Social Security and Medicare are Running Out of Funds

May 3, 2019

While the danger of financial instability has been a recurring issue for government programs such as Social Security and Medicare for many years, politicians seem to neglect these issues completely. With many elected officials over the last few years refusing to provide the required reform these entitlement programs desperately need, there has been a steady decline in the overall stability of these programs. These programs are in danger of going into deficit for the first time in over 32 years and have no immediate strategy created to fix these issues.

What is Social Security?

Social Security is defined as any government-mandated program that provides provisions to eligible beneficiaries with inadequate or no income. Social security itself is comprised of government programs such as Medicare, SSI, and Disability. Currently, the danger falls on Social Security’s ability to provide SSI (Supplemental Security Income) for retired workers.

Eligible parties for SSI is as follows:

• Retirees
• Disabled Persons
• Families of Retirees
• Disabled or Deceased Workers

Social security is a pay-as-you-go program, as every individual currently employed in the United States is contributing to the program through payments deducted from each paycheck (Social Security Taxes). This will then result in payment to the individual, allowing those enrolled to begin generating income when one or more of the above requirements is met. While these benefits aren’t the most extensive, they still allow individuals to collect monetary provisions once approved.

Current Issues with Social Security

Social security has been neglected for several decades, even though the threats of its budget running out has been discussed in length by many major news publications in the past. Thanks to a recent report provided by the Social Security trustees, 2020 will be the first year Social Security will enter into a deficit in over 38 years. This means that the cost of spending has finally outweighed the cost of revenue, creating worry for the stability of the programs and requiring reserves to be exhausted for continued payment. If the projected trend continues to increase without change, the funds will be depleted in their entirety by 2035.

How Did Social Security Get This Bad?

Social Security has been on a steady decline for years, but instead of fixing the issues present the program as a whole has been pushed to the side. Conveniently enough, new additions to spending have been created in the last few years with no mention of reform for the program. The last push for reform occurred back in the 1990s, with Democrat and Republican parties mutually agreeing on creating additional stipulations for the program including:

• Eligibility-age changes
• Moderation of benefit growth
• New taxes

Unfortunately, these reforms were never created.

Despite the pressure put onto potential Social Security reform by presidents such as Bill Clinton and George W. Bush in their campaign agendas, all attempts to progress an official reform were ultimately blocked before they even began. Since then, there have been no talks of reform inside Congress and the program’s overall spending.

How Can Social Security be Fixed?

Reform for Social Security needs to happen soon. Otherwise, the program will no longer exist, leaving the millions benefiting from Social Security at risk. While no official solutions have yet to be released, online experts have considered possible options that could be incorporated to reform the social security program.

Some of these potential fixes include:

• Increasing the payroll tax rate
• Raising the Retirement Age (currently defined as 67 years old)
• Modifying the Benefit Determination
• Changing the Annual Cost-of-Living Adjustment

Though, most of these will fall flat due to the current political opposition that will come from both parties while attempting to resolve this issue.

One idea experts suggest is to increase the number of immigrants allowed into America. Both illegal immigrants and legal immigrants are credited with contributing billions of dollars into payroll taxes each year. Based on estimates provided from the trustee’s report, the larger the number of immigrants that enter the American workforce, the longer social security will last. This also relies on a majority of these immigrants being a young age and contributing to a system that will most likely be long gone once eligibility ages are met.

Unfortunately, this opens a can of worms as a large influx of immigrants will also begin pulling from other government beneficiaries. This will likely result in other government provided services being used more frequently and could create the same problem in any one of those provided services.

What is Medicare?

Medicare is a federal health insurance program allowing individuals to receive subsidized medical coverage. Individuals are covered under Medicare if they meet one of the following criteria:

• 65 years old or older
• Possess Certain Types of Disabilities that Effect an Individuals Ability to Work
• Individuals with End-Stage Renal Disease and Require Continued Medical Attention.

Since coverage is diverse and often situational, the insurance is broken up into parts A-D. These parts are broken down as follows:

• Part A – Provides inpatient/hospital coverage.
• Part B – Provides outpatient / medical coverage.
• Part C – Alternative way of receiving Medicare benefits.
• Part D – Perscription drug coverage.

What’s Wrong with Medicare?

Unfortunately, Medicare is on a rapid decline in funds and could see important parts of the program diminishing as early as 2026. This would begin with Part A, which is an extremely vital component to those receiving support from Medicare. If funds to this program are exhausted, those residing in hospitals and nursing homes won’t receive the full compensation agreed upon during enrollment. This would result in these individuals being forced to pay out of pocket for coverage or see benefits cut from their services.

Medicare currently only pays hospitals 60% of what private insurances pay, causing a large decline of compensation provided to the hospital and its doctors. It is estimated that by 2040, half of all doctors will begin losing money on every patient treated. This can create a business liability for hospitals and care providers, resulting in the denial of service or shifting a substantial portion of the cost to those privately insured.

Medicare is in desperate need of reform if it is expected to continue to offer protection.

How Did Medicare Get This Bad?

While Medicare has been a lucrative option in the past, the rising costs of healthcare in recent years have contributed to excess spending. This has put Medicare in deficit, and the financial burden is finally catching up. As it stands cuts to other important healthcare areas such as research and development will be necessary.

How Can Medicare Be Fixed?

Fixing Medicare falls into the same vein as fixing Social Security. They have both been known to be in danger, and there is little being done to resolve the problems. The largest factor that sits in the way of a comprehensive reformation occurring is attributed to the cutting of benefits or increasing tax rates, both of which are unfavorable results for elected officials to have associated with their career. Reformation efforts will also be met with political opposition on both sides, and will inevitably result in no resolution agreed upon.

One option presented is to cut funding from Medicare parts B and D to offset the excess funding, as these programs receive the highest allocation of the budget from the taxpayer’s dollars.

Thanks to the recent boost in the economy from the Trump administration, the area for economic growth continues to increase. This is due to the decrease in the unemployment rate and the steady rise in wages as a result of more individuals working. This increase in wages directly correlates with the higher revenue collected from payroll taxes, putting more money in the entitlement funds. Though, this is only the beginning when it comes to fixing the system.

Preparing for the Worst

Thanks to the current state of social security, there is an urge for individuals to take their retirement funding into their own hands. While social security on its own may still be available for some individuals, the future will most likely hold higher program restrictions and less budgeting freedom. Even so, almost half of the American workforce does not have any financial retirement plan outside of social security. If the program increases its eligibility requirements or defaults completely, there will be a large number of workers with no retirement plan.  It is always advised for individuals to seek eligibility into their work’s 401k or individual IRA accounts. This will supplement social security, and allow for the creation of a retirement plan outside of a government-provided supplemental income.

As for Medicare, there is more of an issue. While private insurance providers would be the best offering for many individuals, a large number of providers are outside of many individual’s price range. Unfortunately, outside of your works supplied enrollment plan there is very little that’s provided aside from traditional coverage. Research is required to find the most optimal offering at the lowest price.

Regardless of the offering, these programs are in jeopardy. This untimely deficit comes just as a majority of Baby Boomers are falling into the eligibility age and will begin seeking Social Security assistances as retirement age is met. As this occurs, programs will see a large influx of new enrollees. Reform needs to happen soon, or else there will be millions without coverage.