“Social Security and Medicare are going to go bankrupt.” This has been a mantra on the American right since the two programs were founded, in 1935 and 1965 respectively. How true is it? If we define “bankrupt” as “unable to pay all promised benefits out of current revenues”, if nothing changes from the arrangements at present, that point will arrive for Medicare in 2026. At that point, the Hospital Trust Fund, which pays for Part A services, will be able to pay only 90% of its expenses.
The key idea to concentrate on is “…if nothing changes from the arrangements at present.” Those arrangements are taxation of 2.9% of wages in covered employment, with half paid by the employer and half paid by the employees. (The self-employed pay the full 2.9% themselves. Part B is funded by a combination of taxes, general revenues, co-payments from beneficiaries, and premiums from beneficiaries; the premium is $170.10 per month in 2022, except for some higher-income taxpayers.
The solution is simple. More tax revenue, less expenses, or some combination of the two. This would mean reducing payments to providers, raising taxes, increasing payments from general revenues, or some combination of the above. Arithmetically, it’s simple: just put more money in or take less out. Politically, it is not simple at all. There is a lot of ideological baggage attached to any possible solution, and the fight will be fierce. The one thing that one can be certain of is that 63 million Medicare beneficiaries will not be happy if they have to pay more in taxes or receive less in benefits.
A persistent theme on the right in the U.S. is that all of the Medicare and Social Security Trust Fund money has been “borrowed” to pay for other programs, so it really doesn’t exist. It is absolutely true that the law requires that Social Security and Medicare funds collected from taxes and premiums be invested only in U.S. Treasury securities. It is absolutely true that U.S. Treasury securities are government borrowing – a bond is an instrument that pays interest on a capital amount that is loaned to the bond issuer. It is also absolutely true that if the U.S. government runs a deficit, it has spent more than it has taken in – that’s just what a deficit means. But this does not mean that the money is “gone.” The U.S. government still has it on its books as an obligation that has to be paid, and it will be.
Social Security is in the same boat as Medicare: there is a projected point in the future, at which, if nothing changes from president arrangements, Social Security will be unable to pay the full amount of benefits promised. That point is currently projected to be sometime in 2033, at which point the Old Age, Survivors, and Disability Insurance Trust Fund will be able to pay on 76% of promised benefits.
As with Medicare, that is true only if the present arrangements are unchanged. As with Medicare, paying out less, collecting more in taxes, or some combination of the two is the starting point for a solution.
For both programs, however, “paying less” and “taxing more” demonstrates a woeful lack of imagination. Options such as a wealth (as opposed to income) tax, a value-added tax, investments in the private sector as well as government securities, exist. We just have to hope that our politicians will be thinking creatively before the crunches come.
