Social Security’s financial forecast gets darker; Medicare’s outlook unchanged
By N.C. Aizenman,
Surging energy prices and a slower-than-expected economic recovery have worsened the financial outlook for Social Security compared with last year, while the picture for Medicare remains grim but essentially unchanged, according to annual forecasts released by the government Monday.
The trustees overseeing Social Security reported that the program’s trust fund will be depleted by 2033 — three years earlier than projected last year. After that, incoming Social Security tax revenue will cover only three-fourths of the benefits scheduled to be paid out through 2086, requiring Congress to either increase taxes or reduce benefits.
The fiscal health of Social Security declined even more precipitously according to another, somewhat technical measure. This statistic reflects the difference over the next 75 years between projected benefits and the expected annual income of the American workers whose taxes will finance them. This measure reached its worst level since the early 1980s, when the trust fund’s imminent insolvency prompted Congress to enact a variety of changes.
At a news conference to release Monday’s reports, administration officials and program trustees took turns urging Congress to come up with the kind of bipartisan solution that has long eluded it.
“Never since the 1983 reforms have we come as close to the point of trust fund depletion as we are right now,” warned Charles Blahous, one of the trustees for Medicare and Social Security. “Our window for dealing with [the shortfall] without substantially disruptive consequences is closing fairly rapidly.”
Social Security’s bleak outlook is primarily driven by the ever-larger numbers of people in the baby boom generation entering retirement.
And the trustees said a major reason that this year’s 75-year forecast was worse than the last was simply that they were measuring one year further into the future.
They also pointed to two unforeseen economic factors: Rising energy prices necessitated a larger cost-of-living increase to benefits, and worker earnings — and the resulting payroll taxes used to pay for Social Security — were lower than than expected. In both cases, the impact will resound for years.
The trustees projected that Medicare’s trust fund, which covers the part of the program that funds hospital care, will run out in 2024, the same estimate in last year’s report.
At that point, incoming revenue from Medicare taxes will be enough to cover 87 percent of annual expenses. That share will decline to about 67 percent by mid-century, then rise to 69 percent by 2085.
Those figures are slightly worse than last year’s projections. The trustees attributed the difference to changes in methodology that they adopted on the recommendation of a technical advisory panel.
For the third year running, Medicare’s nonpartisan chief actuary, Rick Foster, attached a letter to the report warning that the program’s true long-term prospects are even more dire than projected because the trustees made the “unreasonable” assumption that Congress will not overrule substantial Medicare spending curbs in President Obama’s 2010 health-care law.
As a result of those cuts, “the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services,” eventually reaching less than half their level under prior law, Foster wrote. “Well before that point, Congress would have to intervene.”
Monday’s reports came as government investigators recommended that the administration cancel an experimental Medicare program that they said is squandering billions of federal dollars.
The program temporarily alters a provision in the 2010 health-care law that reduces the government’s overall payments to Medicare Advantage plans — privately run alternatives to traditional Medicare that critics charge have long been overpaid — while offering bonuses to those rated tops in quality.
The demonstration program, which will be open to all Medicare Advantage plans through 2014, increases the amount of the bonuses and opens eligibility to lesser-quality plans.
The report by the Government Accountability Office, a nonpartisan congressional agency, found that over the three-year period that the demonstration program will be in effect, the extra spending will wipe out more than a third of the savings from the law’s cuts to the Medicare Advantage plans.
The investigators estimated that the project will cost $8.35 billion over the next 10 years, most of which will be paid to mediocre plans.
They also determined that the program’s design is flawed, making it impossible to assess the effectiveness of the bonus structure it was ostensibly intended to test.
“The Obama Administration launched this demonstration program to divert attention away from cuts to the popular Medicare Advantage program,” said a statement from Sen. Orrin G. Hatch (R-Utah), who requested the GAO inquiry. “The Obama Administration seems to be using a technicality to side step Congress and write itself a blank check to spend more money for political purposes leading into this year’s elections.”
Health and Human Services Secretary Kathleen Sebelius, speaking at the news conference about the trustees’ report, countered that even with the demonstration project, the administration has cut overpayments to Medicare Advantage by half. And she said the bonus system has helped reduce the premiums charged by such plans, increase the number of plans being offered and draw more seniors toward high-quality plans. “I think it’s a basic win-win-win,” she said.