next decade, Social Security will run a deficit of nearly $2.5 trillion, equivalent to 0.8 percent of GDP, or 2.1 percent of taxable payroll.
By 2040, the annual deficit is projected to rise to 3.4 percent of taxable payroll, and even rise to 4.3 percent of payroll by 2096.
“The Trustees recommend that lawmakers address the Trust Fund’s projected shortfalls in a timely manner to phase in the necessary changes and allow time for workers and beneficiaries to adjust. Implementing changes sooner rather than later would allow more generations to participate in the required revenue increases or reductions in planned benefits,” the report said.
Meanwhile, the Medicare Hospital Insurance (HI) trust fund will deplete its reserves over the next six years to 2028, the Medicare Trustees predict in their report (pdf). A bankruptcy will reduce health insurance spending by 10 percent, a number that will double to 20 percent by 2046.
The trustees’ estimates align closely with recent predictions from the Congressional Budget Office (CBO), which expects Medicare HI’s trust funds to be depleted by 2030 and Social Security to default by 2033.
“Combined with last week’s projections from CBO, we have a bleak fiscal future ahead of us,” Maya MacGuineas, president of the Committee on Federal Budget Responsibility (CRFB), said in a June 2 note press release.
“It doesn’t have to be this way — we can begin thoughtful reforms that increase revenue, cut spending, lower health care costs, root out today’s rampant inflation, boost economic growth and secure our trust funds. But first, policymakers need to open their eyes to the challenges we face.”