Social Security and Medicare are federal programs that provide income and health insurance to qualifying populations, mostly older Americans and the disabled. Beneficiaries of both programs have been severely impacted by the COVID-19 pandemic.

As of Aug. 25, 2021, 623,985 individuals in the U.S. had died from COVID-19, with 78.7% being 65 and older. As of Aug. 21, 2021, 22.3% of those who died were between 65 and 74 years old. Millions of Social Security and Medicare recipients who survived the COVID-19 surge have been affected as well—or will be—by the impact of the pandemic on those programs.

Key Takeaways

  • Beneficiaries of Social Security and Medicare have been impacted by the COVID-19 pandemic.
  • Payroll taxes were impacted by several COVID-19-related reasons.
  • Medicare is available to most Americans age 65 or older.
  • Social Security actuaries have reported that long-range implications of COVID-19 on Social Security would be minor.
  • COVID-19 patients who qualified used Medicare to pay for virus-related medical care.

How Social Security Works

Social Security is commonly known as a “pay-as-you-go” retirement benefit. Current workers and their employers pay into the program through payroll taxes. The money goes into the Social Security Trust Fund, which pays benefits to current recipients.

Originally, the amount put in by workers was greater than the amount withdrawn by recipients. That is no longer true since the number of workers has gone down and the number of recipients has gone up. Eventually, the Social Security Trust Fund balance will reach zero if nothing is done. When that happens, Social Security recipients will receive only their share of what current workers put in—which, according to the 2020 Annual Report of the Social Security Administration (SSA), will amount to 79% of today’s full benefit amount.

None of this has anything to do with COVID-19. The potential drawing down of the Social Security Trust Fund balance was “baked into the cake” well before the pandemic. However, that does not mean COVID-19 has had no impact.

Impact of COVID-19 on the Social Security Trust Fund

Before COVID-19, experts predicted that the Social Security Trust Fund would reach zero by 2035. With the arrival of the pandemic, due to some of the forces discussed below, that date has been moved up to 2033, assuming payroll taxes drop by 20% for two years, as predicted.

Payroll taxes are expected to drop, at least temporarily, for several COVID-19-related reasons:

  • Higher unemployment due to closed businesses
  • Lower wages due to restricted hours
  • Deferral of withholding of payroll taxes to provide relief to workers and businesses
  • More workers signing up for benefits due to becoming unemployed
  • Higher death rates (though fewer recipients could minimize the impact)

Impact of COVID-19 on the National Average Wage Index

The amount you receive in Social Security benefits depends, in part, on something called the National Average Wage Index (NAWI). The NAWI tracks wage growth to measure inflation. Due to COVID-19, the wage index for 2020 is expected to be lower than normal.

If you turned 60 in 2020, this lower wage index will affect the amount you receive in Social Security benefits. That’s because the SSA uses the wage index from the year when you turn 60 as part of the formula used to determine your lifetime benefit amount.

In Sept. 2020 the Congressional Budget Office (CBO) predicted the 2020 NAWI would decline by 3.8% compared with 2019. In Jan. 2021, however, the CBO said it expects the 2020 NAWI decrease to be closer to 0.5%. For anyone turning 60 in 2020, this means that benefits will be lower but not as low as originally predicted.

Impact of COVID-19 on Social Security Disability Payments

Social Security actuaries predicted in Nov. 2020 that COVID-19 survivors could suffer lingering effects, resulting in an increase in the number of people applying for Social Security disability payments in 2021, 2022, and 2023. After this, applications are expected to return to the baseline.

