Social Security Disability Insurance Fund Will Be Depleted Soon

John GarnerCompliance, Legislative Updates, Resources

The Social Security Board of Trustees has released its annual report on the long-term financial status of the Social Security Trust Funds.  The Disability Insurance (DI) Trust Fund will become depleted in 2016, unchanged from last year’s estimate.

Legislative action is needed as soon as possible to address the DI trust fund’s financial problems.  Congress also needs to act to ensure the solvency of the Old-Age and Survivors Insurance Trust Fund; however, there is more time available to address that problem.

The projected depletion date for the separate Social Security’s Disability Insurance (DI) Trust Fund is only a little more than one year away, in late 2016.

The Medicare Hospital Insurance Trust Fund will have sufficient funds to cover its obligations until 2030, the same year that was projected last year, and 13 years later than was projected in the last report issued prior to passage of the Affordable Care Act.

Social Security’s Disability Insurance (DI) program faces the most immediate financing shortfall of any of the separate trust funds.  The DI Trust Fund reserves are projected to be depleted in late 2016, unchanged from last year’s estimate, after which time dedicated revenues are projected to cover 81 percent of scheduled benefit payments.  Legislation will be needed to address this financial imbalance.

Social Security disability recipients who also have long-term disability (LTD) insurance policies generally will not suffer if the Social Security disability benefits are cut because LTD benefits are typically integrated with Social Security disability benefits.  A cut in Social Security benefits would be offset by a corresponding increase in LTD benefits in most cases.  The increase in LTD claim payments will cause a spike in LTD premiums, some of which are paid by employers and others by employees.

The Medicare Hospital Insurance (HI) Trust Fund will have sufficient funds to cover its obligations until 2030, the same year that was projected last year, and 13 years later than was projected in the last report issued prior to passage of the Affordable Care Act.  The projected portion of scheduled benefits that can be financed with dedicated revenues is 86 percent in 2030, declines slowly to 79 percent in 2039, and then gradually increases to 84 percent in 2089.  The 75-year actuarial deficit in the HI Trust Fund is projected at 0.68 percent of taxable payroll, down from 0.87 percent projected in last year’s report.  The improved long-term outlook for HI is primarily due to a change in the projection methodology that results in a lower estimate for long-range health care cost growth for HI and other parts of Medicare.

Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.  However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 2.0 percent of Gross Domestic Product (GDP) in 2014 to 3.4 percent of GDP in 2035, and then more slowly to 3.8 percent of GDP by 2089.  Roughly three-quarters of these costs will be financed from general revenues and about one-quarter from premiums paid by beneficiaries.

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