Social Security, Medicare drying up; no fix in sight

WASHINGTON — Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians' reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033 — three years earlier than previously projected — the government said Monday.

There was no change in the year that Medicare's hospital insurance fund is projected to run out of money. It's still 2024. The program's trustees, however, said the pace of Medicare spending continues to accelerate. Congress enacted a 2 percent cut for Medicare last year, and that is the main reason the trust fund exhaustion date did not advance.

The trustees who oversee both programs say high energy prices are suppressing workers' wages, a trend they see continuing. They also expect people to work fewer hours than previously projected, even after the economy recovers. Both trends would lead to lower payroll tax receipts, which support both programs.

Unless Congress acts — and forcefully — payments to millions of Americans could be cut.

If the Social Security and Medicare funds ever become exhausted, the nation's two biggest benefit programs would collect only enough money in payroll taxes to pay partial benefits. Social Security could cover about 75 percent of benefits, the trustees said in their annual report. Medicare's giant hospital fund could pay 87 percent of costs.

"Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare," the trustees wrote. "If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare."

The trustees project that Social Security benefits will increase next year, though the increase could be small. They project a cost-of-living-adjustment, or COLA, of 1.8 percent for 2013; the actual amount won't be known until October.

Beneficiaries got a 3.6 percent increase this year, the first after two years without one.

More than 56 million retirees, disabled workers, spouses and children receive Social Security. The average retirement benefit is $1,232 a month; the average monthly benefit for disabled workers is $1,111.

About 50 million people are covered by Medicare, the medical insurance program for older Americans.

America's aging population — increased by millions of retiring baby boomers — is straining both Social Security and Medicare. Potential options to reduce Social Security costs include raising the full retirement age, which already is being gradually increased to 67, reducing annual benefit increases and limiting benefits for wealthier Americans.

Policymakers could also increase the amount of wages that are subject to Social Security taxes. Social Security is financed by a 6.2 percent tax on the first $110,100 in workers' wages. It is paid by both employers and workers. Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program's finances are being made whole through increased government borrowing.

The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers.

Social Security is split into two funds — one for retirement and survivor benefits and one for disability. The retirement fund is projected to run out of money in 2035 while the disability fund is projected to run dry in 2016. Combined, the two funds will last until 2033.

In the absence of a long-term solution, the trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994.

Social Security's trust funds contain a total of $2.7 trillion. The money is invested in U.S. Treasury bonds. The government has used the cash to pay for other programs.

The trust funds have been paying out more in benefits than they have collected in payroll taxes since 2010. The funds, however, will continue to grow until 2021 because they will earn interest on the Treasury bonds, the trustees said.

Many advocates for seniors worry that Washington is too focused on benefit cuts as a way to shore up Social Security. They argue that the program's finances are not as dire as some policymakers contend.

"After 77 years and 13 recessions, Social Security continues to prove itself time and again as the most effective public program in our nation's history, keeping its promise to our seniors, disabled workers, widows and children," said Rep. Xavier Becerra, the top Democrat on the House Social Security Subcommittee.

Medicare is trickier to address because it has to contend with health care inflation, not just an aging population. Options include raising the eligibility age, cutting payments to service providers, shifting more costs to beneficiaries or even privatizing the program.

On Monday, Treasury Secretary Timothy Geithner called Social Security and Medicare the "twin pillars of retirement security in this country," and he declared, "It is critical that reforms are slowly phased in over time so current beneficiaries are not affected and future beneficiaries do not experience precipitous changes."

President Barack Obama's health care law is supposed to trim Medicare expenses by $500 billion, extending the life of the program. But some independent experts doubt the full savings will materialize, and even the administration concedes more cuts are needed. If Republicans succeed in repealing the law, they will have to come up with similar cuts of their own.

"The Affordable Care Act began this process with the most significant entitlement reform in decades," Geithner said, referring to the new health law.

Alternative cost projections prepared by the trustees' technical experts suggest the Medicare cuts in the health care law would be unsustainable, driving payment rates so low that 15 percent of hospitals, nursing homes and home health providers would be in the red by 2019.