Impact of COVID-19 Legislation on Social Security

COVID-19 legislation affects Social Security and its recipients, including those on Supplemental Security Income (SSI), in several ways:

Long-Term Impact of COVID-19 on Social Security

On March 17, 2021, Social Security actuaries concluded that the long-range implications of COVID-19 on Social Security would be “minor,” with any pandemic-induced recession recovered by 2023 with “little permanent effect.” Over the near term, however, the agency predicts several outcomes that will affect Social Security, including:

  • Lower birth numbers in 2020 and 2021
  • Higher-than-normal mortality rates in 2020 (12%), 2021 (6%), and 2022 (2%)
  • Disability applications lower in 2020 but higher in 2021 and 2022
  • Employment reduced in 2020 but fully recovered by mid-2023
  • Gross domestic product (GDP), productivity, and earning levels permanently lowered by 1%

How Medicare Works

Medicare is a federal health insurance program for people aged 65 or older, as well as younger people who are disabled or have end-stage renal disease. Medicare is financed through a combination of payroll taxes, government funding, and premiums paid by participants. It is run by a branch of the U.S. Department of Health and Human Services (HHS) known as the Centers for Medicare and Medicaid Services (CMS).

Medicare is paid for through two trust funds: the Hospital Insurance (HI) Trust Fund and the Supplemental Medical Insurance (SMI) Trust Fund. HI pays for Medicare Part A (hospitalization), and SMI pays for Part B (medical) and Part D (prescription drugs).

The HI Trust Fund, just like the Social Security Trust Fund, is primarily financed through payroll taxes. And just as with Social Security, the HI Trust Fund suffered from decreased funding long before COVID-19 came along. The HI Trust Fund is projected to be depleted by 2026, at which point it will no longer be able to pay the total amount of Part A hospital costs. Instead, current projections are that the fund will cover only 90% of projected benefit payments. It’s worth noting that the projected 2026 insolvency date does not reflect the impact of COVID-19.

As the SMI Trust Fund gets most of its money from premiums and government funding, it will never go broke. However, increased premium costs and dependence on increased government funding will continue to create vulnerabilities for this fund.

The 2020 Medicare Trustees Report stated: “Given the uncertainty associated with these (COVID-19) impacts, the Trustees believe that it is not possible to adjust the estimates accurately at this time."

Impact of COVID-19 on Medicare Trust Funds

Due to how funding occurs, the HI Trust Fund has been more affected financially by COVID-19 than the SMI Trust Fund. As noted, with the SMI fund, the lion’s share of the cost has fallen on beneficiaries.

CBO estimates call for about two million Medicare beneficiaries to be admitted to a hospital with COVID-19 during the pandemic and assume that about one million of them would be traditional Medicare beneficiaries at hospitals paid under Medicare’s inpatient prospective payment system. According to CBO estimates, this would increase Medicare spending by about $3 billion during the 2020 and 2021 fiscal years.

The SMI Trust Fund, because of the way it is financed, cannot become insolvent. A Congressional Research Service (CRS) report points out, however, that as care has shifted from inpatient (Part A) to outpatient (Parts B and D) settings, a greater portion of Medicare spending is being covered by beneficiary premiums and government funding.

Medicare trustees estimate that the portion of personal and corporate income taxes needed to fund SMI will “increase from about 15.8% in 2020 to about 22.1% in 2030 and 30.1% in 2094.”

Impact of COVID-19 on Medicare Recipients

Medicare recipients are especially vulnerable to COVID-19. In addition to potential death or long-term disability, the pandemic has resulted in a number of negative outcomes for beneficiaries.

Medicare recipients (and others) are advised to follow up on all medical appointments, including physicals, to make sure they continue to manage their health during the ongoing pandemic.

One CMS survey found that during the pandemic:

  • Twenty-one percent reported feeling more lonely or sad.
  • Fifteen percent reported feeling less financially secure.
  • Forty-one percent reported problems with stress.
  • Thirty-eight percent said they were less connected with family and friends.

For Medicare recipients receiving care at home, COVID-19 impact findings included:

  • The need for social service support increased.
  • Loneliness and depression increased.
  • Physical and mental health conditions became exacerbated.
  • Substance use and abuse increased.
  • Evidence of domestic violence increased.
  • Staff and equipment were limited.

