Medicare and Social Security will run out of funding in the next decade, according to a new report from the Trustees of the Social Security and Medicare trust funds.
The annual report, which looks at current and projected finances for the popular federal safety-net programs, said both “face significant financing issues.”
While Medicare will be able to pay 100% of total scheduled benefits through 2036 — five years longer than last year’s projection — its reserves will be depleted in 12 years, enabling payouts of 89% of scheduled benefits.
Social Security will be able to pay 100% of scheduled benefits through 2033 — the same as last year — at which point the fund’s reserves will be depleted, enabling payouts of 79% of planned benefits.
The Trustees’ report said increased labor productivity and stronger-than-expected economic growth in 2023 have improved the programs’ finances. But they encouraged lawmakers to take action to “reduce or eliminate the long-term financing shortfalls” and to consider a variety of options “sooner rather than later” so the government can phase in changes and program recipients can prepare for them.
Neither the Social Security nor the Medicare trusts are legally allowed to borrow money after their asset reserves are depleted. Legislation will be required to shore up their finances.
“Averting trust fund depletion under current-law financing is extremely unlikely,” the trustees noted in their report.
About 90% of Social Security and Medicare benefits are funded through payroll taxes. The rest comes from income tax on Social Security benefits and interest on the trust fund’s asset reserves. At the end of 2023, Social Security held $2,641 billion in asset reserves. Medicare held $208.8 billion.
The Trustees said Social Security has been drawing down its asset reserves to pay benefits since 2021 and will “require increasing amounts of asset redemptions during the next decade.”
They expect the Medicare program will experience small annual surpluses through 2029, at which point its trust asset reserves will begin going into deficit.
The Trustees said the costs for both programs will grow faster than the country’s gross domestic product through the mid 2030s because of the aging population.
Social Security and Medicare program costs are about 9% of the U.S. GDP this year and are projected to increase to 11.1% by 2035 and 12.3% by 2098.
About 58.6 million people received Social Security at the end of 2023, according to the Trustees, which include Treasury Secretary Janet Yellen, Acting Secretary of Labor Julie Su and Health and Human Services Secretary Xavier Becerra.