STATEMENT BY
MAX RICHTMAN
PRESIDENT AND CEO
NATIONAL COMMITTEE TO PRESERVE SOCIAL SECURITY AND MEDICARE
TO THE COMMITTEE ON THE BUDGET
U.S. HOUSE OF REPRESENTATIVES
HEARING ON MEDICARE AND SOCIAL SECURITY:  EXAMINING SOLVENCY AND IMPACTS TO THE FEDERAL BUDGET

On behalf of the millions of members and supporters of the National Committee to Preserve Social Security and Medicare, I am pleased to submit this testimony for the record for the hearing exploring the solvency of Medicare and Social Security and the impacts to the federal budget.  Members of the National Committee come from all walks of life and every political persuasion. What unites them is their passion for protecting and strengthening Social Security, Medicare, Medicaid, and the other programs that are so vitally important to older Americans.

Highlights of the 2024 Social Security Report

Since its inception, Social Security has been the foundation on which America’s retirement security rests.  It has demonstrated its strength by paying benefits without interruption in good times and bad, during periods of recession and disaster and during recovery and healing.  It is the only program that virtually every American contributes to and receives benefits from.

The 2024 report shows that Social Security will continue to play a critical role in the lives of the 67 million beneficiaries and the 183 million covered workers and their families who depend on the program now or will depend on it when they retire in the future.

  • Social Security’s health remains sound. The system remains stable and will be able to pay full benefits for many years to come — until 2035 — one year later than in last year’s report.  Thereafter, there will still be enough income coming into the program to pay about 83 percent of all benefits owed, declining to 73 percent in 2098.
  • Social Security remains adequately funded for now. The Trustees estimate that, in 2024, Social Security’s total income, along with the assets in the trust funds, will be more than sufficient to pay full scheduled benefits.
  • According to the Trustees, the program is fully funded for more than a decade, around 90 percent funded for the next 25 years, around 83 percent funded for the next 50 years, and 81 percent funded over the next 75 years.
  • The Trustees report that there is now about $2.788 trillion in the Social Security Trust Funds and that these reserves will continue to contribute to the funding of the program, yielding interest income of about $67 billion in 2023.

Social Security’s Long-Range Outlook

The 2024 Trustees Report projects that the Social Security Trust Funds will be able to pay full benefits until the year 2035.  After 2035, Social Security will have annual revenue sufficient to pay about 83 percent of benefits, declining to 73 percent in 2098, only slightly lower than the projection in the 2023 report.  The actuarial deficit of the Social Security program, measured as a percent of taxable payroll over the 75-year valuation period, is projected to be 3.5 percent, which is slightly better than the 3.61 percent deficit projected in the 2023 report.

The annual cost of the program is estimated at 5.2 percent of Gross Domestic Product (GDP) in 2024, modestly increasing to 6.4 percent of GDP by 2078 and declining to 6.1 percent of GDP by 2098.   The 75-year actuarial deficit equals 1.2 percent of GDP through 2098, slightly lower than the 1.3 percent of GDP estimated last year.  The cost of administering the Social Security program is modest.  The net administrative expenses of the Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds combined in 2023 totaled $7.2 billion, equal to 0.5 percent of the total cost and 0.6 percent of total income of both programs.  Of that amount, the OASI Trust Fund net administrative expenses totaled 0.4 percent of both cost and income, and the DI Trust Fund net administrative expense totaled 1.5 percent of total income and 1.8 percent of total cost.

The persistence of an actuarial deficit identified in the report is a reminder that the Social Security program’s financial health still needs to be strengthened.  Despite the crisis rhetoric used by some, including many in the media, the National Committee believes that Congress can improve the long-term outlook for Social Security with modest and manageable changes in revenue without enacting harmful cuts for current or future retirees.  Polling has consistently shown that Americans of all political persuasions value Social Security, want to improve benefits and are willing to pay higher taxes to preserve the program.

That is why the National Committee enthusiastically endorses legislation that extends the financial footing of Social Security.  Bills such as those introduced by Representative John Larson (D-CT), Senator Richard Blumenthal (D-CT), Senator Bernie Sanders (I-VT), Representative Janice Schakowsky (D-Ill), Representative Brendan Boyle (D-PA), and Senator Sheldon Whitehouse (D-RI) show how Social Security’s future can be preserved for both current and future retirees.  These bills ask the wealthy to pay their fair share to strengthen Social Security, something supported by overwhelming majorities of the American people.  The Larson/Blumenthal and Sanders/Schakowsky legislation also calls for significant improvements in the benefits provided by Social Security.

