Political News

Report Finds Dim Outlook for Benefits’ Trust Funds

Posted June 5, 2018 8:01 p.m. EDT

WASHINGTON — The financial outlook for Medicare’s Hospital Insurance Trust Fund deteriorated in the last year, and Social Security still faces serious long-term financial problems, the Trump administration said Tuesday.

The projections are the first from the administration since President Donald Trump signed a $1.5 trillion tax cut into law in December. They show no sign that a burst of economic growth will significantly improve the finances of the government’s largest entitlement programs.

The Medicare trust fund will be depleted in 2026, the administration said. By contrast, the government said last year that the trust fund would be exhausted in 2029.

In a companion report, federal officials said the Social Security Trust Funds for old-age benefits and disability insurance, taken together, could be depleted in 2034, the same year projected in last year’s report. The fund that helps tens of millions of retirees is expected to be depleted a year earlier than projected last year, while the outlook for the disability trust fund is more favorable.

Still, tax collections would be sufficient to pay about three-fourths of promised Social Security benefits for 75 years.

The report, prepared mostly by nonpolitical actuaries and economists, predicts a 2.4 percent increase in Social Security benefits next year, to keep up with the cost of living. The increase this year was 2 percent.

More than 60 million people are on Social Security, Medicare or both. The two programs account for about 40 percent of all federal spending.

But Trump has paid relatively little attention to either program, declining to embrace a major restructuring of Social Security or Medicare, as some previous Republican presidents have. Nor has he endorsed higher taxes to finance the programs, as some Democrats have suggested.

Trump administration officials instead are counting on a strong economy to improve the solvency of Social Security and Medicare.

“The administration’s economic agenda — tax cuts, regulatory reform and improved trade agreements — will generate the long-term growth needed to help secure these programs,” Treasury Secretary Steven Mnuchin said Tuesday.

So far that does not appear to have happened, to judge from the annual report of the trustees of Social Security and Medicare, a group that includes three Trump Cabinet officers.

The report said the less favorable outlook for Medicare’s hospital trust fund resulted from “adverse changes” in program income and costs. Income to the Medicare fund is expected to be lower than estimated last year because of “lower payroll taxes attributable to lowered wages in 2017 and lower levels of projected gross domestic product,” the Treasury said in a “fact sheet” accompanying the report.

At the same time, it said, outlays from Medicare’s hospital trust fund “are expected to be higher than last year’s estimates due to higher-than-anticipated spending in 2017, legislation that increases hospital spending,” and higher payments to private Medicare Advantage plans.

“The current trajectories in health spending are both unsustainable and unmatched by increases in quality,” Alex M. Azar II, the secretary of health and human services and a trustee of Medicare and Social Security, said Tuesday.

The Congressional Budget Office said in April that federal deficits and debt would soar in the coming decade, following passage of the tax overhaul and legislation to increase military and domestic spending.

Democrats have for months asserted that Republicans would use the deficit — swollen by tax cuts — as “an excuse to cut Social Security and Medicare,” in the words of Sen. Chuck Schumer of New York, the Senate Democratic leader. Republicans say the programs must be revamped to ensure they will be solvent for baby boomers and their children.

The report said the 2017 tax law would have relatively modest effects on the finances of Medicare and Social Security.

About half of Social Security beneficiaries owe some income tax on their benefits. This revenue will be lower than previously expected while the cuts in individual tax rates are in effect through 2025, the actuaries said. But after that, they said, revenue from the taxation of benefits will be somewhat higher than expected because the tax law alters the way in which income tax brackets will be adjusted for inflation.

In addition, the tax law repealed the penalty for people who go without health insurance. As a result, the report said, Medicare payments to certain hospitals for “uncompensated care” are expected to increase. Another factor contributing to the increase in Medicare costs is Congress’ decision last year to eliminate the Independent Payment Advisory Board, created by the Affordable Care Act to help slow the growth of Medicare.

The trustees said the outlook for Social Security’s disability trust fund had improved because the number of applications had declined steadily since 2010 and the total number of beneficiaries had been falling since 2014. In addition, they said, average benefit levels for disabled workers “were lower than expected in 2017 and are expected to be lower in the future.”

Medicare now spends an average of about $13,600 a year per beneficiary, and in five years the annual cost is expected to average more than $17,000, the report said.

The standard Medicare premium paid by most beneficiaries is expected to rise next year by just $1.50 a month, to $135.50. But for the most affluent beneficiaries — those with annual incomes exceeding about $160,000 — the premium is expected to be about $460 a month.

Federal officials predict that enrollment in private Medicare Advantage plans will continue growing at a rapid clip, to 29 million in 2027, from 20 million last year.

A major reason for Social Security’s long-term financial problems is a decline in the number of workers for each beneficiary.

In 1960, there were about five workers for every Social Security beneficiary. The ratio of workers to beneficiaries fell to 3.3 in 2005 and then to 2.8 in 2016. It will decline further to about 2.2 by 2035, when most baby boomers will have retired, officials said.

The aging of the population is another factor in the growth of the two entitlement programs. The number of Medicare beneficiaries is expected to surge to 87 million in 2040, from 60 million this year, according to Medicare actuaries. And the number of people on Social Security is expected to climb to 90 million, from 62 million, in the same period. House Speaker Paul D. Ryan has repeatedly tried to overhaul entitlement programs, converting Medicare into a voucherlike program that could shift more retirees to private insurance and turning Medicaid into a block grant to state governments. He has faced bipartisan opposition to that effort, but many Republicans say they hope to continue the push after he retires next year.

For their part, Democrats hope to expand Social Security, to address what they see as a looming crisis in retirement income.

“We will fight every effort to cut, privatize or weaken Social Security, including attempts to raise the retirement age, diminish benefits by cutting cost-of-living adjustments or reducing earned benefits,” the 2016 Democratic platform said. “Democrats will expand Social Security.”

The trustees of the two programs — the secretaries of the Treasury, labor and health and human services and the Social Security commissioner — normally unveil the annual report at a news conference. But none of the four attended the press briefing this year.