July 10, 2018

Entitlement Deficits Are Projected to Grow

As the average age of Americans rises, Social Security and Medicare are expected to run deficits into the foreseeable future.

Projections of future revenue and spending from the Centers for Medicare and Medicaid Services predict that in 2026 the trust fund for Medicare Part A—also known as Hospital Insurance (HI)—will be empty. While the trust funds for Medicare Parts B and D will still be solvent by this point, 2.1 percent of GDP (nearly 47 percent of all Medicare funding) will need to be diverted from the federal government’s general funds in order to maintain Medicare’s payments. The remaining 53 percent of Medicare’s funding is provided by five separate sources.

The Social Security Administration (SSA) provides three projections of its future fiscal situation based on low-, intermediate-, and high-cost assumptions. The low- and high-cost assumptions are considered “very unlikely” and are used to set the range of possible predictions. The intermediate-cost assumptions yield the trustees’ best estimate of Social Security’s future finances.

Social Security has two trust funds: one for the Old-Age and Survivors Insurance (OASI) and the other for Disability Insurance (DI). Based on the intermediate-cost assumptions, the SSA anticipates both trust funds will be depleted in 14 years (DI is expected to deplete in 2032, while OASI is expected to deplete in 2034). This is owing to the SSA’s projected deficits in all future years, requiring the annual drawdown of these trust funds to continue meeting their obligations.

When the Medicare HI trust fund runs out in 2026, combined Social Security and Medicare spending will exceed revenues by 0.87 percent of GDP (or $254 billion, based on the SSA’s projections of future GDP). When Social Security’s trust funds run out in 2034, the combined shortfall of these systems is expected to climb to 1.61 percent of GDP, or $663 billion, based on the same projections.