If the devastation of the COVID-19 pandemic has not been enough, economists are predicting a recession as deep as the Great Depression in the 1930s. It will mean fewer people paying into Social Security and Medicare. Compounding the problem, the pandemic will impose heavier caseloads on the healthcare program, which provides care for 44 million of those 65 and older.
The financial condition of the government’s two biggest benefit programs amidst COVID-19 remains shaky. Medicare is expected to become insolvent in just six years, and Social Security is predicted to be unable to pay full benefits starting in 2035, the government said Wednesday, April 22.
These numbers are estimated before factoring in what officials acknowledge will be a substantial hit to both programs from the coronavirus pandemic, which has shut down large parts of the U.S. economy and put millions of people out of work.
Social Security checks reduced
Americans, who have been forced to retire because of job loss, could see their lifetime Social Security checks significantly reduced. This is because the earnings they expected to receive from work won’t be factored into the calculation of their benefits. For older workers who are at or near their peak of earning retirement, losing a year of work could be devastating.
“The demographics of this are that people on Medicare are the most severely impacted,” said Fred Riccardi, president of the Medicare Rights Center advocacy group, noting that older people suffer the worst consequences of COVID-19. Hospitalizations will raise Medicare spending.
Medicare’s Part B premium for outpatient care is projected to go up by about $9 next year, to $153.30 a month.
The stay-a-home order has put elective surgeries and treatments on hold. Older people are most likely to need hip and knee replacements. With all elective procedures on pause, projected Medicare spending may lower, but at what cost?
If both programs exhaust their trust funds, Social Security will have to cut benefits that so many Americans depend on, or lawmakers will have to raise the payroll tax. In regards to Medicare, payment cuts to hospitals, nursing homes and other medical providers will be cut, unless taxes are increased. Either way you look at it, cuts will have to be made.
President Trump pledged during the 2016 campaign not to cut Social Security and Medicare benefits. Before the pandemic, he said in an interview that his administration would be taking a look at benefit programs, but the White House press office pushed back on suggestions he was opening the door to cuts.
The annual Social Security and Medicare trustee reports contain the same general warnings they’ve carried for years. Both benefit programs need to make adjustments to become financially sound. The choice of cutting benefits or raising taxes remains politically unpalatable to most lawmakers.
Treasury Secretary Steven Mnuchin, who chairs the trustees’ group, said that the Trump administration was “working around the clock to mitigate any potential long-term negative economic effects of the pandemic and position the economy once again for strong growth.”
In comparison, Trump’s 2020 Democratic presidential opponent, Joe Biden, has called for expanding both programs. Biden would increase Social Security benefits, especially for people of modest incomes, while raising more revenue from upper-income earners.
Various proposals have been put forward. They include reducing the annual cost of living benefit increases for Social Security, raising payroll taxes, or raising the retirement age for Medicare.