US Social Security, Medicare to run short of funds in 2033, trustees say

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WASHINGTON (Reuters) -The U.S. Social Security and Medicare programs for older people will both run short of funds to pay full benefits in 2033, three years sooner than last year’s estimate for the Medicare Hospital Insurance Fund, their annual trustees’ reports showed on Wednesday.

The reports, released by the U.S. Treasury Department, showed that the worsening of Medicare’s finances was due to higher-than-forecast near-term expenditures for hospitalizations of Americans over 65 years old.

After the depletion of reserves in 2033, the Medicare hospital fund is forecast to be able to pay only 89% of scheduled benefits. The Social Security Old Age and Survivors Trust Fund is projected to be able to pay only 77% of scheduled benefits after its reserves are depleted.

While the Social Security fund’s 2033 depletion year was unchanged from last year’s report, it was advanced by three calendar quarters within that year, reflecting a January 5 legislative change that had the effect of increasing projected benefits for some workers, according to the reports.

“As in prior years, we found that the Social Security and Medicare programs both continue to face significant financing issues,” the Treasury said in a summary of the reports.

The department said lawmakers have options that would reduce or eliminate shortfalls of the two programs. It added: “Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

This year’s trustees reports mark a sharp reversal for Medicare, which last year saw a five-year projected delay in its depletion year to 2036, due to higher payroll tax collections as a result of stronger projected economic growth and productivity.

The healthcare program for older people also had been benefiting from a reduction in hospital and home health costs, continuing a trend since the pandemic, when more people with severe health problems died prematurely.

But the reports said realized Medicare expenditures for hospital and hospice care in 2024 were higher than the trustees had anticipated last year, which increased the base level of spending going forward.

The reports projected the combined cost of the Social Security and Medicare programs will rise from 9.2% of GDP in 2025 to 12.1% of GDP in 2049, and to 13.2% by 2080, with most of the increase attributable to Medicare.

(Reporting by David Lawder; Editing by Chizu Nomiyama and Rod Nickel)