2020 Social Security and Medicare Trustees’ Reports Issued; Pre-COVID-19 Depletion of Funds Documented

Medicare, Medicare Set-Aside Blog, Social Security on April 27, 2020
Posted by Jean S. Goldstein, JD, CMSP

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 these two programs.  Last week both reports were released.  The 80th annual Social Security Report can be found here, and the 55th annual Medicare report can be found here.  Both reports are quite lengthy documents that contain a substantial amount of information covering 2019, and provide estimates and predictions of the solvency of each program.  It is important to note that the projections and analysis in these reports do not reflect the potential effects of the COVID-19 pandemic on the Social Security and Medicare programs.  It is extremely likely that there will be additional and significant impact on both of these funds. 

Some key highlights of each report are noted below.

The Social Security Report

The report states that:

  • Social Security provided benefit payments to 64 million people in 2019;
  • Of that nearly 64 million, 48 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; and
  • The total cost of the program in 2018 was $1,062 billion.

Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Combined Trust Funds Reserves as the ratio of start-of-year funds reserves to that year’s program cost. Reserves generally increase when fund income is greater than program cost and generally decline when program cost is greater than income.

The trustees also projected that Social Security benefits (retirement and disability) will be able to be paid out collectively until 2035.  Thereafter, after the reserve depletion, continuing income can finance 79% of scheduled benefits, and by 2094, 73% of scheduled benefits are projected to be payable.

The report also notes that disability applications have continued to decline steadily since 2010, and that the total number of disabled-worker beneficiaries in current payment status has been falling since 2014. 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 2019, Medicare-covered 61.2 million people;
  • Of those 61.2 million, 52.6 million were aged 65 and older, and 8.7 million were disabled;
  • In 2019, about 37% of Medicare beneficiaries were enrolled in a supplemental or Medicare Advantage Plan (which is an increase of 1% since the last report); and
  • The total Medicare expenditures were $796.2 billion.

Most importantly, as with last year’s report, the trustees have documented that the Hospital Insurance Trust Fund will not be adequately financed over the next 10 years.  The estimated depletion date is 2026, and projected medical bills will not be fully covered starting at that time.  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 premium costs are collected for Medicare Part B and Part D.  The difference in solvency of the funds is that the Hospital Insurance Trust Fund is funded through the collection of payroll taxes, and lower salaries, or job losses, and subsequently lower taxes adversely affect the trust fund. 

What Do the Findings of These Reports Mean?

Prior to the COVID-19 pandemic, both the Social Security and Medicare program both faced long-term financing shortfalls.  Pre-COVID-19, the findings continued to indicate a dire need for change and reforms to address the funds’ financial challenges.  With more services and healthcare needs being extending during the COVID-19 pandemic we will surely see additional deficiencies and likely greater shortfalls in next year’s report.  In consideration of these latest findings and the additional impact of COVID-19, Medicare compliance will likely be in the limelight more than ever before.  Moreover, with the documented looming insolvency of these funds, we may see heightened recovery efforts against primary payers by Medicare, amidst the already existing ramp up we have seen over the last several years.  Therefore, it is of paramount importance to have a Medicare compliance plan in place now, which includes proactive protocols, best practices, and processes to address what is surely on the horizon.