An Entitlement Crisis Around the Corner
Last week, two major annual reports were issued by the Medicare and Social Security trustees forecasting a grim future for two of America’s major entitlement programs.
Last week, two major annual reports were issued by the Medicare and Social Security trustees. These reports give us a detailed picture of the fiscal health of these two major entitlement programs and remind us that they are in desperate need of structural reform.
Here are the three things you should know:
Last year, the Medicare program spent $679 billion. By 2026 its annual spending will more than double to $1.4 trillion per year. We pay for Part A of this program — covering inpatient services — with the Medicare payroll tax. However, Medicare Part A often spends more money than it takes in through taxes. The trustees now project that the Medicare trust fund will be exhausted by 2029. This means that the government will only be able to pay for Part A benefits for seniors to the extent it takes in money through the payroll tax. The trustees estimate that in 2029 the payroll tax will only cover 88 percent of Part A benefits. Without reform, benefits will have to be cut, taxes increased, or some combination of both.
“If you are 50-years-old today or younger — and we do nothing — you will never receive full Social Security benefits.”
SSocial Security will likewise be in trouble before too long. Consider this: next year we will be closer to the Social Security program going bankrupt than we are to 9/11. The Social Security trustees say that the program’s combined trust funds will be bankrupt in 2034. Once this happens, there will an automatic 23% cut to the benefits, and seniors will get only 77 cents on the dollar. What this means is that if you are 50 years old or younger today — and we do nothing — you will never receive full benefits.
“Together — in just Medicare and Social Security alone — we will have to pay out between $46 and 58 trillion we don’t have right now.”
There is a staggering difference between what Congress has promised and what it can pay for in these two programs. Estimates of Medicare’s unfunded promises range from $33.5 trillion to $45.5 trillion, depending what assumptions are made about future spending.
Social Security’s unfunded promises over 75 years are $12.5 trillion — a number $1.2 trillion higher than last year’s report estimated. Together — in just Medicare and Social Security alone — we will have to pay out between $46 trillion and $58 trillion worth of benefits that the government does not currently have revenues dedicated to pay. This all means we have an entitlement crisis just around the corner. The longer we put off reform, the more expensive any changes will have to be in the future.