While Congress and the Obama administration dodged a fiscal bullet late last year by forging a deal to avert the bankruptcy of the Social Security Disability Insurance program, a new report by a blue-ribbon panel suggest that the nation’s major entitlement programs remain in long-term jeopardy.
For the second year in a row, the trustees of the Social Security and Medicare programs reported on Tuesday that Social Security’s old age and disability insurance reserves will be exhausted in 2034.
If that is allowed to happen, then depleted annual revenues would force the government to pay roughly 75 percent of Social Security benefits that already have been promised, according to the report.
The trustees also projected that Medicare's Hospital Insurance trust fund will run out of money in 2028, two years earlier than previously predicted. House Speaker Paul Ryan (R-WI) and other GOP leaders warned in a new proposal on health care reform today that the Medicare program serving 50 million seniors and others “is unsustainable and will fail current and future Americans without significant reform.”
“The problem is driven by demographics, cost growth, and outdated payment systems that encourage overuse of health service,” the GOP study stated.
The release of the Medicare and Social Security trustees’ report is an annual ritual in which government appointed experts project the long-term solvency of the nation’s two largest entitlement programs and — when necessary — sound an alarm.
That’s precisely what happened last July when the trustees warned that the Social Security disability insurance fund would run dry by 2016 unless Congress approved a transfer of money from the old age survivors fund. The Obama administration and Congress reached a compromise on transferring those funds from one account to the other as part of a year-end budget agreement. But the trustees, administration officials and budget watchdogs stressed today that neither Social Security nor Medicare was out of the woods. They warn that steps will be needed in the coming years to contain the cost of the programs as more and more baby boomers retire and seek their retirement and health insurance benefits.
“Today’s reports, like those of recent years, show that we have some time to address the fiscal challenges faced by the vitally important Trust Fund programs. But reform will be needed, and Congress should not wait until the eleventh hour to address the fiscal challenges given that they represent the cornerstone of economic security for seniors in our country,” Treasury Secretary Jack Lew said. “In doing so, the first challenge is to ensure solvency for future generations of Americans, and at the same time we should expand and finance improved Social Security benefits, particularly for the most vulnerable.”
Lew added that the report “continues to reflect the positive impact of the 2010 Affordable Care Act” in slowing the increase in cost of the country’s health care system. “Nevertheless,” he added, “the projections suggest that the Medicare Trust Fund will be depleted in 2028, and Medicare faces a substantial long-term shortfall that needs to be addressed.”
Paul N. Van de Water, an expert on federal entitlements with the liberal-leaning Center on Budget and Policy Priorities, said this week that fluctuations from year to year in the trustees’ long-term estimates are normal and no immediate cause for alarm.
“Even after the combined trust funds are exhausted, Social Security could still pay about three-fourths of scheduled benefits using its tax income,” he wrote. “Likewise, the trustees estimated last year that Medicare’s Hospital Insurance Fund — which health reform and other factors have strengthened financially — would be able to pay 86 percent of scheduled benefits after exhaustion in 2030.”
However, Maya MacGuineas, head of the Campaign to Fix the Debt, cautioned that today’s trustees’ report demonstrates that both the programs remain in “financial jeopardy” and deserve more immediate attention from Congress and the next president. Over the next 75 years, she noted, the unfunded liability of the two Social Security trust funds will be $11.4 trillion on a present-value basis.
“If we don’t act in time, all Social Security beneficiaries, regardless of age or income, will face an immediate 21 percent benefit cut in 2034,” she said in a statement. “That’s not very far off; it’s when today’s 49 year olds reach the full retirement age and today’s newest retirees turn 80.”