The Association of U S West Retirees



Social Security, Medicare Face Insolvency Sooner
By T.W. Farnam
The Wall Street Journal
Wednesday, May 13, 2009

WASHINGTON -- The government revised estimates for the long-term solvency of Medicare and Social Security on Tuesday, moving up the date when trust funds for the entitlement programs will run out of money.

The Medicare fund for hospital care will be depleted in 2017, two years earlier than government actuaries estimated a year ago.  Last year marked the first time that Medicare ran a deficit, paying out more in benefits than it generates from taxes and other revenue.

The report also factors in a 21% cut in payments this year, required by law, to doctors working for Medicare.  But for the past several years, Congress has canceled that reduction.

The picture for Social Security is better, according to the Medicare and Social Security trustees who issued their annual reports on the two funds Tuesday.  The Social Security trust fund wouldn't be exhausted until 2037, but that is four years earlier than last year's report predicted.

The actuaries estimated that Social Security beneficiaries would not receive a cost-of-living increase for the next two years, and that a quarter of Medicare beneficiaries would pay higher-than-usual increases in monthly premiums, 8% in 2010 and 15% in 2011.  The trustees are the secretaries of labor, Treasury and health and human services, as well as the commissioner of Social Security.

Obama administration officials used the new estimates as a rationale for overhauling health care.  "Today, we're not issuing just another government report," HHS Secretary Kathleen Sebelius said.  "It's a wake-up call for anyone concerned about Medicare and the health of our economy.  And it's another sign that we can't wait for real, comprehensive health reform."

The costs of both entitlement programs are expected to jump as the country's nearly 80 million baby boomers reach retirement age.  In December, nearly 51 million people received Social Security benefits and 45.2 million received Medicare benefits.

President Barack Obama has pledged to cut deficits in half by the end of his first term.  Any attempt to address long-term fiscal problems will require big changes to the way entitlements are funded or paid out.

The financial-rescue and economic-stimulus packages have pushed the annual federal deficit to an estimated $1.84 trillion.  For the first time in the nation's history, the federal government ran a deficit in April, the month when revenue from personal income taxes soar because of the April 15 tax-filing deadline.

The Obama administration has proposed several ways to control Medicare costs, including cutting payments to private insurers and allowing the government to negotiate drug prices with pharmaceutical companies.  Some of those cuts face resistance in Congress, which will need to approve them.  Even if approved, the savings won't come close to fully offsetting the increasing cost of the program.  Many of the savings have already been reserved to pay for the administration's plan to overhaul health care.

"In the end, there's going to be a lot of huffing and puffing and some genuine savings from changes in Medicare, but there is no way to balance Medicare without significant increases in taxes," said Henry Aaron, an economist with the liberal-leaning Brookings Institution.

Write to T.W. Farnam at