October 24, 2014

Report Reflects Entitlement Difficulties

The annual report issued Monday by the trustees of Medicare and Social Security underscores the unsustainable nature of both programs in their current forms. The troubling data in the report also demonstrate the need for comprehensive fiscal reform as soon as possible.

“With the aging of the population and the continuing rise in health care costs, we know that Medicare and Social Security will place increasing demands on the federal budget,” says Robert L. Bixby, Concord’s executive director. “These programs are of critical importance to Americans of all ages, but this year’s trustees report -- like its predecessors -- makes clear that significant changes in both programs need to be made.”

Public attention should focus on the cash flows in these programs rather than trust-fund balances that are sometimes cited as reassuring. The trustees report,  for example, that Social Security’s negative cash flows add to the federal deficit despite the positive trust fund balance.  Social Security and Medicare had a total cash deficit of $403 billion last year.

“The trust fund balances are simply an internal government bookkeeping mechanism,” Bixby said. “They say how much the government owes itself. But these balances, and the various projections about them, tell us nothing about where the government might find the additional money to pay for all of the entitlement programs’ commitments in the years ahead.”

The number of beneficiaries in Social Security and Medicare is rising rapidly and will continue doing so. From 2011 to 2012, Social Security will add 1.5 million beneficiaries while Medicare will add 2 million. Meanwhile, health care costs are expected to grow more rapidly than the economy even under optimistic assumptions about health care reform.

Ideally, responsible changes in the entitlement programs should be part of a broader program of fiscal reform throughout the federal budget.  “Everyone may think that their cow is sacred,” Bixby said, “but in fact there can be no sacred cows in the search for solutions.”

Read more with Changes in Trust Fund Balances Should Not Overshadow the Dramatic Impact of Aging and Health Care Inflation