Trustees report set to renew Medicare, Social Security reform debate

Washington’s focus is about to shift back to the nation’s troubled entitlement programs.

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The annual report of the Social Security and Medicare trustees, due out Friday, will reignite the debate over how best to reform the two largest federal programs, which are running out of money. 

Rising medical costs and the rapid retirement of the baby boom generation, combined with a lower birth rate for later generations, have created projected shortfalls in the programs under which current benefits are paid for by current payroll tax collection.

Last year, the trustees found that Social Security will not be able to pay its promised benefits after 2033, three years earlier than previously thought. Medicare’s hospital insurance trust fund was found to be running out of money even sooner, by 2024.

Most pressingly, Social Security disability insurance was said to need a fix by 2016.

This year’s report is likely to show a similarly poor outlook for the Social Security programs, but some small amount of breathing room for Medicare. 

Lawmakers and advocates for all sides are gearing up for the annual reminder, which comes after President Obama put significant cuts in his 2014 budget last month. 

Deficit hawks are preparing to push for lower retirement benefits and higher insurance premiums for seniors, while seniors advocates are ready to launch an all-out effort to argue that the problems can be mainly be solved by tax increases on workers.

"[T]en years ago, SSA pegged insolvency at 2042 but as of last year’s report, we were down to 21 years (2033)," the deficit-cutting group Third Way argued. "Whether or not that date creeps forward again, Social Security needs to be fixed soon and we actually think today’s divided government is the right environment for reform.”

But the group Social Security Works said in a press release that “like the 2012 Report, this year’s will show that with only modest legislated increases in revenue, Social Security would be projected to pay those benefits for the next century and beyond.”

In April’s budget, Obama proposed changing the way inflation is calculated in order to cut deficits by $340 billion over 10 years. By adopting the so-called chained consumer price index, the budget would have the effect of reducing annual Social Security benefit increases for seniors.

The change was opposed by seniors advocates like the AARP, while deficit hawks said it did not go far enough. 

Seniors groups want the cap on payroll taxes — workers do not pay taxes on income over $113,700 — lifted. Some are also pushing a consumer price index adjustment that would tend to increase benefits. 

While some Republicans have called for an increase in the retirement age or means-testing of Social Security benefits, the last three budgets passed by the GOP-controlled House have remained silent on exactly how to fix the program.  

Some Republicans, including Budget Committee Chairman Paul Ryan (R-Wis.), praised Obama for offering the chained CPI proposal, but others, like campaign chairman Rep. Greg Walden (R-Ore.), slammed Obama for hurting seniors. Walden was later rebuked by Speaker John Boehner (R-Ohio) for his comments.

On Medicare, Obama’s budget also provoked some controversy.

He called for a new premium structure for the part of Medicare covered by the hospital trust fund. 

The proposal would combine seniors' deductibles for hospital coverage and visits to doctors' offices. Many liberals oppose the plan, which they say would increase seniors' costs.

Most of its other changes would not affect the trust fund but would slow the program's overall spending. 

Obama proposed significant cuts to the pharmaceutical industry and also said wealthy seniors should pay a higher premium for certain benefits.

The trustees said last year that Medicare would become insolvent by 2024 unless Congress makes significant changes to the program.

Republicans argued at the time that the projection showed a clear need for sweeping entitlement reforms — namely, Ryan’s proposal to partially privatize the program by giving seniors the option of premium support payments to buy private insurance.

But the trustees' report also provided a reliable talking point for the administration. The trustees have said Obama's signature healthcare law extended Medicare's solvency.

After the law passed in 2010, the trustees said the healthcare law added 12 years to Medicare's solvency. The law cuts Medicare payments to doctors, hospitals and other healthcare providers. It does not cut seniors' benefits.

“One of the most important things we can do right now to preserve Medicare is to implement the Affordable Care Act fully and effectively,” then-Treasury Secretary Timothy Geithner said last year.

The administration could get more good news Friday from the trustees and years could be added to Medicare’s life expectancy. 

The Congressional Budget Office has recently projected a dramatic slowdown in Medicare spending, and says it expects that trend to continue. The improving economy also means more people are paying Medicare taxes, pumping more money into the trust fund.

The trustees' report mainly applies to the part of Medicare that funds hospital benefits. Services such as doctors’ visits and prescription drugs are paid for separately, and those funds don’t come from a dedicated account like the trust fund for hospital coverage.

The report makes several assumptions that are generally agreed to be overly rosy. 

It assumes that Congress will allow a more than 30 percent cut to doctors payments to go into effect next year — something that has never happened because Congress regularly passes a “doc fix” bill to prevent it. 

It also assumes that the 2011 Budget Control Act sequestration will remain in effect, including a 2-percentage-point cut to provider payments, through the next eight years.