WASHINGTON — Social Security and Medicare, the government’s two biggest benefit programs, remain under intense financial pressure with the retirement of millions of baby boomers and a devastating pandemic putting increased pressures on the two programs’ finances.
A report from the programs’ trustees released Tuesday moved up by one year the date for the depletion of Social Security’s reserves, now projecting that Social Security will be unable to pay full benefits starting in 2034 instead of 2035.
Medicare is still expected to exhaust its reserves in 2026, the same date as estimated last year.
“The finances of both programs have been significantly affected by the pandemic and the recession of 2020,” the trustees said.
The report noted that employment, earnings, interest rates and economic growth plummeted in the second quarter of 2020 after the pandemic hit the United States.
The report said that “given the unprecedented level of uncertainty” there was no consensus on what the long-lasting effects of the pandemic will be on the two benefit programs.
When the Social Security trust fund is depleted the government will be able to pay 78% of scheduled benefits, the report said.
Because a reduction in benefits of that magnitude would cause a political uproar, it is likely that Congress would find ways to recover the lost benefits, either by hiking the payroll taxes paid by current workers or by increasing government borrowing to cover the shortfall.
Government economic experts who prepared the Social Security report said recent increases in inflation mean the cost-of-living adjustment for 2022 will approach 6%, a whopping jump from the 1.3% COLA awarded for this year.
The Medicare “Part B” premium for outpatient coverage is projected to rise by $10 a month in 2022, to $158.50 under the report’s intermediate assumptions.
The new report, which has been delayed for a number of months, represents the government’s effort to assess the impact of last year’s pandemic and recession on the financial health of the two big benefit programs.
The U.S. economy lost a staggering 22.4 million jobs in March and April 2020 as the pandemic forced businesses to close or cut their hours and the economy went into recession.
But the recession turned out to be brief and hiring has bounced back as economic growth has resumed. Employers have brought back 16.7 million jobs since April 2020 but that gain still leaves the labor force 5.7 million jobs below where it was before the pandemic hit.