The Social Security Trust Funds

When working Americans pay their Social Security payroll taxes to the U.S. Treasury, those taxes are credited to the Social Security Trust Funds.  These funds are used to pay Social Security benefits.  When income to the Trust Funds in a year has exceeded the amount of benefits that the program is obligated to pay, then the Social Security Trust Funds hold these funds until they are needed to pay benefits.  The surplus income is used to purchase special issue U.S. government bonds that are backed by the full faith and credit of the United States and which earn a rate of return similar to that earned by other long-term U.S. securities.  They remain available, when needed, to help pay benefits to current retirees.  In fact, $41.4 billion in trust fund assets were redeemed in 2023 to help pay benefits.

We believe the important point to remember about the Trust Funds is that they hold bonds that were purchased with money that was paid into the program by millions of Americans.  Those who made these contributions are aware of the amounts that were deducted from their paychecks, and they expect the U.S. government will redeem these bonds when they are needed to pay benefits, just like any other debt obligation it has.

And they have the law on their side in that regard.  Section 201(d) of the Social Security Act says that “Each obligation issued for purchase by the Trust Funds shall be evidenced by a bond, note, or certificate of indebtedness setting forth the principal amount, date of maturity, and interest rate of the obligation and stating on its face that the obligation shall be supported by the full faith and credit of the United States, and that the United States is pledged to the payment of the obligation with respect to both principal and interest.”

National Committee Concerns

The 2024 Trustees Report projects a 2.6 percent cost-of-living adjustment (COLA) for next year.  As the result of pandemic-related inflation, the COLA was 8.7 percent in 2023 and 5.9 percent in 2022.  While the 2023 COLA was the highest since 1981, the COLA for 2024 was only 3.2 percent, and the National Committee believes that the estimating methodology used by the Bureau of Labor Statistics (BLS) does not fully reflect the effect of inflation on today’s seniors.  We further believe that Social Security’s COLA needs to be strengthened.  The need for doing so is forcefully demonstrated by the fact that the average COLA over the past thirteen years, excluding 2021 and 2022, was only 1.5 percent, and in three of those years there was no COLA at all.

The Social Security COLA is based on the BLS measurement of the increase of the cost of a market basket of goods and services for urban wage earners and clerical workers from the third quarter of one year to the third quarter of the next year.  Unlike the urban wage earners and clerical workers upon whom the Consumer Price Index is based, seniors spend a significant portion of their income on out-of-pocket health care expenses not covered by Medicare.  As time goes by, more and more of their Social Security benefits will be eaten up by rising health care costs.  According to the Medicare Trustees, 34 percent of the average senior’s Social Security benefit will be consumed by Medicare out-of-pocket costs in 2098, compared with 26 percent in 2024.

Seniors cannot afford to have their COLA calculated using an index that does not accurately gauge the spending patterns that are unique to them.  That is why the National Committee supports legislation that would base the Social Security COLA on a fully-developed consumer price index for the elderly, or CPI-E, that better reflects the purchasing patterns of seniors.  This kind of specialized index should be used to make sure that seniors’ buying power does not erode over time.  We are pleased to note that a number of bills introduced by members of Congress, including those sponsored by both Representatives Larson, Schakowsky, and Senators Sanders and Blumenthal, which we mentioned earlier, require use of the CPI-E in determining COLAs for Social Security.

Conclusion

Our nation needs Social Security more than ever.  These modest benefits have become the last remaining pillar of economic security for millions of Americans.  Personal savings have been difficult to accumulate because wages have remained stagnant for decades and income inequality has grown.  More than half of all workers have no retirement plans at work and millions more have little or no retirement savings.  While Social Security has lifted generations of seniors out of poverty, benefits must be improved to protect the growing share of seniors who depend on the program for all or most of their retirement income.

Social Security is strong.  It provides a steady and reliable source of income for the more than 67 million individuals who receive benefits from the program.  It also provides more than $1.4 trillion in annual economic stimulus as seniors spend their benefit for essential goods and services in their communities.  Now is the time to strengthen a program that remains central to the economic well-being of all Americans — those who are retired today and those who one day hope to be retired.

Highlights of the 2024 Medicare Trustees Report

The 2024 Medicare Trustees Report contains good news: It projects that the date of depletion of the Medicare Part A Hospital Insurance (HI) Trust Fund will be 2036, five years later than the report issued last year.   Trust fund depletion dates are a common way of tracking the status of the trust funds since, if annual income is not sufficient, full scheduled benefits in the law cannot be paid after trust fund asset reserves are depleted. The Trustees also observe that lawmakers have never allowed reserves held in the Medicare HI trust fund to become fully depleted.

