There have been numerous news reports about the status of social programs we’ve contributed to in the US for decades. Let’s review what might be changing with the critical programs of Social Security, Medicare, and Medicaid today.
The Current Landscape
Social Security, Medicare, and Medicaid together form the foundation of financial and healthcare security for millions of Americans. These programs were created as a social contract between generations with a recognition that we all deserve dignity and care throughout our lives.
Social Security provides retirement, disability, and survivor benefits to about 66 million Americans. For many seniors, it represents their primary source of income in retirement.
Medicare offers health insurance to Americans aged 65 and older and certain younger people with disabilities, covering about 65 million people.
Medicaid provides health coverage to over 80 million low-income Americans, including children, pregnant women, elderly adults, and people with disabilities.
Photo by Markus Winkler on Unsplash
How We Pay For These Benefits: Your Contributions Matter
It’s crucial to understand that Social Security and Medicare are not “handouts” or “entitlements” in the negative sense that these terms are sometimes used. They are earned benefits that working Americans pay into throughout their entire careers.
Social Security Funding: Every paycheck you receive has a 6.2% FICA (Federal Insurance Contributions Act) tax withheld for Social Security. Your employer matches this with another 6.2%, bringing the total contribution to 12.4% of your earnings up to an annual wage cap ($176,100 in 2025). If you’re self-employed, you pay the full 12.4% yourself through self-employment tax.
These contributions go into trust funds that pay benefits to current retirees, with the expectation that when you retire, the next generation of workers will fund your benefits. This system has functioned effectively for nearly 90 years as a form of social insurance.
Social Security Changes:
** The Social Security Fairness Act was passed with strong bipartisan support. This Act reversed the reduced retirement compensation of Social Security benefits for retirees who receive pensions from jobs where they did not pay Social Security taxes.
This primarily affects public servants such as teachers, police officers, and firefighters, as well as some federal employees covered by the Civil Service Retirement System. With the repeal of the WEP and GPO provisions, over 3.2 million individuals will see changes to their Social Security payments this year, post-dated back to January 2024.
The SSA will issue one-time retroactive payments for benefits lost since January 2024 for impacted individuals. These payments are expected to be deposited into recipients’ bank accounts by the end of March (2025).
Monthly Social Security payments will also increase starting in April. Social Security will advise those directly impacted by these changes. To stay updated on these changes, retirees can visit the Social Security Fairness Act webpage and subscribe to notifications about new developments.
Medicare Funding: Similarly, 1.45% of your income is withheld for Medicare (plus another 1.45% from your employer, or 2.9% total if you’re self-employed), and unlike Social Security, there is no income cap on these contributions. Higher-income earners (over $200,000 for individuals or $250,000 for couples) pay an additional 0.9% Medicare tax.
Over a 40-year career, the average worker contributes hundreds of thousands of dollars into these systems. When you receive Social Security or Medicare benefits in retirement, you are simply collecting on the contributions you’ve made throughout your working life.
Medicaid Funding: Unlike Social Security and Medicare, Medicaid is funded differently, through a combination of federal and state tax revenues rather than specific payroll deductions. While not funded through direct contributions from your paycheck, it remains an essential safety net program, particularly for long-term care that many elderly Americans eventually need.
Potential Changes
Several factors are creating pressure on these programs:
- Funding challenges: The Social Security Trust Fund is projected to be depleted by the mid-2030s. Without changes, benefits might need to be reduced by about 20-25%.
- Potential policy shifts: Some policymakers have proposed significant changes to these programs, including:
- Raising the retirement age
- Changing how benefits are calculated
- Implementing stricter eligibility requirements
- Converting some aspects of Medicare to voucher-based systems
- Imposing spending caps or block grants for Medicaid
- Healthcare cost increases: Rising medical costs put constant pressure on Medicare and Medicaid budgets.
What This Could Mean for You
These changes could affect you in several ways:
For those near retirement: You might need to work longer than expected or accept reduced benefits if the retirement age increases or benefit formulas change.
For Medicare recipients: You could face higher premiums, reduced coverage, or limitations on which doctors you can see.
For Medicaid beneficiaries: Stricter eligibility requirements could mean fewer people qualify, and reduced funding could limit available services. Potential changes to Medicaid would impact:
- Healthcare Providers and Hospitals: Medicaid is a crucial source of funding for many healthcare providers, especially rural hospitals. Reduced funding could lead to financial strain and reduced services
- States: Changes in federal funding structures, such as block grants or reduced federal match rates, could shift financial burdens to states, potentially leading to expanded or reduced coverage depending on state decisions.
- Elderly Individuals: Some older adults rely on Medicaid for long-term care services, such as nursing home care. Cuts could affect their access to these vital services.
- Pregnant Women: Medicaid covers a significant portion of births in the U.S., providing essential prenatal and postnatal care. Changes could impact maternal and infant health outcomes.
- Adults with Disabilities: Medicaid supports more than 25% of adults with disabilities. Any cuts or eligibility changes could jeopardize their healthcare coverage.
- Children: Nearly 40% of children in the U.S. are covered by Medicaid, including over 80% of impoverished children. Changes to Medicaid could affect their access to essential healthcare services.
- Low-Income Individuals and Families: Medicaid primarily serves low-income individuals, including those who gained coverage under the Affordable Care Act (ACA) expansion. Proposed cuts or changes could reduce access to healthcare for millions of people in this demographic.
Stay Informed
Preparation for all stages of life involves keeping up with potential legislative changes. Start by checking your current earned benefits. If you haven’t, create an account at ssa.gov to review your Social Security statement and projected benefits. This will help you plan more accurately and see how much you’ve already contributed to the system.
Put together a financial plan for your planned retirement. Qualified financial professionals can help you develop personalized strategies based on your specific situation.
Review your insurance coverage: Make sure you have adequate health insurance, and consider long-term care insurance options before you need them.
Looking Forward
Forewarned is forearmed is a saying that comes to mind. Remember that our social programs have evolved and adapted over the years. By staying informed and taking proactive steps now, you can better position yourself to navigate whatever changes may come.
Remember you’ve been contributing to Social Security and Medicare throughout your working life. The benefits you receive in retirement are a return on your lifelong investment in these critical social insurance programs.
Look for a separate email from me to share the details about my March Madness Live Sessions starting March 18th. I’m calling them “Tame the Document Monster” to organize your important documents. Practical sessions are on my agenda in 2025 to keep you prepared!
If you have specific questions about your planning or any changes ahead, please send me an Email or Message me if you have any questions. For additional information about my work check out @ The Living Planner or @ The Living Planner.
Let’s close with this quote by William James “The greatest weapon against stress is our ability to choose one thought over another.”
Keep calm and carry on ❣️ Lynn