back

Social Security, Medicare projections improve

By: Larry Wheeler
Senior Journal, August 19, 2002

WASHINGTON — The financial outlook for Social Security and Medicare improved moderately for the fourth year in a row, according to an annual trustees report released Monday.

But the document also revealed troubling weaknesses facing the giant federal entitlement programs.

The Social Security trust fund is projected to remain solvent through 2038, a one-year improvement over last year's predicted insolvency date, according to the trustees report.

Medicare insolvency is now expected in 2029, four years later than last year's prediction.

The projections reflect middle-of-the-road assumptions about what the economy will do in the coming years. They don't take into account the current slowdown of the U.S. economy nor do they factor in the impact of President Bush's proposed $1.6 billion tax cut.

Although Medicare's near-term outlook improved, there was bad news in long-term forecasts, said Health and Human Services Secretary Tommy Thompson, one of the trustees.

"Unless we modernize and strengthen Medicare, the long-term prognosis for this program is not good," Thompson said.

For Medicare Part A, the hospital insurance trust fund paid for through payroll taxes, the gap between projected spending and revenues grew by 63% from last year's estimate. Closing the projected gap would require cutting benefits by more than a third or increasing payroll taxes as much as 60%, the report warned.

Both Social Security and Medicare are threatened by demographic realities: There won't be enough workers paying into the systems in two decades to support 100% of the benefits promised to the 77 million retirees of the baby boom generation.

To avoid significant tax increases or benefit cuts, the fiscally conservative Concord Coalition and other groups are urging Congress to spend more of the projected near-term budget surpluses to shore up Social Security and Medicare rather than on tax cuts.

"It is unwise to rely on these projections to commit ourselves to a series of large escalating tax reductions over a 10-year period, particularly in advance of addressing the huge and daunting future deficits of Social Security and Medicare," former Sen. Warren Rudman, R-N.H., said recently in a joint statement with Concord Coalition, which he co-founded.

Others, such as the conservative Heritage Foundation, support sweeping reforms to control costs and give individual beneficiaries more responsibility for retirement savings and health care spending.

Social Security is by far the nation's largest federal program, expected to pay out $430 billion in benefits this year to 45 million people. Medicare spending is projected to cost $238 billion in 2001 for nearly 40 million beneficiaries.

Together, the two programs account for more than 1 out of every 3 dollars the federal government spends.

Spending restrictions enacted by Congress in 1997 and a serious crackdown on errant billing caused a one-year decline in Medicare spending in 1999, a first in the program's 36-year history.

However, Medicare spending is growing again.

In 10 years, even before the tidal wave of retiring baby boomers hits, Medicare annual spending is projected to double to $492 billion, according to the nonpartisan Congressional Budget Office.

Bush plans to appoint a commission this spring to study options for improving Social Security's long-term health. A key component of the commission's charter will be to recommend how to reform the program to include private savings accounts for working Americans.

Members of Congress are drafting plans to reform the Medicare system while adding a costly new prescription drug benefit.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.