The fear is that government entitlement programs, such as Social Security and Medicare, will shrink to unrecognizable levels, or completely vanish, in the years to come. Some definitions first: Medicare is the federal health insurance program for people 65 or older, certain younger people with disabilities, and a couple of other specifically named conditions while Social Security is the federal insurance program that provides benefits to retired people and those who are unemployed or disabled.
Despite the federal government spending approximately 40 percent of its annual revenue on such programs, there are potentialities that might spell struggle for these programs in the years to come. Across the partisan aisle, opinions are mixed about the chances of survival for the Social Security and Medicare programs.
Projections recently have been released by the Trump administration that suggest a survival rate of Medicare extending no longer than the year 2026. This is a three-year drop from 2017 projections, which put the year of collapse at 2029.
As for the Social Security Trust Fund that helps the elderly and the disabled, the report predicts its depletion, taken together, in 2034 (which is the same year predicted in last year’s report). Many claim that greater levels of tax collection could foreseeably extend the life of Social Security for another 75 years.
The Trump administration’s report was prepared by a nonpartisan group of actuaries and economists and has predicted, for next year, a 2.4 percent increase in Social Security benefits in order to keep up with cost of living demands; this year’s increase was 2 percent.
Many officials in the current presidential administration claim, despite the relatively small amount of attention paid to these entitlement programs, that a strengthening of the economy might be the knight in shining armor for these programs (that, and Batman). As a result of these expectations, the administration does not believe that slashing taxes will have a deleterious effect on the program and feels no desire to enact major restructuring of Social Security or Medicare (as many administrations have done in the past for fear of their collapses).
“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 recently said.
Further (further) predictions
Many believe that the federal deficit and the national debt, in general, is going to soar in the next 10 years. Some place this possibility at the feet of ramped-up spending for the military, as well as the recent tax overhaul of 2017. But the report says that the 2017 tax bill introduced by President Donald Trump will have a very small impact on the finances of Medicare and Social Security.
Some Democrats believe that recent tax cuts will be used as an excuse to cut spending for these two programs. Meanwhile, many Republicans claim that certain changes — including the tax cut of 2017 — must be made precisely to ensure baby boomers and their children will be able to take advantage of programs such as Medicare and Social Security.
The report goes on to predict that the cuts to individual tax rates will cause national revenue to be less up until the year 2025. After this, due to how the tax law alters the way in which income tax brackets are adjusted for inflation, revenue from taxation on benefits most likely will grow.
According to the report, “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.” What’s more, enrollment in privately operated Medicare plans is expected to increase from 20 million in 2017 to 29 million by 2027.
The aging population & Social Security
A prevalent explanation for the long-term financial issues facing Social Security has been the dwindling of workers along with the increase in the retiree population of the United States. In 1960, there were five workers for every beneficiary. In 2005, the beneficiary-to-worker ratio fell to 3.3 workers per every beneficiary and then to 2.8 workers for every beneficiary in 2016. The report predicts that by 2035, the ratio will be as low as 2.2 workers for every one beneficiary. This is because most baby boomers will have retired by then. Also, due to the aging of the population, the report expects that there will be approximately 90 million beneficiaries of Medicare in 2035 compared to 60 million this year. As for Social Security, the report expects the number of beneficiaries to rise to 92 million by 2035 from 62 million in 2017.
Nobody knows what will happen with the United States’ two largest government entitlement programs in the future. As far as the reports go, these are projections and not facts. In order to figure out what truly will become of Medicare and Social Security in the years to come, we would need a time-traveling machine that would take us to the future. Until that invention arrives, we, unfortunately, have to be content with the uncertainty.
Have something to add to this story? Comment below or join the discussion on Facebook.
Header image: ShutterStock