Like many previous reports, the 2024 Trustees report finds that long-term financial challenges for Medicare remain, since spending is rising as a percentage of Gross Domestic Product (GDP). The 2024 report therefore urges policymakers in the legislative and executive branches to take action as soon as possible to adjust revenues and provider payment rates. Encouragingly, the Trustees point to the positive impact that a strong economy has on the program, observing that “HI income is projected to be higher than last year’s estimates because both the number of covered workers and average wages are projected to be higher.”

Starting with the Affordable Care Act (ACA) enacted in 2010, improvements to the financial health of Medicare have been realized through implementation of Medicare payment and delivery system reforms that emphasize coordinated care especially for people with multiple chronic conditions. For example, ACA incentives to reduce the rate of hospital readmissions and protocols are helping practitioners to more seamlessly coordinate care for Medicare beneficiaries across multiple settings. But the Trustees report calls for additional action.

The 2024 Trustees report notes that “a transformation of health care in the U.S., affecting both the means of delivery and the method of paying for care is…a possibility.  Private health insurance and Medicare are taking important steps in this direction by initiating programs of research into innovative payment and service delivery models, such as Accountable Care Organizations, patient-centered medical homes, improvement in care coordination for individuals with multiple chronic health conditions, better coordination of post-acute care, payment bundling, pay for performance, and assistance for individuals in making informed health choices. Such changes have the potential to reduce health care costs and cost growth rates and could, as a result, help lower health care spending.”

With regard to long-range fiscal projections over 75 years, the Trustees Report observes that “total Medicare expenditures were $1.037 trillion in 2023, and forecasts that “expenditures will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall.” As a percentage of Gross Domestic Product (GDP), the report projects that spending will increase from 3.8 percent in 2023 to 6.2 percent by 2098 (based on an intermediate set of assumptions).

Background

Each year, the Trustees report on the current status and projected condition of Medicare’s two trust funds over the next 75 years – the Hospital Insurance (HI) Trust Fund that finances Part A inpatient hospital and related care, and the Supplementary Medical Insurance (SMI) Trust Fund that finances both Part B physician and outpatient care, and Part D that pays for outpatient prescription drugs.  Data for 2023 shows in that year that Medicare covered 66.7 million people: 59.1 million aged 65 and older and 7.6 million disabled. About 48 percent of all beneficiaries were enrolled in Part C private health plans that contract with Medicare to provide Part A and Part B health services, which are known as “Medicare Advantage” plans.

The Trustees project small annual surpluses for the HI Trust Fund in 2024 through 2029. However, deficits will resume in 2030, requiring redemption of special issue U.S. government bonds held in the trust fund until the fund’s projected depletion in 2036.  This pattern is not new: The HI Trust Fund has not been adequately financed in the short range (10 years) since 2003. Over the intermediate term, Medicare’s costs will grow faster as compared to Social Security: In 2024, Medicare’s annual cost is about 74 percent of Social Security’s annual cost. But by 2045, Medicare’s cost will nearly equal that of Social Security.  The costs of both programs are assumed to grow faster than GDP through the mid-2030’s, fueled by the rapid aging of the U.S. population brought about by the baby boomer generation’s mass retirement, and by a trend of lower birth rates. Thereafter, expenditures will continue to increase at a slower rate through 2076.

The Medicare Part A (HI Trust Fund) is primarily financed by payroll taxes on earnings that are paid by employees, employers and the self-employed. Employees and employers each pay 1.45 percent in taxes on all earnings. The self-employed contribute 2.9 percent, the equivalent of the combined employer and employee tax rates.

Starting in 2013, high-income workers began paying an additional 0.9 percent of their earnings above $200,000 (for single workers) or $250,000 (for married couples filing joint income tax returns). Since income thresholds for determining eligibility for the additional HI tax are not indexed, the Trustees note that over time, an increasing proportion of workers will pay a higher HI tax rate.

Medicare Parts B and D (SMI Trust Fund) are financed by payments from federal general fund revenues (about 75 percent) and by monthly premiums charged to beneficiaries (about 25 percent). Because Medicare Part B and Part D are automatically financed through general revenues and beneficiary premiums to meet estimated program costs each year, the SMI Trust Fund is adequately financed in both the short and long term.

