Medicare, Social Security march toward insolvency

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Social Security and Medicare are marching steadily toward insolvency, according to a report released Monday by the trustees for the two entitlement programs.

While the report found some improvement for Medicare, which will now be able to meet its obligations until 2030, four years later than projected a year ago, the overall message continued to paint a dire long-term picture for the two programs.

Both will come under more strain amid a flood of retirees in the coming years, the trustees said. And the pressure will grow as Washington’s attention has turned away from any debate over changing the programs.

Treasury Secretary Jack Lew told reporters Monday that Medicare and Social Security were “fundamentally secure” but acknowledged that Washington would have to come together to make changes to ensure the programs’ long-term solvency.

“We must make manageable changes now, so we do not have to make drastic changes later,” said Lew, one of the trustees for the programs.

At the same time, Lew also insisted that President Obama wouldn’t back any changes that cut benefits for future retirees, underscoring the divide between Democrats and Republicans that has, for years, blunted any chance at entitlement reform.

The response to the trustees’ report illustrates how the debate over deficits and federal spending has been largely shunted to the sidelines this election year, after driving the GOP to the House majority in 2010 and remaining a core issue in Obama’s 2012 reelection.

That’s left some budget hawks and policy analysts worried that the White House and lawmakers would be able to avoid the pressure to act on shoring up entitlement programs.

Even House Budget Committee Chairman Paul Ryan (R-Wis.), the Republicans’ 2012 vice presidential nominee and the author of a series of budgets that seek to overhaul Medicare, is branching out to other issues, releasing a new discussion draft last week on battling poverty.

On Monday, the trustees acknowledged that long-term projections for the Medicare can be difficult, given the quick advances in science and medical care.

Lew chalked up at least part of the recent declines in the growth of healthcare spending to ObamaCare, noting that Medicare has gained an extra 13 years in projected solvency since the trustees’ last report before Congress enacted the Affordable Care Act.

But the trustees also freely admitted it’s tough to figure out how much the sluggish economy in recent years helped drive the drop in healthcare spending and how much is attributed to more structural changes and cost restraints included in the healthcare law.

Medicare spending also came in lower than expected in a variety of areas last year, including on hospital visits.

“Lots of things are behind the slowdown,” said Robert Reischauer, a former Congressional Budget Office director and one of the two public trustees for Medicare and Social Security. “I think we’re probably many years away from being able to allocate these various factors with any kind of precision.”

Social Security saw fewer changes, with the trustees projecting that reserves for the retirement and disability trust funds would tap out in 2033, the same as last year.

The threat to Social Security’s disability trust fund, however, is more immediate. It is expected to use up its reserves in 2016.

Medicare and Social Security combine to make up about 40 percent of federal spending, with Medicare costing $583 billion in 2013 and Social Security $823 billion.

If the trust fund reserves were exhausted, both Medicare and Social Security would still be able to pay out most of what they would owe in benefits through tax revenue.

Social Security’s disability trust fund, for instance, would still be able to cover around 80 percent of payments, once its reserve is depleted in 2016. If both trust funds ran out of reserves in 2033, the payroll tax, which finances Social Security, could make around three-quarters of payments for the next 55 years.

Medicare could make about 85 percent of benefits payments in 2030, dropping down to around 75 percent by 2050.

Lew said Monday that the only reasonable way for Congress to shore up the disability trust fund for the short run would be to allocate more revenue from the payroll tax, a procedure that lawmakers have used in the past.

But Charles Blahous of the Hoover Institution, the other public trustee and only Republican of the group, cautioned that

Washington shouldn’t shortchange the issues facing Social Security.

Blahous told reporters Monday that the retirement and disability trust funds faced the same broader demographic pressures. The primary reason the disability trust fund could deplete its reserves sooner, Blahous said, was because most baby boomers who needed disability would have already claimed it, while many have yet to reach retirement age.

He added that the long-term fixes Social Security needs would already be more painful than the changes implemented three decades ago, the last time the program was revamped.

“Lawmakers would do well to act promptly,” Blahous said.

 — This story was posted at 12:15 p.m. and updated at 6:59 p.m. and 8:30 p.m.