Insolvency looms for federal entitlement programs, government warns

Posted May 13, 2011, at 5:51 p.m.
Last modified May 13, 2011, at 7:24 p.m.

 

WASHINGTON — Highlighting the financial peril confronting Medicare, the federal government predicted Friday that the program’s largest trust fund would run out of money in 2024, five years earlier than projected last year.

Medicare’s deteriorating condition contrasts with Social Security, whose funds will not be exhausted until 2036, according to an annual report by trustees who oversee the two mammoth entitlement programs.

The faltering Medicare finances — driven in part by the sluggish economy — are expected to intensify pressure on both parties in Washington to move forcefully to shore up the health plan that covers care for more than 47 million elderly and disabled Americans.

“Americans are living longer, and health care costs are continuing to rise. And if we do not do more to contain the rate of growth in health care costs, then our commitments will become unsustainable.” said Treasury Secretary Timothy Geithner, who chairs the board of trustees.

Democrats and Republicans, who over the last several decades repeatedly have worked out ways to preserve Medicare and Social Security, now are sparring anew over how best to tackle rising costs.

And Friday, GOP leaders pointed to the latest report to push for more aggressive action to reshape the 46-year-old Medicare program.

“For decades, politicians in Washington, D.C., have looked up at the size and scale of the fiscal challenges facing our country, particularly in Medicare, and chosen to kick the can down the road,” House Speaker John Boehner, R-Ohio, said in a statement. “Today’s trustees report is another reminder that we’ve run out of road.”

House Republicans last month approved a plan that would effectively privatize Medicare starting in 2022 by giving seniors vouchers to shop for commercial insurance plans instead of receiving the current guaranteed government benefit.

That would save the federal government billions of dollars in large part by shifting increasing share of medical costs onto seniors, who would pay almost twice as much out of their own pockets— or more than $12,510 a year in 2022, according to an analysis by the nonpartisan Congressional Budget Office.

The Obama administration and its Democratic congressional allies are betting instead on a series of initiatives to slow the growth of health care costs while improving the quality of medical care.

The new health care law includes a series of cuts to hospitals and other medical providers designed to spur increased efficiency. The law also will penalize hospitals whose patients acquire dangerous conditions such as infections and reward doctors that better manage their patients’ care.

The trustees report suggested these efforts will slow the growth of Medicare costs by 25 percent over the next 75 years. But there is widespread recognition this is not enough.

“Even if the recent legislation’s cost-saving measures are sustainably implemented, Medicare will still experience a financing shortfall,” the two public trustees on the six-member Medicare and Social Security panel wrote in a separate message. (The remaining four trustees are government officials).

Reflecting the changing economy, the trustees over the years have produced widely varying assessments of the financial health of the two programs. And the trustees reported Friday that the slow economic recovery, which has depressed payroll taxes, worsened the programs’ fiscal outlook this year.

Social Security, which last year began paying out more in benefits than it collected in taxes, now faces insolvency in 2036, compared to 2037 in last year’s projections.

Most budget experts and policymakers nonetheless believe it will be much easier to fix Social Security. “Medicare is by far the more complex,” said Charles P. Blahous III, a former economic adviser to President George W. Bush and one of the two public trustees.

But Jason Fichtner, former chief economist at the Social Security Administration, warned that delay will have a cost. “If we reform the program today, we can hold harmless people who are 55 and over,” he said. “If we wait, we may have to reduce benefits for everyone.”

The issue is even more pressing for the part of the Social Security fund that pays disability benefits. It is projected to be exhausted in 2018, in part because the number of people receiving such payments has risen significantly.

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