The trustees conceded that their own Medicare projections could be too rosy. Based on current law, they assume cuts in payments to doctors that Congress routinely waives will actually take place. They also assume the health care law will squeeze the full amount of its cuts from the program.

"Medicare's actual future costs are highly uncertain and are likely to exceed those shown this report," the trustees said.

Republicans, including presidential candidate Mitt Romney, are proposing to overhaul Medicare by converting it into a system that mainly relies on private health insurance plans to cover future retirees. Beneficiaries would get a fixed payment from the government, with low-income seniors in poor health receiving more.

Obama says he wants to preserve the existing program and its federally guaranteed benefits. But in negotiations with congressional Republicans last year, he went further than most Democrats by signaling he was willing to raise the eligibility age by two years to 67. He's also willing to limit future increases in Medicare spending, a policy that prompts serious misgivings from groups such as AARP.

"Today's report reminds us that Medicare must be reformed and strengthened or it will soon collapse," said Lanhee Chen, Romney's policy director.

The trustees who oversee the programs are Geithner, Social Security Commissioner Michael J. Astrue, Labor Secretary Hilda Solis and Health and Human Services Secretary Kathleen Sebelius. There are also two public trustees, Charles Blahous and Robert Reischauer.

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Steve  Dosh's picture

Social Security, Medicare drying up; no fix in sight

Ricardo Alonso-Zaldivar and Stephen Ohelmacher/Associated Press ?
. .You guys are simply alarmist and plain wrong . Are you Republicans ? Lemme' guess . You are in Flori-duh , too . First off, the Affordable Health Care plan has not even gone in to effect yet ( ref : Medicare ® ) . Secondly , do you think 65 million seniors would stand for or be hoodwinked by your shallow analysis ? Of course not • Do better research next time . It's easy to do . Start here and end here
h t h ? /s, Steve , an old guy who has been around the block once or twice 4:40 pm hst •  Tuesday

Jonathan Albrecht's picture

Its not that

Willard Romney and Warren Buffett pay 1/4 of the taxes today they would have paid under President Eisenhower. Until we correct this revenue crisis of the Federal Government everything will fall apart - national security, the economy, health and safety. The Republicans can't straighten it out. They have all taken pledges to bankrupt the Federal Government. So the only solution is to vote them out of office and restore sane governance to the country.

PAUL ST JEAN's picture

"They have all taken pledges

"They have all taken pledges to bankrupt the Federal Government".
In the dark of night, under a harvest moon,in a dank crypt, deep in a cemetery on the outskirts Twisted Elbow, Wyoming, they met and pledged to bankrupt the Federal Government.
Where on earth is your proof of that, Jon?

Jonathan Albrecht's picture

Wha do you think the Norquist plan is?

Never raise taxation; in fact always demand tat taxation must be reduced as it has been. We now pay less in Federal income taxes than he have since WWII 60+ years ago. The rich pay 1/4 of what they did then. Workers like us pay almost the same. If you always cut taxes and therefore revenues (assuming normal rates of economic growth) but increase spending that leads long term to bankruptcy. See my other answer just posted.

PAUL ST JEAN's picture

True, but are you placing the

True, but are you placing the burden of increased spending in the face of tax cuts only on the backs of republicans? Surely, you know that isn't true.

Jonathan Albrecht's picture

No, I'm not

But the Republicans are the only organized group that as a matter of policy and party platform has promoted that idea. Democrats as individuals may agree may even pursue those ends but the party as a whole does not endorse such a position. Democrats support traditional economic pratice - increase taxes to cover increased spending; reduce taxes when spending is reduced (the often misrepresented Kennedy tax cuts of the early 60's) while running a manageable national debt that is inline with GDP and in times of economic crisis increased debt within manageable limits and in times of economic stability and growth reducing deb within manageable limits.That position is nothing like the kamikami economics endorsed buy the Republicans.

Carl Kimball's picture


You make it sound so easy, good luck with that...

Steve  Dosh's picture

. .umm whelp . .lol.

