Social Security and Medicare: time running out to fix them, trustees say
The Social Security trust funds are on track to go bankrupt in 2033, with payroll taxes only paying for about three-quarters of benefits The Medicare trust funds will deplete even sooner.
WASHINGTON — The underlying financial condition of Social Security and Medicare did not change greatly in 2012 and both are still on borrowed time, trustees of the massive, politically sensitive programs said in separate annual reports issued Friday.
The longer Congress waits to deal with the financial shortfalls both programs face due to an aging population, the more painful the solutions will need to be, the trustees said. The window for effective action “is in the process of closing ... as we speak,” public trustee Charles Blahous warned at a briefing for reporters. “The primary story this year for Social Security is the cost of another year’s delay,” he added.
Projections for Social Security’s financial health are “essentially unchanged,” Treasury Secretary Jacob Lew said. The trust funds for retirement and survivors benefits and a separate fund for disability payments, when considered together, have a projected depletion date of 2033, unchanged from last year’s annual report. After the reserves were depleted, continuing payroll tax receipts would be sufficient to pay three quarters of promised benefits through 2087.
Medicare trust funds run out of money sooner than those for Social Security. The trustees say the Medicare Hospital Trust Fund – one of two funds that support the program – will have enough money to cover its obligations fully until 2026 – which is two years longer than predicted in last year’s report. After that, the share of hospital costs that could be financed with payroll tax revenues would decline from 87 percent in 2033 to 70 percent in 2050 and later, the trustees said.
Health and Human Services Secretary Kathleen Sebelius, one of the trustees, said that President Obama’s Affordable Care Act “has helped put Medicare on more stable ground,” without eliminating services to recipients through various cost-reducing measures.
In a White House blog post, National Economic Council Director Gene Sperling noted that the Medicare trustees project that the Part B premium, which pays to cover doctors’ services, would not increase between 2013 and 2014.
“Clearly we have one near-term forcing event” in terms of prompting congressional action, said public trustee Blahous, a research fellow at Stanford University’s Hoover Institution. The disability insurance trust fund is projected to be exhausted by 2016. Beyond that date, payroll tax receipts would be able to pay only 80 percent of scheduled disability benefits. One option for dealing with the shortfall would be to divert funds from the retirement benefit trust fund, but Mr. Blahous notes that would only add to the long-term problems facing the retirement fund.
The political and financial stakes are huge in attempting to address Social Security’s and Medicare’s financial woes. Some 58 million Americans currently receive Social Security benefits, the Associated Press says. And as Acting Labor Secretary Seth Harris said at Friday’s briefing, many employers have stopped paying pensions where the benefits are set in advance.
“This is not your grandfather’s retirement,” he said, making Social Security and Medicare even more important to seniors.
The public trustees warned that “each passing year of legislative inaction reduces the likelihood that a solution can be found that is acceptable to lawmakers on both sides of the political aisle.” Waiting until 2033, when the retirement trust fund runs out, would require huge cuts in benefits to keep the system solvent.
Benefits would have to be cut 23 percent across the board – including those already being received by retirees. If an effort was made to confine the cuts to those newly eligible for retirement but not those already getting benefits, “even wiping out 100 percent of their benefits would be insufficient” to close the system’s funding gap, Blahous said.