Financial Outlook of the Medicare Program

The Medicare Part A (HI) Trust Fund will be actuarially solvent until 2036, which is five years later than the estimate made last year of asset depletion. Absent legislative fixes to shore up the HI Trust Fund, HI revenues starting in 2036 are projected to be able to cover 89 percent of incurred program costs.  Under current law, Medicare’s costs are forecast to increase steadily from their current level of 3.8 percent of GDP in 2023, to 5.8 percent in 2048. Costs then rise more slowly before leveling off at around 6.2 percent.

The HI trust fund’s assets were $208.8 billion at the beginning of 2024, with recent growth in HI expenditures averaging 5.5 percent annually. Over the next 5 years, the Trustees project average annual growth rates for expenditures will be 5.8 percent. Due to expenditures rising more quickly than income and as compared to measures of general economic growth, the report argues that “policymakers should determine effective solutions to the long-range HI financial imbalance.”   It continues that “when assuming that current-law provider payment rates will be adequate, the HI program does not meet either the Trustees’ short-range test of financial adequacy or long-range test of close actuarial balance. HI revenues would cover 89 percent of estimated expenditures in 2036 and 87 percent in 2048.”

Medicare’s actuarial shortfall has improved. Medicare’s HI Trust Fund now has a long-range actuarial deficit equal to 0.35 percent of taxable payroll, compared to 0.62 in the 2023 report. According to the Trustees, several factors are contributing to the favorable change in actuarial balance, most notably “changes to private health plan assumptions (primarily a policy change to exclude medical education expenses associated with Medicare Advantage (MA) enrollees from the fee-for-service per capita costs used in the development of MA spending); lower-than-estimated 2023 HI expenditures; and higher-than-estimated 2023 payroll tax income.  The overall impact is that “the actuarial status for the HI Trust Fund has improved, with a 0.27 percentage point increase in the actuarial balance. Still, the Trustees are clear that looking forward, Medicare expenditures will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall, thus necessitating further prudent adjustments.

The Trustees note that a one-time, uniform increase in the payroll tax rate starting in 2024 would be sufficient to achieve an actuarial balance of zero for the OASI and HI trust funds.  The Biden Administration sent proposals to Congress to increase revenue in its FY 2025 budget submission earlier this year, but these revenue-focused proposals are not expected to advance due to a divided 118th Congress.

With regard to current out-of-pocket hospital costs for beneficiaries, in 2024, Medicare’s hospital deductible is $1,632. The daily hospital coinsurance amount is $408 for days 61-90, and for beneficiaries who are discharged to skilled nursing facilities, the daily coinsurance amount is $204 for days 21-100.

Costs for Part B (SMI Trust Fund) are growing due to the aging population and rising health care costs. Part B outlays were 1.8 percent of GDP in 2023, and the Trustees projects that they will grow to about 3.6 percent by 2098 under current law. The long-range projections as a percentage of GDP are lower than those projected last year through 2056 and higher thereafter. This is due to lower projected spending for outpatient hospital and home health agency services, and updated GDP projections.

Medicare Part B Premium and Deductible

The Part B program, which covers outpatient services provided by physicians and is financed with general revenues and beneficiary premiums. The Trustees reported that the standard Part B premium will rise next year from $174.70 in 2024 to $185 per month in 2025.  High-income beneficiaries have paid an income-related premium for their Part B coverage since 2007, and for Part D since 2011. Accordingly, higher-income beneficiaries with incomes exceeding $103,000 for an individual and $206,000 for a couple, pay Part B premiums ranging from $244.60 to $594 in 2024.   Since 2019, individuals at the highest income levels — at or above $500,000 a year (or couples at or above $750,000) — have paid premiums that cover 85 percent of program costs.

The Trustees project that the Part B annual deductible in 2025 will be $257.

Overall, Part B cost growth rates have averaged 8.3 percent annually over the last 5 years, and the Trustees estimate that Part B cost growth over the next five years will average 8.8 percent, which is faster than the projected average annual GDP growth rate of 4.3 percent.

In a noteworthy trend, the 2024 Trustees Report finds that as HI sources of revenue become “increasingly inadequate to cover HI costs, SMI revenues will represent a growing share of total Medicare revenues. Government contributions are projected to gradually increase from 43 percent of Medicare financing in 2023 to about 50 percent in 2045, stabilizing thereafter. Growth in these contributions as a share of GDP adds significantly to the Federal budget pressures. SMI premiums will also increase at the same rate as SMI expenditure growth, placing a growing burden on beneficiaries.”

Medicare Part C

The report says little about Medicare Advantage, though it does note that “two policy changes are assumed to be phased in over three years beginning in 2024. The first is a change to exclude medical education expenses associated with MA enrollees from the fee-for-service per capita costs that are used in the development of the MA benchmarks; this change will reduce Part A MA payments in all future years. The second policy change is an updated risk adjustment model that slows the growth in the MA benchmark.”

