COVID-19 didn't hurt Social Security or Medicare as much as experts feared, report finds

The annual report from the trustees of the Social Security and Medicare programs released on Tuesday gave the first comprehensive look at how much the coronavirus pandemic 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 less than many have feared over the last year.

The authors projected that the main Social Security trust fund could continue paying out benefits on a timely basis through 2033, just one year earlier than what was stated in the 2020 report. Likewise, a key Medicare trust fund could run low on funds by 2026, the same year as last year's report.

“There is no consensus on what the lasting effects of the COVID-19 pandemic on the long-term experience might be,” the report authors wrote, citing a range of reasons why the pandemic did not hit the programs harder than it did.

On the one hand, the report found a sizable impact on the revenue side of Social Security's ledger with fewer people working in 2020 and therefore less payroll taxes being paid into the program. 

On the other side, a senior administration official described increased deaths from the pandemic as helping the program's bottom line. It had a "small effect in the other direction" compared to the drop in revenue from fewer workers paying into the system. The sad result of the hundreds of thousands of additional deaths meant that fewer older Americans were available to receive Social Security and Medicare benefits.

"We don't know the extent they will truly offset each other" in the long-term, a senior administration official also cautioned on Tuesday with the release of the report.

Shai Akabas, director of economic policy at the Bipartisan Policy Center, noted after reading the report that the extremely short recession was the key factor to help minimize the damage to Social Security and Medicare. He added that, in addition, "The mortality impact was actually a little bigger than we anticipated and that's just because of course the pandemic has been so tragic for the country over the past 18 months."

The government's report predicts in total that U.S. mortality rates will be elevated by 15% over pre-pandemic norms in 2021 and not return to normal levels until 2023. It also predicts the lowered employment and earning rates to rise gradually toward a recovery by 2023.

Senior officials also noted that a significant decrease in Americans filing for disabled worker benefits through the Social Security program also helped the program's bottom line. One possible explanation for that drop could be the improved unemployment benefits available to out-of-work Americans as a result of relief bills passed by Congress.

A ‘best estimate’ of the pandemic's impact

The Trustees projected that elevated mortality rates related to the pandemic would continue in a declining fashion through 2023. Reductions in immigration and childbearing also led to alterations to their near-term projections for the outlook of the programs.

Officials stressed that Tuesday's report was a "best estimate" of the still unfolding impacts of the pandemic. Both Social Security and Medicare face problems in the years ahead regardless of the effects of the pandemic, officials stresses.

A letter from the trustees — Treasury Secretary Janet Yellen, HHS Secretary Xavier Becerra, Labor Secretary Martin Walsh, and Acting Social Security Commissioner Kilolo Kijakazi — also implored lawmakers to take "action sooner rather than later" to "so that the public has adequate time to prepare."

The projected depletion date of 2033 doesn’t mean that benefits would immediately cease, but rather that they would be gradually reduced. Tuesday’s report found that if the fund’s reserves indeed become depleted, then Social Security would shift to pay out 76% of scheduled benefits.

The date assumes that Congress does nothing to intervene. In fact, lawmakers have put forth a range of ideas from convening a bipartisan group of lawmakers with the power to make a plan for all the federal trust funds to a bill, championed by Democrats, that would raise benefits through payroll tax increases and new taxes on the highest income earners.

A change from more dire projections

Throughout the course of the pandemic, independent groups have often run their own numbers and offered much more dire projections of Social Security's funding. Last summer, an analysis from the Bipartisan Policy Center found that the program could be looking at reduced benefits as soon as “this decade.” Another analysis from the Committee for a Responsible Federal Budget last summer found that Social Security could be depleted by 2031 with other funds running low earlier.

Akabas, one of the authors of the Bipartisan Policy Center's report, said Tuesday that "it certainly looks like there are going to be fewer major effects on employment over the next 5 years than we might have anticipated" when the report was written.

But he added that Trust Funds are still facing an urgent problem and though "the details may have changed a little bit, the general contours remain the same and it requires attention from Congress very soon."

Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, added in a statement, "With the economy on course for recovery, it’s time we turn our attention to rescuing Medicare and Social Security so these programs remain financially sustainable for current and future generations."

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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