Over the last year, COVID-19 has been especially devastating for people of retirement age. As of mid-February, those 65 and over accounted for 81% of the pandemic’s deaths in the United States. More than 373,000 older adults succumbed to the new virus, according to the U.S. Centers for Disease Control and Prevention.
Counterintuitive as it might seem, however, the pandemic could actually put even more pressure on Social Security and Medicare — the two giant, financially challenged federal programs that provide retirement and medical benefits to older and disabled Americans. Workers contribute to these programs through payroll taxes, then draw on their benefits in later life. If thousands die early, shouldn’t that relieve the stress on Medicare’s and Social Security’s budgets?
The short answer is “not much.”
Economists and government actuaries say all those deaths will indeed reduce costs to Social Security for a few years, but, huge as the toll is, it represents only about half of 1% of total beneficiaries. The impact of COVID-19 deaths will likely be more than offset by other trends that will actually hasten the long-predicted day when the Social Security trust fund runs out of money from 2035 to 2034.
The Medicare picture is harder to predict, experts said.
Government experts in 2019 estimated that a trust fund that helps finance Medicare would run out of money in 2026. A recent estimate from the Congressional Budget Office moved that target to 2024.
COVID-19 fueled an increase in emergency hospitalizations, and patients are especially expensive at the end of life. But lockdowns and fear also suppressed spending on elective procedures and doctor visits.
Further, the program helped financially strapped hospitals during the lockdown with loans. Its health will depend to some extent on whether it can collect on those loans.
Scary as that all sounds, Paul Van de Water, a senior fellow with the Center on Budget and Policy Priorities, expects Congress to rescue these crucial programs before they’re forced to cut benefits to core voters.
“The truth of the matter is that Congress never has and never will allow these programs to run out of money,” he said. “No one should lose a moment’s sleep that the pandemic and recession will cause their Medicare and Social Security benefits to stop.”
Alicia Munnell, director of the Center for Retirement Research at Boston College, agreed. “I think this is an action-forcing event,” she said.
If the Medicare trust fund goes broke, there would still be money coming in, but it wouldn’t be enough for the program to meet obligations, said Richard Kronick, a professor in the Herbert Wertheim School of Public Health at University of California San Diego. “I can’t imagine that Congress would let that happen,” he said.
Olivia Mitchell, an economist at the University of Pennsylvania’s Wharton School, is less optimistic. Congress waited until the Social Security fund was three months from insolvency before coming up with an imperfect fix in 1983. “The fact is that we don’t have much time to fix that system …” she said. “We’ve been talking about it for 30 years, and nothing much happens.”
Van de Water said it’s too early to know the full effect of the pandemic, which isn’t over yet. It seems clear, though, that COVID-19 has not yet been a “financial disaster” for these programs, he said.
The pandemic quirk that could hurt one group
Overall, the pandemic has not threatened retirement programs for most older Americans, Munnell said. Social Security payments have continued without cuts. Retirement accounts invested in the stock market did well. Private and state pensions have suffered from the same underlying problems they had before the pandemic.
“I don’t think COVID has done much to any of these things, but they all had problems before COVID, and they will have problems after COVID,” she said.
Mitchell’s research has found a surprising attitude change since the pandemic that could foretell future retirement trouble. People who became more worried about running out of money also became more pessimistic about saving or buying annuities that could provide a hedge against living longer than expected.
Because of a funding-formula quirk tied to the average-wage index, one group of Americans — those who turned 60 last year — faces lower Social Security payments for life unless the government intervenes.
When an American worker turns 60, that wage index, which fell in 2020 because of the pandemic, is tied to the formula that determines future benefits. While last year’s precise index is not yet known, Stephen Goss, the Social Security Administration’s chief actuary, estimated in July that its decline would result in a 9% drop in payments for affected beneficiaries. A more recent estimate from Andrew Biggs, a resident scholar at the American Enterprise Institute, puts the decline in payments to these future retirees at 4%.
As for Social Security in general, its financial whizzes estimate that mortality will have returned to baseline predictions by 2023.
Far more important to both Social Security and Medicare is the increase in unemployment. Both are funded by payroll taxes that are split by employers and employees: 12.4% of pay for Social Security and 2.9% for Medicare. A quick economic rebound would lessen the economic impact.
The pandemic recession, coupled with discrimination against older job seekers, could lead some to apply for benefits sooner than planned. Because payments are lower for those who tap Social Security before full retirement age, that might not have much effect in the long run.
Will more apply for disability?
Another variable to watch is whether COVID-19 survivors with serious, lingering symptoms drive an increase in Social Security disability payments. In November, Social Security actuaries predicted that disability incidence would rise for the next three years then return to baseline.
Lawyers and doctors who work with COVID-19 survivors said they are not yet seeing much interest in applying for disability, but it is early. In order to qualify for Social Security disability payments, workers must show that they are unable to “perform substantial gainful activities” for 12 continuous months in any job, not just the one they were doing before they got sick.
Even in normal times, it’s difficult to successfully apply for Social Security disability. Now, Social Security offices are closed and phone lines are busy. Disability applications in Philadelphia actually went down last year, said Richard Weishaupt, a senior attorney with Community Legal Services of Philadelphia.
Plus, this is a new disease, and doctors don’t yet know how much patients can improve after months of symptoms. The House Ways and Means Committee in June asked the Social Security Administration to ask the National Academies of Sciences, Engineering and Medicine for scientific guidance on COVID-related disability applications. That hasn’t happened.
”We should have a way to evaluate the people who are suffering from this,” Weishaupt said.
Mike Silver, an Ardmore disability attorney, thinks some people may also have delayed applying for disability because of enhanced unemployment benefits and stimulus payments.
Lawyers said they are hearing now from a small number of COVID-19 survivors who are contemplating disability. Andrew Hamelsky, a lawyer with White and Williams LLP who represents disability insurers, said he’s seeing some private insurance claims related to disabling fear of returning to work. “It’s really an anxiety claim,” he said. It remains to be seen how courts will handle such claims once vaccination is widely available.
Kathleen Romig, a senior policy analyst with the Center on Budget and Policy Priorities, said there is “strong suggestive evidence” that some COVID-19 survivors will meet standards for disability. Their numbers will likely be small, though, compared to those disabled by heart problems, cancer or accidents.
Taken together, all of the COVID-related changes won’t have much effect on Social Security, Munnell said. Actuaries predict their impact will mostly be gone by the end of 2025.