Medicare Part D

The Part D program pays for outpatient prescription drugs and, similar to Part B, is financed with federal contributions together with beneficiary premiums and other copayments. The 2024 Trustees Report forecasts that Part D outlays will increase from 0.5 percent of GDP in 2023 to about 0.7 percent by 2098. While the expenditure share of GDP over the long term is similar to last year’s report, revisions reflect several years of faster drug spending growth, higher enrollment and updated GDP projections.

In 2024, the Part D base beneficiary premium is $34.70. Actual premium amounts charged to Part D beneficiaries vary depending on the specific plan they have selected. High-income Part D enrollees (individuals with adjusted gross incomes over $103,000) must pay an income-related adjustment amount, ranging from $12.90 to $81.00 per month in 2024. In 2025, the Trustees project that the standard Part D premium will be only slightly higher, at $36.78, and the Part D deductible will be $590.

The Inflation Reduction Act (IRA) included a groundbreaking provision to essentially close the gap between initial coverage and catastrophic coverage. The result is that in 2025, the threshold for catastrophic coverage will be $2,000, dovetailing with the end of the initial coverage period. The cost growth of catastrophic coverage will be held to program growth for purposes of annual updates.

Other provisions included in IRA, the report notes, will affect the ultimate long-range growth rates for Part B drug spending and Part D drug spending differently. For Part B drugs administered in physicians’ offices, the report projects per capita spending growth rates will be similar to those for overall per capita national health expenditures (NHE). In contrast, for outpatient drugs covered under Part D, the report projects per capita spending will grow 0.2 percentage point more slowly than NHE due to the impact of the IRA, bringing growth closer to the Consumer Price Index (CPI).  Overall, Part D costs are projected to grow on average by 8.2 percent annually over the next five years, which like Part B, is a higher growth rate as compared projected annual GDP growth of 4.3 percent.

Parts B and D Out-of-Pocket Costs

The Trustees find that the cost burden for Medicare beneficiaries in out of pocket costs are rising. Specifically, the “combination of premium and cost-sharing amounts for Parts B and D would equal about 26 percent of the average Social Security benefit in 2024,” increasing to an estimated 34 percent in 2098, according to the Trustees.

National Committee Concerns

Medicare faces a long-term financial challenge due to the large increase in the number of beneficiaries as the large baby boomer cohort reaches age 65 and retires, combined with a longstanding trend of low birth rates, including extremely costly prescription drugs, and persistent health care cost growth that continues to outstrip measures of general economic growth.

Accordingly, it is critical that we continue to implement reforms included in the Inflation Reduction Act and the Affordable Care Act that are containing costs and promoting access to quality health care. This includes supporting coordinated care through Accountable Care Organizations (ACOs), medical homes, bundled payments, and reducing hospital readmissions and hospital-acquired infections, as well as efforts to further reduce spending due to waste, fraud and abuse. We support policy to strengthen traditional Medicare, including the mission of ACOs that can coordinate care and better manage chronic conditions. But we oppose the participation of private insurers and private equity firms and any affiliated entities in ACO governance and management. Private investors should not inform health care decision-making.

The National Committee supports strengthening Medicare’s financing without shifting additional costs to beneficiaries. For example, we support continued gradual expansion of the Inflation Reduction Act’s provisions that allow the Department of Health and Human Services to negotiate fair prices for Part D prescription drugs with manufacturers, putting inflation controls on drugs used under Medicare Part B, and ending pay-for-delay deals, among other gaming of prices by pharmaceutical makers, which have the effect of limiting access to generics and driving up drug costs.

We also support the Administration’s efforts to place more stringent controls on the marketing practices of Medicare Advantage (MA) plans, and to make bolder adjustments to payment policies in order to rein in soaring MA payments relative to traditional Medicare. Devising additional requirements to reduce overpayments to MA plans will continue to be necessary to prevent Medicare costs from becoming unsustainable for both beneficiaries and the federal government.

Finally, the National Committee believes that Medicare benefits should be expanded to cover vision, dental and hearing health services and equipment because they are important for healthy aging.  And, we support adding an out-of-pocket limit on beneficiary spending throughout the entire program.

Conclusion

Older Americans and people with disabilities should not have to choose between paying for health care, food or utilities. Medicare benefits must be improved, not cut. Medicare’s long-term solvency must be strengthened, and access to health care providers and benefits must be enhanced and preserved.