How COVID-19 Has Affected Social Security and Medicare Services. By: Kathy Hollingsworth

The death toll from COVID-19 in the United States is well over 500,000. Out of this sad figure, over 450,000 deaths were older members of the society—Americans who were at least 65 years old. These people were members of the society that benefited mainly from Social Security and Medicare services. The deaths are not the only impact of the pandemic on these two critical federal programs. There are other effects that the pandemic has had and will keep having on the millions of Social Security and Medicare beneficiaries who overcame the pandemic. 

Social Security Systems and Intricacies

Popularly known as “Pay-as-you-go,” Social Security is one source of income for workers after retirement. While still in service, workers contribute to the program through payroll taxes. The funds from payroll taxes go into the Social Security Trust Funds, the same funds that pay those currently eligible to receive Social Security benefits.  

At the start of the program, the money coming into the trust fund through payroll taxes was more than it was paying out to beneficiaries of Social Security. The table has since turned because there are more recipients than contributing workers now. If the downward trajectory continues, the Social Security Trust Fund will be empty, and recipients will only get paid from contributions from payroll taxes. Experts say contributions from payroll taxes will only be about 77% of the full benefits that current recipients get from Social Security. 

Though this phenomenon existed before the COVID-19 pandemic, the pandemic has affected the Social Security Trust Fund balance as well.

How has the COVID-19 Pandemic Contributed to the Dwindling Social Security Trust Fund Balance? 

The pandemic has contributed significantly to the dwindling balance of the trust fund due to some reasons, which we have listed below. The effects have been so extensive that experts have projected that the Social Security Trust Fund balance will become empty two years faster than estimated before the pandemic. The earlier projection was for 2035, but it has moved up to 2033 because of the pandemic, experts say. Here are reasons why the COVID-19 pandemic has affected Social Security. 

• Many businesses stopped operations, which led to an increase in the unemployment rate. 
• The pandemic led to a reduction in work hours, which translates to lower incentives. 
• The government deferred withholding payroll taxes to ease the burden of workers and businesses during the pandemic. 
• More people signed up for benefits during the pandemic. 
• Many contributing workers died during the pandemic.

All these points are reasons for reduced payroll taxes, meaning the Social Security Trust Fund will indeed empty faster than pre-COVID projections.

National Average Wage Index, Social Security Benefits, and COVID-19

National Average Wage Index (NAWI) is one factor that determines how many benefits recipients can receive from Social Security. The index analyses how wages grow and use the information to determine the trajectory of inflation. As a result of the pandemic, the index for 2020 might be lower than preceding years. 

What does this mean for Social Security beneficiaries? The Social Security Administration measures a recipient’s benefits using some criteria, including the NAWI, for the year the recipients turn 60 and will be eligible for Social Security benefits. So, those that clocked 60 in 2020 will receive fewer benefits than usual due to the pandemic. Sadly, they will continue receiving the reduced sum for the rest of their lives.

In September 2020, the Congressional Budget Office (CBO) predicted the 2020 NAWI would be -3.8% compared to 2019. More recently, the CBO has said it expects the 2020 NAWI to be closer to -0.5%. This means that benefits will be lower for anyone turning 60 in 2020 but not as low as initially predicted.

Compared to projections in 2020, things seem to be turning up. In September last year, the Congressional Budget Office (CBO) estimated that the NAWI for 2020 would be -3.8% compared to the index for 2019. The office has since recanted that statement because of recent events. The CBO now estimates the 2020 NAWI to be around -0.5%, meaning the benefits will be low but not as low as CBO had projected last September. However, this only affects individuals that turned 60 in 2020. 

Effect of the Pandemic on Social Security Benefits for Disabled 

According to a Social Security actuaries prediction of November last year, people who had COVID-19 but survived the infection could later suffer some lasting effects from it. As a result, more people will sign up for Social Security disability benefits in 2021 and the two years after it. 

Effects of COVID-19 Legislation on Social Security 

Another effect of the pandemic on Social Security is its legislation on the program and its beneficiaries. Even beneficiaries of the Supplemental Security Income will be affected by COVID-19-spurred legislation, such as the CARES Act, Consolidated Appropriations Act, and the American Rescue Plan Act. Here are the effects of the pandemic on Social Security:

• The pandemic led to three Economic Impact Payments of $1,200, $600, and $1,400. 
• It also led to a reduction in FICA taxes that disturbed the prompt payment of FICA while ensuring that the decline and delay will not negatively affect the Social Security Trust Fund.
• It caused a pause in the receipt of student loans from Social Security payments.
• The Social Security Administration also received $300 million to support the fight against COVID-19. 
• The pandemic led to an extension of payroll tax repayments. 
• It also caused an extension of the qualification criteria and amount of Child Tax Credit and Earned Income Tax Credits. In contrast, the statutory exclusion to both tax credits remained the same.

Expected Lasting Effects of the Pandemic on Social Security

About three months ago, Social Security actuaries projected some lasting effects of the COVID-19 pandemic on Social Security. The agency projects that nothing significant will result from the pandemic. There will be a pandemic-spurred recession, which would have ended by 2023 with only minor permanent damage.

