Shai Akabas, Director of Economic Policy at the Bipartisan Policy Center, joins Yahoo Finance Live to discuss the pandemic impact on Social Security and Medicare and future challenges these programs are facing.
ALEXIS CHRISTOFOROUS: The annual report from the trustees of the Social Security and Medicare programs is out. And it is the first comprehensive look at just how much the coronavirus pandemic has affected those two pillars of America's social safety net. The report found that pandemic impacts are just beginning to be understood, but the effects could actually be a lot less than many people had feared over the last year.
Here to talk about this now is Shai Akabas, Director of Economic Policy at the Bipartisan Policy Center. And we're also joined by Yahoo Finance's senior columnist, Rick Newman. Good afternoon, guys. Good to see the both of you. So Shai, I guess this report is telling us that those two programs, Social Security and Medicare, were able to weather the storm. But we're not out of the woods yet, are we?
SHAI AKABAS: No, we're certainly not. And you're absolutely right that yesterday's reports were welcome news, showing that the impacts of the pandemic on the trust funds were much less than many of us, myself included, had expected last year when we were falling into the recession that came upon us after COVID hit.
But I think the main takeaway here is that it's not time to take a victory lap. These programs still have fundamental financing challenges that are in significant need of addressing. You might say that we're on the road to retirement, and we just avoided a major car crash. But our car is about to run out of fuel. And that fact hasn't changed.
The Social Security Trust Fund, the primary one is expected to deplete all of its reserves by 2033, just 12 years from now. The Medicare Hospital Insurance Fund by 2026, so only five years from now. That's really concerning. These are major programs that Americans rely upon. And this report should be a stark reminder that policymakers need to address these challenges, rather than continuing to kick the can down the road.
RICK NEWMAN: Shai, I was on a conference call for reporters the Treasury held yesterday before putting this information out. And there was discussion about mortality rates, which have gone up and have affected Social Security in a couple of different ways. They think that it's possible that there will be fewer claims on Social Security in the future because of higher mortality rates related to COVID. But then, of course, they underscored this all by saying it's uncertain, and we're not sure yet. What did you make of that?
SHAI AKABAS: We've seen a lot of effects on both claiming and mortality, both related to COVID and in terms of the trustees' underlying assumptions. They continuously update these assumptions as they go year to year to try to make sure that they have the most current estimates in place. A couple of noteworthy changes because of COVID, though, are, one, of course, many people have tragically passed away over the past year and a half, and disproportionately people who were either on Social Security benefits, either the retirement benefits or disability benefits or are expected to be on shortly.
So that actually saved the trust fund's money because it would not pay out money that would otherwise be paid. Similarly, a lot of people who might otherwise have gone on to disability insurance or who might have claimed retirement benefits, they ended up staying on unemployment insurance because those benefits, of course, have been expanded over the last year and a half. And staying on those was a better proposition for many than claiming retirement or disability benefits. Those effects have actually helped the trust funds. And that's helped to counteract some of the drop in payroll tax revenue that we've seen over the last 18 months.
RICK NEWMAN: So, as you pointed out, Shai, Medicare is going to-- this is going to come due first, with that trust fund due to run short of money in 2026, just five years from now. Bipartisan Policy Center has listed many different ideas for how to shore up both of these programs. They're not that complicated. You could raise the payroll tax, for example, that funds Medicare. You could do a bunch of other things.
But of course, this is politically challenging because no politician wants to be the one to raise taxes. So, can you give people who might be worried that Medicare is just not going to be there for them, some idea of how Congress might actually address this when it has no other choice?
SHAI AKABAS: Yeah, it's a great point, Rick. You know, both of these programs, Medicare and Social Security, are not going anywhere. They've been around for decades. They will be around for many more decades. The question here is about the financing of the programs and whether we can afford to keep them in exactly the same form that they are today. The short answer is that can't. We need to either increase revenues into the program, as you mentioned, for example, by increasing payroll taxes or-- or possibly and-- adjust the benefits of those programs.
And on the Medicare side, that can mean in terms of how much we pay providers. It can mean in terms of the premiums that people pay to participate in the program. These are all ways that we can help to shore up the finances of the programs. The problem right now is that members of Congress really aren't taking this on. We need leadership on this issue. And we need the public to call on our members of Congress to take action.
That's why we at the Bipartisan Policy Center are helping to lead this Funding Our Future Coalition, which is about 60 organizations across a variety of sectors that are calling for action on the really important issue of retirement security. And that's Medicare, that's Social Security, that's all sorts of retirement savings. The fact of the matter is, this issue is really getting short shrift in Congress right now. And we need to get it back on the radar.
ALEXIS CHRISTOFOROUS: Now, Shai, I know the spike in inflation could actually mean higher Social Security payments for seniors next year that were looking at what could be the biggest jump in Social Security benefits in about four decades. Can you talk to us a little bit about that? Where is that money coming from? And is it a prudent thing to do? Is now the time to actually be increasing how much seniors are getting on Social Security?
SHAI AKABAS: The cost of living adjustment is an annual adjustment that beneficiaries receive each year. It's in law, so there's no action that Congress needs to take to put it in place. It happens to make sure that the purchasing power of Social Security benefits does not go down from year to year. You wouldn't want people receiving the same benefit in 2022 as they received in 1980 because the amount that they would be able to provide their families with and support themselves on would be dramatically different.
So that adjustment goes into effect every year. This next year is expected to be perhaps the largest adjustment we've seen in a long time. And that's because in the headlines recently, most people have seen inflation has been running very hot. As we recover from the pandemic, the demand has really outstripped supply, especially with all the supply chain problems that are going on right now.
So we are seeing at least temporarily higher inflation. Whether that inflation will persist and we'll see more of that in the years to come is to be seen. If we do, those cost of living increases will continue to be high to help keep up with the increasing prices that seniors are experiencing.
RICK NEWMAN: Shai, you mentioned a moment ago that stabilizing the finances for Medicare and Social Security not on the radar in Congress. Interesting what is on the radar in Congress is actually expanding Medicare and possibly lowering the eligibility age from 65 to 60, and then including other benefits such as dental and vision. You're an astute observer of the political scene in Washington. Can you handicap for us whether you think those types of changes might pass Congress this year?
SHAI AKABAS: This fall, Democrats are trying to push through a major reconciliation package. And that's Washington shorthand for just a large package of reforms to spending and taxes. As part of that, as you note, Medicare is on the table. And some benefit expansions could be included there. It's yet to be seen what they're going to put into the package. We know it's going to be pretty large. It will likely touch Medicare. We don't know what pieces are there. I would say that policymakers really need to focus on shoring up the program as it stands today.
We should be thinking about both in terms of Medicare and Social Security, whether there are specific areas where benefits should be expanded and enhanced, whether it's for particular populations or to cover certain services. But we can't do that at the expense of addressing the underlying programs that we've known about for decades. It's not fair to the seniors and many other beneficiaries who rely on these programs to keep them guessing as to what to expect in retirement. People are trying to plan. People need to know what to expect. And policymakers need to step up to take action on these programs to ensure their sustainability into the future.
ALEXIS CHRISTOFOROUS: All right, Shai Akabas, director of economic policy there at the Bipartisan Policy Center, and our own Rick Newman, my thanks to you both for being with us.