Thursday, May 21, 2009

Social Security & Medicare Slipping into the Future

CNN posted an interview headlined "Medicare is the real danger, not social security" on May 13, 2009, that highlighted the significant slippage in sustainability of the present Medicare and Social Security benefit systems.

Unfunded obligations of both Social Security and Medicare are "slipping into the future" faster than previously expected, which demand remedial action now, not later.

Bob Weiner says we should worry about Medicare before we worry about Social Security. The front page of the New York Times [on May 13, 2009] reads: Recession Drains Social Security and Medicare

The latest report card on the social safety net is not encouraging. The officials who oversee the program forecast Tuesday that the Social Security trust fund will be exhausted by 2037 — four years earlier than estimated last year. * * *
The New York Times article, reposted by, identified the problem created by the recession:
The labor secretary, Hilda L. Solis, noted that 5.7 million jobs had been lost since the recession began in December 2007. With fewer people working, the government collects less in payroll taxes, a major source of financing for Medicare and Social Security.

A resumption of economic growth is not expected to close the financing gap. The trustees’ bleak projections already assume that the economy will begin to recover late this year.

The Treasury secretary, Timothy F. Geithner, said the only way to keep Medicare solvent was to “control runaway growth in both public and private health care expenditures.” And he said Mr. Obama intended to do that as part of his plan to guarantee access to health insurance for all Americans.

But if cost controls do not produce the expected savings, Congress is likely to find it so difficult to preserve benefits without increasing taxes. * * *
The Social Security Administration has made periodic Long-Range Solvency Proposals that would address the solvency of the "trust fund."
Trustees Reports issued over the last several years have indicated that Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds would become insolvent sometime in the next 30 to 40 years under the intermediate set of economic and demographic assumptions provided in each report.

Various proposals have addressed this long-range solvency problem. These proposals are generally intended to restore, or largely restore, solvency for the long-range period (the next 75 years).* * *
U.S. News & World Report considered the long-range effects of the Social Security system's underfunding in its consumer-oriented article, "What Social Security's Underfunding Means for Your Retirement" (05/13/09) by Emily Brandon.

After considering the Social Security system's shortfalls, the article addressed Medicare's more pressing situation:

Medicare's funding ailments are expected to occur even sooner than Social Security's.

Projected annual assets for the hospital insurance portion of Medicare are expected to exceed expenditures by 2012. The hospital insurance trust fund is expected to be exhausted by 2017, two years earlier than projected in last year's report.

Medicare Part B, which covers doctors' bills and other outpatient expenses, and Part D prescription drug coverage are more adequately financed in the short term, but increases in healthcare costs over the long term will average 6.4 percent annually and require increases in enrollee premiums and general revenue funding. * * *
The Center on Budget and Policy Priorities analyzed the 2009 annual reports issued regarding both the Social Security system and the Medicare program:
  • Trustees’ Report Finds Social Security Is Not in Crisis, But Action Is Needed
    , by Kathy Ruffing and Paul N. Van de Water -- "The trustees’ report shows some deterioration in the program’s long-run outlook, a finding that was widely expected. Nevertheless, the report does not depict a program in crisis. Policymakers should act sooner rather than later to put the program on a sound long-run footing, but today’s beneficiaries and workers approaching retirement need not fear that their Social Security benefits are at risk...."
A commentary published in Forbes, entitled "A Medicare Explosion -- How to diffuse a ticking time bomb" (05/19/09), by John C. Goodman, reacted to the projections contained in the Medicare report with some revolutionary proposals:
For some time, Social Security and Medicare combined have been paying out more than they are receiving in dedicated taxes and premiums. To cover that deficit, we have been drawing on the general revenues (mainly income taxes) of the federal government. Currently, we are taking more than 1-in-7 income tax dollars for this purpose. By 2020, it will be 1-in-4, and by 2030, 1-in-2.

Basically, elderly entitlements are on a path that will crowd out spending on every other federal program. Throw in Medicaid, and health care spending alone will crowd out every other thing the federal government is doing by mid-century!

Clearly we are on a path that is unsustainable. How can we get off of it?

First and foremost, we must move from a pay-as-you-go system to a funded system.

Instead of having each generation of retirees look to the next generation of workers to pay for its benefits, each generation must pay its own way. * * *

Mr. Goodman offers three fundamental reforms that could restructure Medicare into a workable system.
  • On the funding side: "Suppose we ask workers and their employers to put aside 4% of their wages in savings accounts for post-retirement health care. These balances would grow tax free and would replace taxpayer obligations under traditional Medicare. The result: Instead of growing through time, the taxpayer burden for Medicare would eventually shrink to current levels."
  • On the demand side: "[A]ll new Medicare beneficiaries should be able to manage up to one-third of their health care dollars, using a special type of Health Savings Account (HSA). With these accounts they would be able to keep each dollar of wasteful spending they avoid and bear the full cost of each dollar they waste."
  • On the supply side: "[P]hysicians should be free to repackage and reprice their services, thus profiting from innovations that lower costs and raise the quality of care. Any health care provider should be able to propose and obtain a different reimbursement arrangement, provided that (1) the total cost to government does not increase, (2) patient quality of care does not decrease and (3) the provider proposes a method of measuring and assuring that (1) and (2) have been satisfied."
He concludes, however, with a warning: "The longer we wait, the more costly and painful reform will be."

Time keeps on slippin, slippin, slippin
Into the future
Time keeps on slippin, slippin, slippin
Into the future

I want to fly like an eagle
To the sea
Fly like an eagle
Let my spirit carry me
I want to fly like an eagle
Till I'm free
Oh, lord, through the revolution

Feed the babies
Who don't have enough to eat
Shoe the children
With no shoes on their feet
House the people
Livin' in the street
Oh, oh, there's a solution
* * *

--"Fly Like an Eagle" (1977 Version)
by The Steve Miller Band