2018 Social Security and Medicare Trustees’ Report Issued; Warn of Depletion of Trust Funds

Medicare, Medicare Set-Aside Blog, MSP News, Social Security on June 7, 2018
Posted by Jean S. Goldstein, JD

Each year, the board of trustees of the Social Security Trust Fund and Medicare Trust Fund release reports to Congress providing an estimated projected financial outlook for the programs. This week both reports were released.  The 77th annual Social Security Report can be found here, and the 53rd annual Medicare report can be found here.  Both are quite lengthy documents that contain a substantial amount of information covering 2017, and providing estimates and predictions of the solvency of each program.  Some key highlights of each report are noted below.

The Social Security Report

The report notes that:

  • Social Security provided benefit payments to about 62 million people;
  • Of that 62 million, 45 million were retired workers and dependents of retired workers, 6 million were survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers;
  • Applications for disability dropped in 2017.

In addition, the total annual cost of the program is projected to exceed total annual income in 2018 for the first time since 1982, and remain higher.  Of significant note, the report indicates that the Social Security trust funds are projected to become depleted in 2034, as opposed to last year’s estimate of early 2035.  Essentially, the report indicates that the long-term expenses the program will incur cannot be covered.  That is not to say that after 2034 Social Security benefits will end, but rather that the benefits paid would be significantly cut.

For our purposes, it is important to remember that Social Security and Medicare are intertwined. Once an individual has received 24 disability payments, they also gain access to the Medicare Trust Fund.

The Medicare Report

The Medicare report addresses the two separate Medicare trust funds, the Hospital Insurance (HI) Trust Fund, and the Supplementary Medical Insurance Trust Fund.  The HI pays for inpatient and hospital care (Medicare Part A). The SMI Trust Fund consists of Medicare Part B (which helps pay for physician, outpatient costs, home health, and other services) and Medicare Part D (which helps cover the prescription drug benefit).

Some key findings of the report note that:

  • In 2017, Medicare covered 58.4 million people;
  • Of those 58.4 million, 49.5 million were aged 65 and older, and 8.9 million were disabled;
  • Over 34% of Medicare beneficiaries are enrolled in a supplemental or Medicare Advantage Plan; 
  • The total Medicare expenditures were $710 billion in 2017.

Most importantly, as with the 2017 report, the trustees have documented that the HI trust fund will not be adequately financed over the next 10 years; stating that the estimated depletion date for the HI trust fund is 2026, and that the projected medical bills will not fully covered starting at that time.  The 2026 depletion date is 3 years earlier than that noted in the previous report.  Of note, this is different than the SMI trust fund, which is expected to be adequately financed over the next 10 years and beyond because of the premiums costs collected for Medicare Part B and Part D.  The difference in solvency of the funds is that HI trust fund is funded though the collection of payroll taxes, and lower salaries, and subsequently lower taxes adversely affect the trust fund.  By law, the President must submit proposed legislation to address the funding shortage, because of the findings of both the 2017 and 2018 report.

The Trustees also predict that expenditures will increase in future years at faster pace than taxable earnings, and the economy overall.  The findings and recommendations in this report indicate a dire need for change and reforms to address Medicare’s financial challenges.  

What Do the Findings of These Reports Mean?

We will likely see some legislative efforts and reforms to address the financial concerns as outlined with the reports.  Most significantly, with the looming insolvency of these funds, particularly the Medicare Trust Fund (Part A), we will likely continue to see heightened recovery efforts against primary payers by Medicare.  We will also likely see Medicare premiums increase along with payments to doctors, hospitals and other providers.  Ultimately, the information contained within the reports are only estimates, and it is certainly possible that costs will not increase as predicted; but the warnings are loud and clear.  Stay tuned for further updates and legislative efforts that may impact these programs.