However, the agency projects some short-term effects such as:

• Reduced birth rates in 2020 and 2021. 
• Increased death rates in 2020 (12% higher than usual), 2021 (6% higher than normal), and 2022 (2% higher than usual). 
• A reduced number of people applied for disability payments in 2020, but the figure will be higher in 2021 and 2022. 
• More unemployment in 2020, but things would have returned to normal by 2023. 
• GDP, productivity, and earning levels will suffer a lasting reduction of 1%.

The Medicare System and Intricacies

Medicare is a federal insurance coverage plan for older citizens (65 and above), people with disabilities, and those living with End-Stage Renal Disease (ESRD). The Centers for Medicare and Medicaid Services (CMS) is a branch of the U.S Department of Health and Human Services that runs the program through payroll taxes, participants’ premiums, and funds from the government. The CMS makes Medicare payments through the Hospital Insurance (HI) and the Supplemental Medical Insurance (SMI) Trust Funds. While HI funds Medicare Part A (Hospitalization), SMI funds Medicare Part B (Medical) and Part D (Prescription Drugs). 

HI Trust Fund’s primary source of financing is payroll taxes. This source has been dwindling for a while, just like the Social Security Trust Fund. Without the contributing effect of last year’s pandemic, experts had projected that by 2026, the HI Trust Fund would only be able to pay 90% of hospitalization costs of the participants of Medicare. On the other hand, the SMI Trust Fund, which gets most of its funds from premiums and government allocation, will continue to finance Part B and Part D without problems. This does not mean it will remain untouchable. With inflated premiums and more reliance on government allocation, it is bound to encounter its challenges down the line. 

Effects of the Pandemic on HI and SMI 

HI Trust Fund will shoulder the bulk of the pandemic effects on the Medicare Trust Funds. The extent of the damage is not known yet. As the 2020 Medicare Trustees Report states, the trustees cannot accurately give a projection that accounts for the effects of the COVID-19 pandemic at this time.

According to CBO, around two million Medicare participants will need hospitalization due to coronavirus infections during the pandemic. Of this figure, the CBO estimates that 1 million would be in hospitals under Medicare’s inpatient prospective payment system. As a result, the CBO states that the CMS would be spending about $3 billion more than the average in 2020 and 2021.

The SMI Trust Fund will also be indirectly affected. By 2030, Medicare trustees project a 6.3% increase in the percentage of personal and corporate income taxes for financing SMI and a 14.3% increase by 2094.

Effects of the Pandemic on Medicare Participants 

There are several ways through which the pandemic will affect Medicare participants apart from the possibility of death or permanent disability. According to a CMS survey, here are some effects the pandemic has already had on Medicare participants.

• About 21 participants had to avoid going to the hospital for non-COVID-related issues. 
• 15% of the participants in the survey said they felt more worried about financial security. 
• 41% said they had challenges coping with stress. 
• 38% said they were having challenges maintaining a relationship with their friends and family. 

Medicare participants receiving medical care from their housing also suffered from the following effects:

• They needed more social service support. 
• They felt more lonely and depressed. 
• Those with physical and mental health conditions had to deal with worsened symptoms. 
• More of the participants resorted to alcohol and drug use/abuse. 
• The rate of domestic violence rose. 
• They also experienced a shortage of medical staff and equipment.  

 On the flip side, the pandemic had some positive effects on the participants as well: 

• Medicare participants don’t have to pay for COVID-19 vaccines, tests, and treatments.
• They also have a broader coverage of medical services, including telehealth services and hospitalization when required.

Effects of the Pandemic on Physicians, Hospitals and Other Medicare Providers 

Within the first six months of the COVID-19 pandemic, Medicare providers, such as hospitals, experienced the following: 

• Payments for fee-for-services decreased by 39%, inpatient services by 33%, and physician services by 49%. These figures rose to 96%, 93%, and 95%, respectively, by 1st July.
• At the end of the sixth month of 2020, cumulative payment deficits ranged from 12% to 16%.
• There was also a drastic reduction in the need for personal preventive screening and surgical services.

COVID-19 Legislation and Medicare

The bulk of COVID-19 legislation impacted Medicare. In fact, within the first seven months of 2020, over two hundred regulatory changes were made, with about forty-nine more by the eighth day of January 2021. Here are some COVID-related regulatory changes that affected Medicare:

• Expansion of Medicare coverage for telehealth services 
• Removal of cost-sharing for vaccination procedures 
• Increment of Medicare payment fees to providers 
• Special waivers on certain hospital length-of-stay criteria 
• More increment of payment fees to physicians
• Elimination of sequestration slashes for March 2021

These changes were made through the CARES Act and the Consolidated Appropriations Act. The first four changes were made through the CARES Act, while the last two were made through the CAA.

Lasting Effects of the Pandemic on Medicare

Like Social Security beneficiaries, participants of Medicare are people who are more susceptible to COVID-19. People in this category (older citizens who are 65 or older and people suffering from disabilities) might experience medical and financial concerns due to the pandemic.

 Many participants had to pay a lot of money to take care of pre-existing medical conditions. As a result, they were suffering from some monetary challenges even before the pandemic. The pandemic led to some regulatory changes that helped reduce these costs, but the respite will only be short-lived.

 These monetary challenges will only worsen with the increase in the unemployment rate, especially for older members of marginalized communities who received fewer incentives before retirement. They also have fewer Social Security benefits and reduced retirement contributions. The result of all this is that the pandemic will have more permanent effects on Medicare and Medicare participants.