How are Social Security and Medicare’s financial outlook for 2016? According to the Trustees for Social Security and Medicare trust funds, they pulled a financial burden of 41% of federal program expenditures in 2015. Due to economic and demographic factors, there are fewer workers paying into these funds than previously, resulting in decreasing income from payroll taxes. This is also worsening as more and more baby boomers reach retirement age and since they are living longer, are experiencing higher health care costs.
The combined trust fund reserves (OASDI) for Social Security will continue to increase through 2019, then annual program costs are projected to exceed total income. This will cause the U.S. Treasury to begin drawing from its reserves to help pay benefits. Without Congressional action, these reserves will be depleted in 2034. Once depleted, payroll tax revenue alone will pay approximately 79% of scheduled benefits in 2034, falling to 74% by 2090.
The Social Security Administration is projecting that beneficiaries will receive a small cost-of-living adjustment of 0.2% for 2017.
Since 2008, Medicare annual costs have exceeded tax income annually, although slight surpluses are predicted from 2016 to 2020. The HI Trust Fund has a projected depletion date of 2028, two years earlier than predicted in 2015, and once it is depleted, tax and premium income would still cover 87% of estimated program costs. It would decline to 79% by 2040 but gradually increase to 86% by 2090.
Due to the small cost-of-living adjustment, approximately 70% of Medicare beneficiaries may see only a small increase in the Part B 2017 premiums. A “hold-harmless” provision in the law limits the increase in Medicare Part B premium to the dollar increase in a person’s Social Security benefit. However, the remaining 30% may be subject to a much greater premium increase. This includes new enrollees, wealthier beneficiaries and those who choose not to have their premiums deducted from their Social Security benefit. They could see a rise in base premiums. Part B premiums could also increase for those subject to income-related premiums.
The reports urge Congress to address these challenges now, so the solutions may be implemented gradually. Proposals include:
• Raising the current Social Security payroll tax rate by 2.58 percentage points.
• Raising the ceiling on wages currently subject to Social Security payroll taxes
• Raising the retirement age beyond the currently scheduled age of 67 for anyone born in 1960 or later.
• Reducing future benefits, especially for the wealthier beneficiaries.
• Changing the benefit formula
• Recalculating the annual cost-of-living adjustment for benefits
A full report of the 2016 Social Security and Medicare Trustees reports can be found at www.ssa.gov and www.cms.gov.
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