What is the future of Social Security and Medicare in America?
Regardless of economic and social issues, the federal government managed to, by now, meet its obligations to senior citizens when it comes to social security. However, young workers today are growing increasingly concerned that, by the time they reach retirement, there won’t be social security available for them.
Following a pandemic that is slowly draining the treasury reserves social security is usually paid out of, reports show there is a possibility that, in 15 years, social security payments will be significantly smaller. It is unlikely that social security will disappear entirely, as some dare to suggest, as no administration or member of Congress would want to face the public’s reaction to such a notice. By current predictions, it is expected that the fund will run dry by 2035, and when that happens, seniors should expect to receive about 76% of the promised benefits.
President Joe Biden tailored a large part of its campaign around potential changes to social security, such as benefit increases and payroll taxes for people who make over $400,000. In 2022, the Social Security Administration could receive a boost in funding, but whether this will help or hurt the future of Social Security, it is yet to be discussed.
Lifetime Social Security and Medicare benefits – 1960s vs now.
Social Security was launched in 1935, and in 1965, Medicare and Medicaid were added to the plan as well. To understand where things are going now, it is important that we take a look at how Social Security and Medicare benefits have evolved throughout the decades.
For a couple aged 65 in 1960, the value of lifetime Social Security and Medicare Benefits would reach $308,000, and another $37,000 in taxes. By 1980, the amount would grow to $643,000 and $203,000 in taxes. Back in 2015, the amount nearly doubled, reaching $1,038,000 and $683,000 in taxes.
In the future, it is expected that a couple aged 50 in 2015 will receive $1,352,000 in benefits in 2030, whereas taxes will reach $834,000. What’s more, benefits for a couple turning 65 in 2050 are expected to rise to nearly $2 million.
The information above shows benefits will continue to rise even more, due to a number of reasons, including increases in real annual benefits, longer life spans which result in more years of benefits, as well as improved healthcare, which is more expensive.
The gap between Social Security and Medicare payouts and the payroll taxes employees owe will continue to widen as benefits rise. This is partly due to the fact that the low Medicare fee was originally intended to pay just hospital expenses, but the program now includes doctor visits, outpatient treatments, prescription medications, and other expenses as well. In addition, hospital expenses are growing faster than the income needed to pay for them.
President Biden’s plans to change Social Security – what could they mean?
When President Biden announced the budget proposal for the 2022 fiscal year, a boost in funding for the Social Security Administration was also revealed. The president is asking for $14,2 billion to be redirected towards the Social Security Administration in 2022, with the purpose of addressing a number of issues the administration is dealing with. This means reduced backlogs and wait times, better community outreach to vulnerable individuals and technological improvements.
Out of the over $14 billion, $1.3 billion would go towards the Social Security fund, which can help recover from the pandemic disruptions and get back on track. While this won’t prevent expectations that the funds will run dry in the following years, it could delay the moment for another one to two years. This comes in contrast with the Trump Administrations’ budget proposal for the previous year, which was looking to cut the program’s funding quite significantly.
Biden also plans to raise benefits for long-term low-wage employees, widows and widowers from dual earner-couples, government workers, caregivers, as well as long-term beneficiaries.
Biden’s proposed minimum benefit and caregiver credit are aimed squarely at low-income people. His ideas will raise more than 1 million individuals out of poverty by 2021 and reduce the poverty rate for adult Social Security recipients by more than half over the next few decades. Increasing survivor benefits for dual-earner couples is less effectively tailored to family income, but it does address disparities between single-earner and dual-earner couples.
According to David Bynon, the founder at MedicareWire.com, “One of the ways the government is reducing its Medicare liability is its partnership with Medicare Advantage plans. When Medicare beneficiaries enroll in a private health plan, the government pays the plan a set monthly amount to assume the liability of the beneficiary’s healthcare. Plans make this model profitable by restricting access to care and paying their provider networks less.”
MedicareWire is a Medicare consumer research and consulting firm located in Prescott, Arizona.
What will the future bring?
While these changes are bound to do a lot of good for the people benefiting from social security now, they still don’t seem to tackle future issues enough to reassure the younger generation that their contributions will pay off.
Based on the 2021 report by the Social Security and Medicare Boards of Trustees, below are some estimates on how Social Security could look like in the future:
- The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay scheduled benefits in full until 2033 when the reserve will run dry. From then on, continuing tax income will manage to cover 76% of scheduled benefits
- The Disability Insurance Trust Fund will be able to pay benefits until 2057, when continuing tax income will allow for only 91% of scheduled benefits to be paid.
- The Hospital Insurance Trust Fund will be able to pay benefits until 2026, after which the continuing total program income will cover 91% of scheduled benefits.
Changes to Social Security are tough, to say the least because Congress is deeply divided, and the president cannot act alone. It’s uncertain if the tax increase plan, or any other Social Security changes, will take effect in the following period. But Biden’s remark made it obvious that he wanted to keep the program going.