Medicare on track for insolvency in 2026; Social Security seven years later

Medicare will reach insolvency by 2026 while Social Security’s two trust funds will become insolvent by 2033, the program’s trustees reported Friday.

Unless Congress acts, Social Security will no longer be able to pay full benefits to retirees after 2033. Only three-quarters of benefits will be delivered after the projected insolvency date. 

The trust fund that pays disability benefits through Social Security is headed for insolvency in 2016 and will only be able to pay out 80 percent of benefits after that date, the trustees found.

Medicare's trust fund will become insolvent in 2026 — two years later than previously estimated. By that date, the fund that covers Medicare's hospital benefit will begin to spend more money than it takes in.

The additional two years of Medicare solvency projected this year were due to lower-than-expected spending. The insolvency date for Social Security is unchanged from last year.

The annual reports are likely to put the focus back on the troubled entitlement programs and could give impetus to address them in a debt deal this fall.

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"Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible," the trustees report said. "Taking action sooner rather than later will leave more options and more time available to phase in changes to that the public has adequate time to prepare."

House Budget Committee Chairman Paul Ryan's (R-Wis.) office said the report means action needs to be taken immediately to fix the entitlement programs.

“Today’s report is yet another reminder that Medicare and Social Security are in great danger. We need to protect and strengthen these critical programs. And we must take action now, so we can keep our promises to current seniors and future retirees,” Ryan spokesman William Allison said Friday.



The trustees report was signed by Health and Human Services Secretary Kathleen Sebelius, Acting Labor Secretary Seth Harris, Acting Social Security Commissioner Carolyn Colvin, Treasury Secretary Jack Law and public trustees Charles Blahous and Robert Reischauer.

The trustees had previously said that President Obama's healthcare law extended the life of the Medicare trust fund — a finding that Lew and Sebelius were quick to highlight on Friday.

"The Medicare report demonstrates, once again, the importance of the Affordable Care Act, which has strengthened Medicare's finances by reining in healthcare costs," Lew said.

Medicare Trustee Reischauer said the recession and sluggish economy played a part in the spending slowdown for Medicare, but said the healthcare law also deserved credit.

"Because of the restraints in the Affordable Care Act and the structural reforms the act is encouraging, there's reason, I think, to be optimistic," Reischauer said.

The fight over reforming Social Security flared in April when Obama included significant benefit cuts in his 2014 budget. He proposed changing the way inflation is calculated in order to reduce federal 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, while extending the life of the program by two years, according to administration officials.

Lew argued that fixing both entitlements programs is a high priority for Obama and said he is “hopeful” that a deal with Congress can be found.

“I think our challenge will be to find a path to have this conversation in a bipartisan way and I remain hopeful that we will do that,” Lew said.

“There is time, but it is not free to wait."

The White House has been hosting private dinners with Republican senators an effort to lay the groundwork for a compromise on entitlements, but senators recently told The Hill they were frustrated at the pace of dealmaking.

Obama's proposal for Social Security was opposed by seniors advocates like the AARP, while deficit hawks said it did not go far enough.

Seniors groups want to lift the cap on payroll taxes to increase funding for Social Security, as workers currently do not pay the payroll taxes on income over $113,700. Administration officials on Friday said eliminating the cap would solve 70 to 80 percent of the program's shortfall.

Some advocates are also pushing a consumer price index adjustment that would tend to increase Social Security benefits. 

AARP used the release of Friday’s trustee report to attack Obama's inflation proposal.

"Too many politicians in Washington talk about changes to Social Security without considering the impact in income security such changes will have on real people. One example of this is the so-called ‘chained CPI’ — a fancy Washington term that really means cutting Social Security and veterans’ benefits," AARP Vice President Nancy LeaMond said.

“With their report today, the Social Security Trustees draw renewed attention to the long-term financial challenges facing this vital retirement security program. While not in crisis, Social Security will require modest changes to ensure current and future generations will receive the benefits they’ve earned."

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 been silent about how to fix the program.
 
Some Republicans, including Ryan (Wis.), praised Obama for offering the chained CPI proposal, but others like campaign chairman Rep. Greg Walden (Ore.) slammed Obama for hurting seniors. Walden was later rebuked by Speaker John Boehner (R-Ohio) for his comments.

Deficit hawks are pushing for lower retirement benefits and higher insurance premiums for seniors in a "grand bargain" on the deficit.

Advocates for seniors are fighting those proposals, and say tax increases are what's needed to shore up the programs. They also argue that the pressing disability fund problems can be solved by a transfer of funds from the retirement trust fund, something Congress has authorized in the past.

— This story was first posted at 11:00 a.m. and has been updated.