The Latest Actuarial Reports for Social Security and Medicare

Benefit Cuts Are Coming Unless Congress Does Something

We have the updated actuarial report of the Social Security trust funds and the actuarial report of the Medicare trust funds. There’s good news and bad news. The good news is that the Medicare Hospital Insurance Trust Fund won’t be depleted until 2031, three years later than last year’s report showed. The bad news is that Social Security is headed to depletion faster than projected last year.

Social Security is two trust funds—the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. Everyone pays into the program through the payroll tax under the Federal Insurance Contributions Act (FICA) and the Medicare Federal Insurance Contributions Act (MedFICA). That payroll tax is 12.4 percent up to the cap on wages, which is $160,200 in tax year 2023, for Social Security and 2.9 percent for Medicare Hospital Insurance, for which there is no wage cap. Employees and employers evenly split the tax.

Another 0.9 percent tax for Medicare Hospital Insurance is assessed for individuals earning $200,000 or more and married couples filing jointly earning $250,000 or more. I didn’t include that in the graphic above.

The wage cap (technically called the “wage base” or “wage band”) is interesting. Many countries with social insurance programs similar to Social Security in the United States have caps on taxable wages to fund those programs. For example, the monthly wage cap for Germany’s pension insurance program, if you live in the western part of the country, is €7,300 (US $7,937.40, or $95,248.80 annualized). In Canada, the wage base is $61,600 (US $45,614.49).

In other words, you have to earn a lot less in Germany and Canada than in the United States to reach the maximum taxable wage. Yet, there are still some in the United States who believe we need to eliminate the wage cap to address actuarial issues that face Social Security rather than reform the program.

Anyway, part of the problem with Social Security is that there are fewer workers contributing to the program per beneficiary. In 2023, there are 2.7 workers per beneficiary compared to 3.3 workers in 2005. The problem here is demographics. People born during the post-World War II baby boom are rapidly retiring, straining a poorly designed system that hasn’t been examined by Congress since 1983.  

The actuarial report shows that the Old-Age and Survivors Insurance Trust Fund will be depleted in 2033, a year earlier than was projected in the previous report. Absent congressional action, the trust fund will be able to pay only 77 percent of scheduled benefits. The 75-year unfunded obligation for Social Security is $22.4 trillion, which is $2 trillion higher than projected in last year’s actuarial report.

The Old-Age and Survivors Insurance Trust Fund had reserves of $2.711 trillion as of the end of 2022, but the trust fund paid out more in benefits than revenues it received. Overall, the trust fund ran a deficit of $40.7 billion. However, the deficit is quite larger once earned interest and taxation of benefits are taken out of the balance sheet. Just looking at the math of benefits paid to revenues received, the deficit is $142.2 billion. This, though, isn’t new. As the report explains, “Social Security’s cost has exceeded its non-interest income since 2010.”

When it comes to Medicare, it’s important to keep in mind that only the Medicare Hospital Insurance Trust Fund has a dedicated revenue source. While Medicare Part B and Part D do have premium payments from beneficiaries, these premium payments aren’t nearly enough to sustain the programs.

But the Hospital Insurance Trust Fund faces the same problem as the Old-Age and Survivors Insurance Trust Fund. As the Medicare actuarial report explains, “In the year of asset depletion, which is projected to be 2031 in this report, HI revenues are projected to cover 89 percent of incurred program costs.”

We’re now in a place where the Social Security Old-Age and Survivors Insurance Trust Fund and the Medicare Hospital Insurance Trust Fund will face depletion within the next ten years. To avoid that, Congress will either have to reform the programs, which doesn’t appear likely, or cover the shortfalls through a transfer of funds from general revenues.

Overall, the major unfunded liabilities of the federal government are now $106.6 trillion. Those who care about the fiscal issues facing the United States may wonder when the house of cards will collapse.

The signs are all there, but we may not know until it’s too late to do anything. Look at the Great Recession. Although all the signs of a major financial meltdown were there, everyone seemed caught off guard by it. Similarly, we’re facing a predictable fiscal crisis, and we may wake up one day and realize it’s too late to do anything about it. The pain of acting now is far more preferred than the even worse pain of waiting until the crisis is upon us, but Congress just ain’t listening.