A large number of Americans depend on Social Security retirement and disability benefits for a living and debates are ongoing about the financial future of this beneficial program. Recently, the future of the social security disability trust fund (that pays benefits to disabled Americans on the basis of a detailed medical records review) was declared slightly healthier than expected. One reason for this turn of events is that people are willing to wait for longer periods of time for approval. The trust is benefiting from this massive hearing backlog, as Mary Dale Walters, senior vice president of Allsup, a company that helps disability claimants obtain benefits, says. Since claims processing is slow, there is lesser impact on the trust fund.
The Social Security Board of Trustees’ annual report has estimated that the disability fund would run out in 2028, five years later than the previous year’s estimate. At that point of time, there will only be enough revenue to cover 93% of the disability benefits. Along with people becoming willing to endure longer wait times, the number of disability claims has also dropped and this is regarded as a sign of economic growth.
Here are some of the most important other aspects highlighted in the report.
- Though the disability trust has become healthier, Social Security’s overall trust funds will still run out of money in 2034. Considering the Old Age and Survivors’ Trust Fund (benefits for older Americans and their families) alone, 2035 is the year in which that portion of the overall program will run out of money.
- Social Security gets income from payroll taxes and other sources. Once the Social Security trust funds are out of money, the program will not go completely bankrupt as some people believe. Instead recipients will face a benefit cut and may get only a part of their scheduled benefits. According to the 2017 report, after the spending of all trust fund balances, Social Security will, on the whole, only get enough revenue to cover 77% of payments; and the Disability Fund will be able to cover 93% of what it owes its beneficiaries.
- The Trustees Report does provide some recommendations regarding how the deficit can be tackled.
- The government could increase the current payroll tax that goes towards Social Security. For the year 2017, employees pay 6.2% of the first $127,200 they earn in wages. Employers will have to match that amount with a 6.2% tax of their own. To cover 100% of future benefits over the next 75 years, the government would have to increase that total tax by 2.76 percentage points bringing the overall total to 15.16%. This is considerably more that the 2.58 percentage point increase that the 2016 report said would be necessary.
- Another alternative is that lawmakers could cut benefits. Even if they acted immediately, it would take a 17% cut to get the job done. This would be more than the 16% last year. If they were to spare current recipients, and apply a reduction to future beneficiaries, the reduction would have to be even more at 20%. This is one percentage point more than the corresponding figure last year.
- Whatever solutions are chosen, they have to be implemented immediately because it may become even more difficult to fix Social Security at a later stage. The report considers what would be necessary if nothing changes until the year 2034. At that point, a payroll tax increase of nearly 4 percentage points may be necessary to close the funding gap. Immediate benefit cuts of 23% could also be a solution. In either case, those cuts won’t be any more acceptable in the future than they are today.
- The projections made by the Trustees Report could be slightly uncertain because they have to make assumptions about the future. Anyway, the possible range of trust depletion dates is getting narrower, and becoming clearer as the dates get closer. The 2016 report had projected that the trust funds would run out of money between 2029 and 2045 with a 95% confidence level for that range of dates. This year, the 2017 report narrows that range down to between 2030 and 2043.
- According to the trustees, under low-cost assumptions, there is a theoretical possibility that the Social Security trust funds won’t run out of money. To get to that low-cost scenario there should be conditions such as higher fertility rates, slower rises in life expectancy, lower unemployment, and favourable macro economic factors. However, the trustees view that scenario as extremely unlikely.
At our medical records review company, we closely follow Social Security updates regarding disability benefits and other social security matters. Though the 2017 report has only few big changes from earlier years, we understand that with the date of trust fund depletion approaching, lawmakers will have to be more resolved in tackling the issue so that serious problems can be avoided within the next two decades.