WASHINGTON — Medicare's long-term health is starting to look
a little better, the government said Friday, but both Social Security
and Medicare are still wobbling toward insolvency within two decades if
Congress and the president don't find a way to shore up the trust funds
established to take care of older Americans.
Medicare's giant fund for inpatient care will be exhausted in 2026,
two years later than estimated last year, while Social Security's
projected insolvency in 2033 remains unchanged, the government reported.
An overall slowdown in health care spending is helping
Medicare. Spending cuts in President Barack Obama's health care law are
also having a positive impact on the balance sheet, but they may prove
politically unsustainable over the long run.
The relatively good news about two programs that provide a foundation
of economic security for nearly every American family is a respite, not
a free pass. Program trustees urged lawmakers anew to seize a current
opportunity and make long-term changes to improve finances. Action now
would be far less jarring than having to hit the brakes at the edge of a
fiscal cliff.
Politically, however, Friday's positive report and the absence of a
crisis could make legislative action less likely, especially in light of
the lack of trust between President Barack Obama and Republicans in
Congress. No end is in sight for the partisan standoff over what to do
about Social Security and Medicare, two of the government's costliest
programs, and the mammoth budget deficits they help fuel.
Still, fresh warnings were sounded.
"Under current law, both of these vitally important programs are on
unsustainable paths," said economist Robert D. Reischauer, one of two
independent public trustees overseeing the annual reports.
The window for action "is in the process of closing even as we
speak," said his counterpart, Charles Blahous III, also a prominent
economist.
Social Security provides monthly benefit checks to about 57 million
people, including 40 million retirees and their dependents, 11 million
disabled workers and dependents and 6 million survivors of deceased
workers. Medicare covers nearly 51 million people, mainly retirees but
also disabled workers.
If the funds ever become exhausted, the nation's two biggest benefit
programs would collect only enough money to pay partial benefits.
Social Security could cover only about 75 percent of benefits, while
Medicare's fund for hospital and nursing rehabilitation care could pay
87 percent of costs.
With 10,000 baby boomers turning 65 every day, America's aging population is straining both programs.
While the combined Social Security fund was projected to be depleted
in 2033, the trustees warned that the threat to one of its component
trust funds that makes payments to workers on disability is much more
urgent. They projected that the disability trust fund would deplete its
reserves in just three years, in 2016. That date is unchanged from last
year's report.
Blahous said he hoped that would prod lawmakers to act on the broad challenges facing Social Security.
The remaining trustees are senior administration officials, including
Treasury Secretary Jacob Lew and Health and Human Services Secretary
Kathleen Sebelius. While acknowledging the need for long-term changes to
improve program finances, they used the occasion of the annual report
to assert that Obama's policies are working, particularly his health
care overhaul.
White House spokesman Josh Earnest saw validation in the reports,
too. The Medicare numbers showed Obama's health overhaul "is having a
positive effect on the deficit," he said, while the Social Security
report supports the president's contention that the retirement program
is "not driving our short-term deficit."
Motivation for both sides to tackle federal spending deficits _always
risky because of the pain that could cause voters – has already
declined because the improving economy has also pushed projected federal
deficits downward. This year's shortfall is now expected to be $642
billion, down from $1.1 trillion last year.
Obama has proposed significant changes to both benefit programs, in
the context of budget talks. Those include a formula change that would
pare cost-of-living increases for retirees, and nearly $400 billion in
Medicare savings, mainly from cuts to service providers. Congressional
Republicans want to do more, particularly on Medicare, by converting the
program into a private insurance system.
Social Security is financed by a 6.2 percent tax on the first
$113,700 of workers' wages, paid by both employers and workers. Congress
temporarily reduced the tax on workers to 4.2 percent for 2011 and
2012, though the program's finances were being made whole through
increased government borrowing.
The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers.
Blahous said if Social Security's shortfall were to be fixed
immediately by boosting the payroll tax alone, that rate for workers and
employers together would have to be increased from its current 12.4
percent to nearly 15.1 percent. If action were delayed until 2033 – the
year of insolvency – the tax would have to rise to 16.5 percent.
If the savings were to come only from reducing benefits and were made
immediately, the benefits would have to be cut 16.5 percent for both
current and future recipients.
Targeting future beneficiaries alone would mean benefit cuts of nearly 20 percent.
Waiting until 2033 to impose the changes would mean benefit cuts of
23 percent for current and future recipients. If policymakers wanted to
limit the cuts to future beneficiaries, even wiping out all of their
benefits would not close the shortfall, said Blahous.
"The window of opportunity to deal with Social Security closes well before the early 2030s," he said.
Not all the news was bleak.
The trustees projected a 2 percent Social Security cost-of-living
increase for 2014. And the monthly Medicare Part B premium for
outpatient care was projected to remain the same as this year. That's
generally $104.90, although upper-income retirees pay more.
The good news for Medicare may not last. The program's future costs
are difficult to estimate, subject not only to economic fluctuations and
the aging society but also to the impact of the latest blockbuster drug
or technological breakthrough.
Nonetheless, the trustees said the overall slowdown in health care
spending is providing relief for Medicare. It was the main reason for
extending the life of the trust fund by two years. The report said there
was a particularly sharp drop in spending on nursing home care.
Medicare pays for limited nursing home stays while patients recuperate
from hospitalization.
Also cited were reductions in payments to popular Medicare Advantage
plans, the private insurance alternative within the program. About 1 in 4
Medicare beneficiaries are in such plans, which offer lower
out-of-pocket costs usually in exchange for limitations on the choice of
hospitals and doctors. The plans had once been overpaid when compared
to the cost of care in traditional Medicare, but Obama's health care law
cut back those payments.
Public trustee Reischauer, who specializes in health care economics,
said he's hopeful and cautiously optimistic that the slowdown in health
care costs will continue.
HHS Secretary Sebelius said the health care overhaul "has helped put
Medicare on a more stable ground without eliminating a single guaranteed
benefit."
But the top Republican on the Senate Finance Committee, Utah Sen.
Orrin Hatch, said the report "shouldn't give anyone comfort" because
Medicare's slower spending reflected the country's weak economy, even as
the program faces rapidly growing numbers of recipients.
"Reforming Medicare and Social Security is a national imperative that
policymakers on both sides of the aisle and at the White House must
embrace if we are going to protect those programs for our seniors and
for future generations, while simultaneously bringing down our sky-high
debt," Hatch said
AARP, the seniors lobby, said it will continue to fight cuts in either program.
___
AP Economics Writer Martin Crutsinger contributed to this report.
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