The message from the Social Security and Medicare trustees last week could not have been more blunt: the two programs’ long-term costs “are not sustainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers.”
The message from the Social Security and Medicare trustees last week could not have been more blunt: the two programs’ long-term costs “are not sustainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers.”
This conclusion should take no one by surprise. The pressures on both programs from population aging and rising health care costs have been warned about many times by many nonpartisan sources.
What is surprising is that so few lawmakers seem to take these warnings seriously.
After all, Social Security and Medicare are not insignificant programs. In 2014, 59 million Americans received Social Security benefits, and Medicare covered 54 million. At a cost of nearly $1.5 trillion, the two programs alone accounted for 42 percent of federal program spending last year.
Given their size and importance for so many American families, the fact that Social Security and Medicare are on an unsustainable track should place them high on the legislative agenda for both parities.
And yet the traditional focus on trust fund balances tends to obscure the urgency for reforms. If viewed solely from this perspective, Social Security and Medicare may appear to be on sound footing for many years.
The combined Social Security trust funds (Old Age and Survivors Insurance and Disability Insurance) are projected to remain solvent until 2034, one year later than the trustees projected last year.
The Medicare Part A Hospital Insurance Trust Fund (HI) is projected to remain solvent until 2030, the same as in last year’s report.
The notion, however, that all is well for 15 years or more was laid to rest by the two public trustees, Robert Reischauer and Charles Blahous, who are not administration officials. They advised in the report that “a positive trust fund balance is a necessary but insufficient condition for financial viability.”
“To ensure that these programs function adequately,” the public trustees wrote, “policy makers will need to consult other information in our reports beyond the mere projected duration of trust fund adequacy.”
Most significant in this “other information” is the budgetary impact of the two programs, which the trustees’ report notes is already “resulting in mounting pressure on the unified budget.”
Both programs are straining the federal budget because they are paying out more than they are taking in from their dedicated resources, including payroll taxes, taxation of benefits, and premiums paid by Medicare beneficiaries. The balance is made up through general revenues from the Treasury.
As summed up by the trustees: “Each of these trust funds’ operations will contribute increasing amounts to Federal unified budget deficits in future years.”
Social Security and Medicare will require a general revenue infusion of $364 billion (2 percent of GDP) in 2015, according to the trustees. Most of that, $276 billion, comes from the open pipeline to the Treasury for roughly 75 percent of Medicare’s Supplementary Medical Insurance trust fund (SMI), which covers physician payments, home health care and prescription drug costs. By design, beneficiaries’ premiums pay just 25 percent of SMI costs.
Because Social Security and Medicare Part A are running cash deficits, they too are drawing on their trust funds — which are best thought of as claims on general revenues. The trust funds provide permission to issue checks. According to the trustees, Social Security’s general revenue needs in 2015 will be $84 billion and Medicare Part A will need $4 billion.
According to the trustees, the general revenue needs of both programs will more than double to 4.2 percent of GDP by 2040 as aging baby boomers receive benefits in much greater numbers and as health care costs continue to outpace economic growth.
As Reischauer and Blahous put it: “A critical unintended consequence of large trust fund balances has been that unavoidable corrective actions have been postponed.”
It’s time for lawmakers and those who seek federal office in 2016 to recognize that the current unsustainable path of Social Security and Medicare poses both a major budgetary challenge and a threat to the retirement security of millions of Americans.
“Taking action sooner rather than late,” the trustees conclude, “will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”
The public has a right to know who in Washington, or on the 2016 campaign trail, is willing to take up the challenge.