On the positive impact side of the equation:

  • COVID-19 vaccines are provided to Medicare recipients at no cost to them.
  • Lab tests are provided at no cost.
  • Antibody tests and treatments are provided at no cost.
  • Expanded telehealth services are available at no cost.
  • Medically necessary hospitalization is covered.

Impact of COVID-19 on Medicare Providers

Providers, including physicians and hospitals, have been affected by the pandemic almost from the beginning. During the first six months of the pandemic, for example:

  • Payments declined by 39% for all fee-for-service (FFS) claims, 33% for inpatient services, and 49% for physician services.
  • By the week ending July 1, 2020, weekly payments had risen to 96% of 2019 levels, 93% for inpatient services, and 95% for physician services.
  • At the end of June 2020, cumulative payment deficits relative to 2019 ranged from 12% to 16%.
  • The use of individual preventive screening and surgical services declined substantially during March and April.
  • There was considerable geographic variation in the magnitude of both the utilization declines and the rate of recovery.

Consider that from Jan. 1, 2020, to July 24, 2020, more than 200 Medicare-related regulatory changes were made. From July 25, 2020, to Jan. 8, 2021, an additional 49 changes were added.

Impact of COVID-19 Legislation on Medicare

The impact of COVID-19 legislation on the Medicare program is reflected in the sheer volume of Medicare-related regulatory changes enacted by that legislation.

The driver of those regulatory changes, COVID-19 legislation, includes the following actions:

  • Expanded Medicare coverage for telehealth services (CARES Act)
  • Eliminated Medicare cost-sharing for COVID-19 vaccines (CARES Act)
  • Increased some Medicare payment rates to providers (CARES Act)
  • Waived some hospital length-of-stay requirements (CARES Act)
  • Further increased Medicare payment rates to physicians (CAA)
  • Eliminated Medicare’s sequestration cuts through March 2021 (CAA)

Long-Term Impact of COVID-19 on Medicare

The Medicare system provides healthcare coverage to people age 65 and older, as well as those under age 65 with disabilities. These populations are the most vulnerable when it comes to COVID-19. In addition to health concerns, these same populations will be financially vulnerable going forward.

Prior to COVID-19, many Medicare beneficiaries with limited income and preexisting conditions faced financial hardship with high out-of-pocket healthcare costs. While regulatory changes have helped with the financial burden in the short term, many of those changes will expire or be rescinded once the health crisis is over.

Lack of employment post-pandemic, which can lead to early retirement, only exacerbates the financial burden on Medicare recipients. The problem is even worse for older members of minority communities, who have disproportionately lower earnings during their working years, yielding lower Social Security payments and leaving them with lower retirement savings. While the Social Security system anticipates a number of short-term challenges, for Medicare recipients the financial burden will continue to be a problem well into the future.

How Has COVID-19 Affected Social Security?

Social Security actuaries have predicted that the long-term impact of COVID-19 on Social Security would be minor, expecting that any temporary effects would be gone by 2023. In the short term, however, COVID-19 survivors are likely to increase the number of people applying for disability benefits. Also, the date the Social Security Trust Fund is likely to go bankrupt has been shortened by two years, from 2035 to 2033, assuming that payroll taxes drop by 20% for two years.

How Has COVID-19 Affected Medicare?

The pandemic has created problems for Medicare that are expected to continue in the coming years, as COVID-19 has increased the financial woes faced by retirees with limited incomes and preexisting conditions, which result in high out-of-pocket healthcare costs. In addition, the surging unemployment created by the pandemic led to increased early retirements, as older people are having difficulty getting new jobs even as employment levels are rebounding.

What Relief Efforts Have Been Generated by COVID-19?

Three major relief bills including numerous temporary measures to address the consequences of the COVID-19 pandemic are the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Consolidated Appropriations Act (CAA), both enacted under President Trump, and the American Rescue Plan Act, enacted under President Biden. Together they offered Americans a total of $3,200 in tax-free economic stimulus payments.