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The Trustees' Report
Social Security and Medicare: not a good outlook

Thursday, May 14, 2009

YOU'D HAVE to have been living under a rock to be surprised by this week's news from the Social Security and Medicare trustees that the programs are in trouble. In a nutshell: The U.S. population is aging, health-care costs are spiraling upward and neither program has the money to cover promised benefits. In addition, politicians have known this for many years, and yet no progress has been made in fixing the programs.

The deteriorating economy has made things worse. The date when the Social Security trust fund will start running deficits has moved closer by a year, to 2016, and the date of trust fund depletion has advanced by four years, to 2037. The Medicare hospital insurance trust fund is already running a deficit and will be exhausted by 2017. Furthermore, the size of the Social Security surpluses has shrunk, posing a problem for the government since it relies on these funds to help plug its deficits. Over the next seven years, the cumulative surpluses will be $157 billion instead of the previously estimated $454 billion, forcing the cash-strapped feds to borrow even more than they had expected.

Even in the face of such bad news, there are those who will argue against the urgency of reform, using the defensive arguments that the problems in Social Security are exaggerated by overly pessimistic assumptions (they are not); that Medicare can be fixed only by making changes to the entire health-care system (both Medicare and the system need fixing); or that those who advocate reforms are trying to secretly dismantle the programs (oh, please). A more realistic assessment was delivered by Treasury Secretary Timothy F. Geithner when he said, "This year's trustee reports once again remind us that the longer we wait to address the long-term solvency of Medicare and Social Security, the sooner those challenges will be upon us and the harder the options will be."

The administration deserves credit for continuing to beat the drum on the need for reform, but drum-beating won't save Social Security or Medicare. In health care, the White House wants to pair cost control with an expensive expansion of coverage, but there is a big risk that Congress will embrace the latter while jettisoning the former. It is reasonable to include coverage expansion as a sweetener to the more bitter pill of cost containment, but cost control has to be at the center of any plan. Meanwhile, by the time the White House gets to Social Security, midterm elections will be on the horizon, and even politicians who have indicated a willingness to engage productively may feel the need to back off. Mr. Geithner said, "The president explicitly rejects the notion that Social Security is an untouchable, politically, and instead believes there is opportunity for a new consensus on Social Security reform." We are eager to believe that he means what he says. But pushing the issue to next year could prove to be a major sequencing mistake. As the trustees highlighted this week, entitlement reform shouldn't wait.

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