Thanks to a stronger-than-expected economic recovery from the 2020 Covid-19 recession, the outlook for Social Security outlined in the 2022 Trustees Report contains some positive news. The Social Security Trust Funds are going to be able to pay full benefits further into the future than previously thought.
The Old-Age and Survivors Insurance (OASI), which pays Social Security benefits to retired workers, is now expected to be able to remain solvent until 2035, one year later than reported in 2021. The Hospital Insurance (HI) Trust Fund, also known as Medicare Part A, is projected to be able to pay scheduled benefits on behalf of Medicare recipients through 2028, two years beyond last year's projection, and the Disability Insurance (DI) Trust Fund, which makes payments to those who are mentally or physically incapable of gainful employment, is no longer projected to be depleted within the 75-year projection period. Last year the Trustees' report said the DI fund would only be able to pay full benefits until 2057.
- The 2022 Social Security Trustees' Report projects its trust funds will last slightly longer than previous projections due to stronger than expected economic recovery.
- The OASI fund is expected to pay full Social Security benefits until 2035 at which time it will pay 80% of scheduled benefits.
- The Medicare Part A (HI Trust Fund) will now last two additional years compared to last year's projection, until 2028, after which it will pay 90% of scheduled benefits.
- The DI Trust Fund is projected to last through the full 75-year projection period compared to last year when it was expected to become depleted by 2057.
The Structure of the Social Security Trust Funds
The Social Security Trust Funds were established by Congress to account for Social Security and Medicare income and disbursements. Treasury credits Social Security and Medicare taxes, premiums, and other income to the funds.
The four separate funds include the Social Security OASI Trust Fund, which pays benefits to retirees and survivors; the Social Security DI Trust Fund, which pays disability benefits; the Medicare Part A HI Trust Fund, which pays for hospital and related care; and the Medicare SMI Trust Fund, which Pays for Part B physician and outpatient services, and Part D, which covers prescription drugs.
After benefits are paid, any excess funds can be invested only in interest-bearing securities backed by the full faith and credit of the United States. Currently, Treasury invests all Social Security revenues in special non-marketable US Government securities, which earn interest equal to rates on marketable securities.
The Board of Trustees usually consists of six members, four who serve by virtue of their positions with the federal government and two public trustees. Currently, the entire board is made up of Janet Yellen, Secretary of the Treasury and Managing Trustee, Kilolo Kijakazi, Acting Commissioner of Social Security, Xavier Becerra, Secretary of Health and Human Services, and Martin J. Walsh, Secretary of Labor. The two public trustee positions have been vacant since 2015.
Concerning COVID-19 and its impact on Social Security, Disability, and Medicare, the Trustees admit there is no consensus. As a result the report says, "We currently assume that the pandemic will have no net effect on our long-range projections."
The Old-Age and Survivors Insurance (OASI) Trust Fund
As noted, according to the 2022 Social Security Trustees' Reports, the Old-Age and Survivors Insurance (OASI) Trust Fund is expected to be able to pay scheduled benefits on a timely basis until 2034, following which the fund's reserves will become depleted and continuing income will be sufficient to pay 77% of scheduled benefits.
The year the OASI fund will become depleted and, assuming no further Congressional action, Social Security recipients will see a 20% cut in their benefits.
The Hospital Insurance (HI) Trust Fund
After that the HI fund will be able to cover 90% of scheduled benefits.The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028, two years later than reported last year. At that time, the fund's reserves will become depleted and continuing total program income will be sufficient to pay 90% of total scheduled benefits.
By 2028, assuming Congress takes no action, Medicare inpatient hospital care co-pays and shared costs will increase by 10%.
The Supplemental Medical Insurance (SMI) Trust Fund
The Supplemental Medical Insurance (SMI) Trust Fund is adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year's expected costs. Due to these funding provisions and the rapid growth of its costs, SMI will place steadily increasing demands on both taxpayers and beneficiaries.
The SMI Trust Fund, including Medicare Parts B and D, is not affected by Congressional inaction. That's because current law resets resets general revenues and beneficiary premiums each year to meet the next year's expected costs. It is expected that these patient costs will go up.
The Disability Insurance (DI) Trust Fund
For different reasons, the DI Trust Fund is also expected to be able to cover disability benefits on a long-term (75-year) basis. The report reflects the fact that the disability incidence rate was reduced from 5.0 to 4.8 per thousand individuals who meet insured requirements but who are not receiving benefits. This is an indication that program applications and incidence rates have continued to decline in recent years from a peak in 2010.
The Role of Short-Term Trust Fund Adequacy
As part of their annual reporting responsibilities, Social Security Trustees are required to report on the Trust Fund Ratio or the value of trust fund reserves at the beginning of the year as a percentage of projected costs for the year. This test of short-range (10-year) financial adequacy applies to the OASI and DI Trust Funds.
If the trust fund ratio is 100% or more at the beginning of the projection period, it must remain at or above 100% for the entire 10-year period. If it is less than 100% at the beginning of the period, it must reach 100% within 5 years and remain at 100% or more for the balance of the 10-year period.
2022 through 2031
This is the short-term period covered by the 2022 Trustees Report.
The table below shows 2022 short-term trust fund ratios for both the OASI and DI Trust Funds.
Based on Trust Fund guidance, the OASI Trust Fund might not pass the short-term financial adequacy test because its trust fund ratio is projected to decline from 251% at the beginning of 2022 to 87% at the beginning of 2030, and it fails to remain at 100% or above for the entire 10 years.
The 2022 projections for the DI Trust Fund, however, deem it to be adequately financed throughout the short-range period. Its trust fund ratio was 68% at the beginning of 2022, is projected to increase to 100% by 2026, and continue to increase for the balance of the short-term period.