America's social safety nets are at the center of many political and economic debates over how ordinary people will fare financially amid persistent inflation and the threat of recession. But no matter which political party comes out ahead in the midterm elections next month, entrenched political divisiveness is likely to stall legislative attempts to shore up Social Security and Medicare.
That's the scenario of Marc Goldwein, a senior vice president and senior policy director at the Committee for a Responsible Federal Budget, a nonpartisan think tank. On the one hand, Goldwein said he can imagine a world in which both Democrats and Republicans are under such pressure from inflation and rising interest rates that they're virtually forced to find ways to bring more money into the two giant programs. But more likely, he said, is that many lawmakers will dig in on highlighting the putative threat of insolvency while doing everything they can to undermine the other side's proposals.
"I don't think that either party is going to try to go it alone to improve the solvency of Social Security and Medicare," he said. "There's going to be a lot more incentive to keep hitting each other over this than to fix it."
The Social Security and Medicare Trustees predict that the Social Security fund, now roughly $2.8 trillion, will be insolvent by 2035 barring increases from funding sources such as payroll taxes borne by companies and employees. Absent any such policy moves, benefits will fall to around 78% of their current level. Similarly, Medicare's hospital trust fund — Medicare Part A — is predicted to hit a shortfall in 2028.
Insolvency unlikely
With roughly 66 million Americans receiving Social Security each month and more than 83 million on Medicare, the biggest question about the programs is not whether political intervention will happen but when. It may be later rather than sooner; history gives little reason to hope politicians will act until their backs are much closer up against the threat of insolvency. That will especially be true if Republicans do as expected and win control of at least one of the Congressional chambers on Nov. 8.
With Democrats now having 220 seats in the U.S. House to Republicans' 212 — plus three vacancies — Republicans need only six seats to regain control there. In the Senate, the margin is even slimmer; Republicans hold 50 seats, whereas Democrats command 48 seats and caucus with two independents.
The White House, for its part, seems disinclined to extend an olive branch to the opposition party. Speaking in the Rose Garden on Sept. 27, President Joe Biden warned, "In 46 days, America is going to face a choice. If Republicans control the Congress, Social Security will be on the chopping block."
The president added: "But if you support the Democrats — and I promise you this — Social Security will be protected. Period. And I won't let any MAGA Republican take it away."
Bipartisan reform of 1983
When large
And as was the case in the '80s, high inflation is threatening to bring about that depletion even sooner. The Social Security Administration is expected to announce its cost-of-living adjustment for 2023 on Oct. 13, just weeks before the midterms. Because of recent inflation, many observers predict the COLA will come in close to 9%. The resulting increase in spending from the Social Security fund could easily advance insolvency by a year.
Most observers recognize that any sincere attempt to put the program on sound footing will have to involve a combination of increased taxes — mainly on the wealthy — and adjustments to the benefit formula. Also most likely in the mix will be incentives for people to work longer and a postponement of the official retirement age, which is now 67 for people born in 1960 or after.
Mary Johnson, Social Security and Medicare policy analyst at the nonpartisan Senior Citizens League, said the popularity of Social Security virtually ensures that lawmakers will come up with a remedy for insolvency before it's too late. Repeated surveying by her group suggests many retirees have come to count on Social Security as a bedrock source of money while their other retirement investments in 401ks, RIAs and the like are more subject to the whims of the market.
That said, Johnson cautioned, the longer lawmakers put off reform, the more painful the necessary remedies are likely to be. She said the 1983 overhaul of Social Security might have been a triumph for bipartisanship. But it imposed a series of painful changes — including benefit reductions and payroll-tax increases — that probably could have been avoided if something had been done sooner.
If lawmakers are once again unable to agree to a plan, history stands a good chance of repeating itself.
"The chances that there will be major benefit cuts and tax increase greatly if you wait until you are only a few weeks away from insolvency," Johnson said.
Too often, Johnson said, candidates in Congressional races run without giving the public any clear idea of what they propose to do with Social Security and Medicare. Voters should make it a point, she said, to demand more.
"The real question is: Who do you trust with Social Security?" she said. "And that's a nonpartisan question."
Needed solutions already known
And as is the case with Social Security, many of the remedies for Medicare are already widely known, Goldwein said.
Proposals embraced at various times by both parties have, for instance, called for eliminating the difference in charges to Medicare for visits to doctors in hospitals rather than visits to doctors in free-standing clinics. Hospital visits now cost the system more. Similarly, reformers have long called for reining in what Medicare spends to provide at-home healthcare to patients following treatment for acute conditions.
One of the advantages that such proposals have is that they could tame inflation, which is expected to continue as a source of concern well past the midterms. With so much money going to cover medical costs, any mechanism for reining them in could help control prices on average.
"The dream is that lawmakers realize it's in our interest to make these changes because they're going to help fight inflation," Goldwein said.
Coming in for particular criticism in Biden's recent White House speech was a proposal by Sen. Rick Scott, a Republican from Florida, to put all federal programs up for reauthorization every five years. Biden suggested subjecting Social Security and Medicare to a vote every five years would make it all too easy for deficit hawks to try to cancel the giant social programs.
Most observers, though, think it very unlikely that anything even resembling Scott's proposal will advance in Congress. For one thing, Biden could simply veto it. For another, the 60 votes needed to overcome a Senate filibuster always present a high barrier.
Goldwein said he is certainly not in favor of reauthorization per se. But he does see some merit to calls for subjecting large budgetary items like Social Security and Medicare to regular review.
"There's a kernel of wisdom there," he said. "I don't think these programs should be on autopilot."
