The country's two marquee social insurance programs, Social Security and Medicare, are being pushed toward insolvency by near-term economic challenges and long-term trends of population aging and health care costs, according to the annual report released by the two entitlements' board of trustees.
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The trust funds of Treasury bonds that provide back-stop funding for the programs will be exhausted sooner than anticipated: the Medicare hospital insurance fund will exhaust in 2024, five years sooner than expected, and the Social Security trust fund will expire in 2036, a year earlier than last projected. Social Security expenditures exceeded its tax receipts for the first time in nearly three decades last year with a deficit of $49 billion. The trustees project a similar deficit of $46 billion in 2011, largely the consequence of a weaker economy.
The trustees noted that even after trust fund depletion, both programs would be able to pay some large portion of benefits from tax receipts alone. Even so, they and Treasury Secretary Tim Geithner urged that action be taken to fix the projected shortfalls as soon as possible to avoid "disruptive consequences" to beneficiaries and taxpayers.
Geithner said in prepared remarks that the administration intends to address these issues with President Obama's deficit reduction framework and to build on the health care reform law passed last year. He also warned that the approaching debt limit must be lifted "so that all Americans will remain confident that the United States will meet all of its obligations -- not just our interest payments but also our commitments to our seniors."
The 75-year actuarial deficit for Social Security, a measure of the gap between costs and revenues over that time, jumped noticeably from 1.92 percent last year to 2.22 percent of taxable payroll this year, a change the trustees attributed to lower estimates for death rates for the elderly, worse economic conditions than assumed in 2010, and the simple act of shifting the frame of analysis forward from 2084 to 2085. If the Social Security trust fund is exhausted, tax receipts would enable the government to pay 75 percent of scheduled benefits through 2085.
The government could eliminate that long-run deficit with a permanent and immediate tax increase of 2.15 percentage points, separately, through an immediate and permanent 13.8 percent reduction in benefits, or through some combination of lesser tax increases and benefit cuts. Waiting longer to address the shortfall will push those numbers higher.
The report paints a bleaker picture of Social Security's Disability Insurance program, whose costs have outpaced non-interest income since 2005. The trustees project its trust fund balance will fall below 100 percent of annual cost by 2013 and fully exhaust by 2018.
Economic conditions drove an even deeper near-term deterioration in the fiscal condition of Medicare's Hospital Insurance Trust Fund, which is now facing insolvency five years earlier than expected due to lower inflation-adjusted Medicare receipts as a consequence of sluggish economic growth. Those problems were concentrated in the next couple decades, and the longer-run 75-year actuarial deficit experienced a far more modest decline from .66 percent to .79 percent. If the Hospital Insurance program exhausts its trust fund in 2024, dedicated revenue would be enough to pay 90 percent of the program's costs. That portion would decline to three-quarters of costs in 2045 before climbing gradually to reach 88 percent in 2085.
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