In every recent presidential election, candidates bring up reforming entitlement programs like Social Security. But we will let you in on a secret: Reforming Social Security is only partly about extending the solvency of this program; it is also about avoiding the tough questions regarding programs like Medicaid. This is doubly bad because it sends the wrong signal to states like Idaho. Of the over $800 billion Fiscal Year 2022 total federal-state Medicaid tab, the feds pick up just over 70%. Idaho’s federal-state split is similar.
Idaho should take the lead and look for ways to scale back Medicaid’s unsustainable growth, including repealing expansion to able-bodied working-age adults and avoiding any expansion of Medicaid benefits.
How does extending the life of Social Security forestall addressing programs like Medicaid?
The last major Social Security reform took place in 1983. Among other things, it raised the retirement age, increased contribution rates, and started the taxation of some benefits beginning in 1984. So, when you hear the term reform, it means that workers are expected to pay more and potentially get less.
From 1984 through 2022, the main trust fund for Social Security, the Old Age and Survivors Insurance Trust Fund (OASI), took in about $2.7 trillion more in contributions than it paid out in benefits, according to data from the Office of Management and Budget (OMB).
This excess cash was used by the U.S. Treasury to cover deficit spending each year, and the cash was replaced with intergovernmental debt. Meaning the Treasury gave the OASI Trust Fund about $2.7 trillion in IOUs. These funds owed by the Treasury to Social Security comprise the trust fund balances commonly referred to. So, when you hear about the OASI trust fund “running out in ten years,” these are the funds provided when annual Social Security contributions don’t cover benefit payments. Beginning in federal fiscal year 2021, the annual payments to beneficiaries exceeded the contributions from workers and employers. This is projected to continue until the entire accumulation of dollars runs out sometime around 2033.
If 10 years seems like a long time from now, given that Congress often completes its annual budget late, you are not wrong. You see what the reformers of Social Security want to forestall is not the depletion of the trust fund. They want to have Social Security generate annual positive cash flow for the Treasury so that every other program, like Medicaid, faces less financial pressure for cuts.
How so? Going back to the OASI data, the trust fund decreased about $100 billion from 2020 to 2022, from $2.8 trillion to $2.7 trillion, which is not comparatively large. But instead of contributing to the Treasury excess contributions, the Treasury had to redeem obligations it owed to OASI with cash. This is on top of all of the other borrowing done by the federal government for other programs.
How has Medicaid fared since the Social Security reforms of 1983? Medicaid is not directly funded by Social Security contributions. Medicaid is not even partially funded by participants the way Medicare is. It is funded by federal and state general fund budgets, with some hospital assessments tossed in. Medicaid spending by the federal government (not including the state contribution) has increased from about $20 billion in 1984 to about $592 billion in 2022, an increase of 2,860% or a compounded annual increase of 9.3% for 38 years. Yet you hear very little discussion of Medicaid’s cost explosion or the fact that it has no “trust fund” and no source of money other than that of increasingly borrowed money.
Instead, national politicians speak of reforming Social Security; e.g. increasing Social Security contributions and delaying benefits while, at the same time, many politicians want to expand Medicaid. When Idaho expanded Medicaid to able-bodied adults in 2020, it was projected to cost just over $400 million annually. And yet it currently costs about $1.1 billion annually.
In the 2024 session, you will see calls to further expand Medicaid by lifting income caps and expanding benefits. Instead, lawmakers must address the unsustainability of Medicaid. Relying on borrowed federal funds including those borrowed from Social Security contributions to grow the program is one of the reasons the U.S. government faces a debt crisis with federal debt quickly approaching $34 trillion.
