What to know about the latest financial reports on Social Security and Medicare
Doom and gloom headlines aside, the situation isn't a dire as you might think
When the trustees of Social Security and Medicare issue their annual reports on the health of these two critical programs, the news coverage is predictable. You can expect to see misleading headlines warning that Social Security is going broke or running out of money. And you’ll see similar headlines about the report of the Medicare trustees.
Social Security and Medicare do face long-term solvency challenges.
This year’s Social Security trustee report forecasts that the combined retirement and disability programs will be insolvent in 2035 - a small improvement compared with last year’s report, which forecast insolvency in 2034. To be clear, “insolvency” doesn’t mean the program will have no money left to pay benefits. Rather, the forecast references the year when the enormous Social Security trust fund reserves (currently $2.78 trillion) would be depleted.
Still, without action by Congress, Social Security would be bringing in enough cash in 2035 to pay only 83% of the benefits promised to current and future beneficiaries. In other words, beneficiaries would be facing a 17% cut in benefits.
Because Medicare is funded through a variety of sources, its situation is less dire. This year, the trustees project that the Hospital Insurance Trust Fund, which finances Medicare Part A, will be exhausted in 2036 (five years later than in last year’s report). The other parts of Medicare cannot run out of funds, because general government revenue and premiums are adjusted annually to meet projected costs.
If the Hospital Insurance Trust Fund did become insolvent, it would have sufficient funding from current revenue to meet 89% of benefits.
In my latest Morningstar column, I walk through the various ways to address the financial challenges. Congress has many options for addressing the problems - the question is when lawmakers will get around to doing it.
Shopping Medicare Advantage coverage could get interesting this fall
The Medicare Advantage market is headed for a shake up in 2025 that might result in more changes to plan offerings than usual.
Insurance company profits are down this year due to Biden administration policy changes aimed at curbing overpayments - government studies indicate that Advantage plans are paid as much as 125% more than the cost of caring for patients in traditional Medicare. Another factor affecting profits is an unexpected surge in post-COVID medicare costs.
The Wall Street Journal reports that some plan providers will be reevaluating their offerings to restore their profit margins:
“The goal for next year is margin over membership,” CVS Chief Financial Officer Thomas Cowhey said at a recent conference. “Could we lose up to 10% of our existing Medicare members next year? That’s entirely possible.” By all indications, other large players such as Humana will also be shifting from growth to profits. That could create an opportunity for leader UnitedHealth, which has relatively better profit margins, to grab more market share, argues Scott Fidel, an analyst at Stephens.
If you are enrolled in Medicare Advantage, it will be important to keep an eye on the plan renewal information your provider sends in September. It’s always a good idea to do a check-up on Advantage or standalone Part D prescription drug coverage during the fall enrollment season that runs from October 15 through December 7. This window is the time of year when you can switch between Original Medicare and Advantage, or make changes to your current Part D or Advantage plan coverage to make sure you’re getting the best deal financially—and the best match of health care providers and drug coverage.
Even if you like your current coverage, it can pay to take a careful look during open enrollment. The design of your prescription drug plan coverage can change annually, and Advantage plans can make changes to their networks of health care providers at any time.
It looks like Advantage plan check-ups will be more important than usual this fall.
A conversation on retirement security at the Harkin Institute
I had the opportunity to talk about my book, Retirement Reboot, at the 2024 Harkin Institute Retirement Symposium last month in Des Moines, Iowa. Chris Farrell of Minnesota Public Radio joined me for a conversation about the retirement security challenges facing Americans, including saving for retirement, and navigating Social Security and Medicare.
Tune in to our conversation below.
Meanwhile, Retirement Reboot was named a finalist for nonfiction business books in the Midwest Independent Publishers Association annual competition
What I’m reading
Fix the Medigap rules by shifting dollars from Medicare Advantage . . . High deductible health insurance is a policy failure . . . Direct indexing offers a way to tailor your portfolio to your values . . . Legalized weed is landing more seniors in the emergency room . . . Helping caregivers tend to their own needs . . . Homeowners feel pinch as insurers’ losses rise . . . Older adults face an increased risk for homelessness across the U.S. . . .When is it ok to draw down 401(k) funds?