. .umm whelp . .lol. .12.04.23 5 pm hst • 
The last balanced US federal budget was under President Clinton . Vote for the Democrats . It was Bush - Cheney ( two greedy old & dumb oil men ) who got us in to this mess . Enron ® , BS - Bear Stearns bailout , Wall St.'s Bernie made off with billions, too
The Euro is tanking right now . When America sneezes the rest of the world catches a cold . That's macroeconomics 1 0 1 ? Apple® just posted an eleven BillonUS$ profit for the 1 st quarter of 2012 . That's just a first quarter profit US$11B ! It's the most valuable company in the world if you count capitalizaiotn costs
If the communist Chinese ( Wal-Mart ® ) want to hold greenbacks , let them . We'll just print more
They have had 747's since 1 9 6 9. . and still can't build one . Have they ever invented anything besides the Great Wall and fireworks ? A; No . It's a centrally planned communist gerintocracy
Quiz : Can you name the official Chinese currency ? In fact , there have two - but - no body wants them , not even Chinese . They're communist , ( remember the Russian Ruble ? ) , like North Korea , Cuba and Yemen . Hugo Chavez's socialist country Venezuela ( and Castor's Cuba ) use the dollar as their semi - official currencies . So does Panama . They call it the ' Colon ' [ Columbus ] down there
The Federal Government wil not fall apart , Jon . We have suffered through much worse ..
." pledges to bankrupt the Federal Government ? " Show us , Jon . We're birthers . Show us those pledges :D
Buffetts a good guy , b t w , /s, Dr. Dosh

Jonathan Albrecht's picture

Romney and ruin

Yes, your point is elusive.
With rare exception Republican legislators have signed the Norquist pledge to bankrupt the country in order to force radical cuts in the size, effectiveness and efficiency of the Federal Government. We saw this play out in the Bush administration which doubled the national debt to 13 trillion dollars and promises in the Ryan budget plan to add 4.6 trillion more to the national debt should it ever be enacted. Eight more years of Republican misrule will turn the US into the next Greece. Chinese bankers will demand of us an austerity budget and a radical pearing down of our military.

PAUL ST JEAN's picture

"Eight more years of

"Eight more years of republican misrule will turn the US into the next Greece."
If oBAMa is re-elected, he'll do it in the next four.

Jonathan Albrecht's picture


Nothing, absolutely nothing in Obama's first 3 and 1/2 years suggests any such thing. Except for 3 months that it took for the stimulus and the Obama policies to take effect, we have had slow but positive economic growth, restraint in spending, and an economic policy that every economist agrees is timid, but correct given the failure of the Republican Congress to follow a sound policy. Your statement is completely divorced from reality. The eight previous years of Republican rule give ample evidence and documented proof of my statement.

PAUL ST JEAN's picture

Lunacy, you say? hahaha.

Lunacy, you say? hahaha. That's pretty droll.

Carl Kimball's picture


At least twice i remember the government taking money out of SS, but they never put it back. So put it back with interest. Every time this problem of the funds going empty, the fact that the government never putting back what it took out, never comes up....WHY?!...(just my opinion and not that of this paper)...

PAUL ST JEAN's picture

Great point, Carl. They

Great point, Carl. They answer to your WHY question is, because they can get away with it. Who's gonna stop 'em?

Steve  Dosh's picture

. Paul , 5:05 pm hst •  •

. Paul , 5:05 pm hst • 
• A; We are ?
\/ote :)
It has been said that democracy is the worst form of government except all the others that have been tried. Sir Winston Churchill , who was a lot like our current President . His mom was American , too , birthers , but his dad was an alien citizen
. h t h ? /s, Steve

PAUL ST JEAN's picture

I get all that, Steve, but

I get all that, Steve, but your point is elusive.

Carl Kimball's picture


The WHY was for the reporters. They write these articles, but never say anything about President Johnson, in the 60's, taking money out to back the war. Nor do they say anything about the bleeding of SS by other Presidents and politicians, but those who protested the war and those who keep their eyes on our SERVANTS in government do remember. So WHY don't the reporters say anything about this and WHY don't our SERVANTS put it back....(just my opinion, because this paper won't look into it)...


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