Monday, May 23, 2011

Social Security 'Trust Fund' To Add $5 Tril To Debt

Social Security and Medicare — the elephants sidelined in the latest budget talk — took center stage Friday as trustees' annual reports showed both programs' finances have deteriorated.
Social Security's trust fund — which gives it carte blanche to spend beyond the government's means until its IOUs from the Treasury Department run out — is now seen running empty in 2036, a year earlier.
Medicare's Hospital Insurance trust fund reserves are projected to dry up in 2024, five years earlier than in the 2010 report.
The big picture is that spending on these entitlements for seniors and the disabled is on pace to rise more than 50% faster than the economy from 2007 to 2030.
Fueled by baby boomer retirements and rising medical costs, the programs are projected to cost 11.3% of GDP in two decades vs. 7.4% in 2007. This year, they'll cost 8.5% of GDP, or 37% of non-interest spending.
But that big picture looks too optimistic.
As Medicare chief actuary Rick Foster wrote in an addendum, "the financial projections shown ... do not represent a reasonable expectation for actual program operations in either the short range ... or the long range."
In the short term, the projections assume physician payment rates will be slashed 29% on Jan. 1 — "implausible," Foster says.
Long term, Foster expects payment cuts in non-physician services "will not be viable."
Those rate curbs, part of Democrats' 2010 health care law, are pegged to economywide productivity growth, but Foster says most health care providers are labor intensive and can't "even approach" such efficiency gains.
The Congressional Budget Office also has questioned whether the law's Medicare curbs, which will cut per-person cost growth in half, will be sustainable if they hurt health care access or quality.
Health and Human Services Secretary Kathleen Sebelius touted the official finding that the 2010 law has cut long-term cost projections for Medicare's Hospital Insurance program by 25%.
Left unsaid was that Medicare tax hikes and presumed savings, if obtainable, were passed to pay for new subsidies to cover the uninsured.
Sebelius added that President Obama has proposed an additional $200 billion in Medicare savings as part of his deficit plan.
Neither political party appears ready to take even a scalpel to Social Security, despite worsening finances.
Social Security Administration actuaries confirmed prior CBO projections that the program's cash-flow deficits — about $46 billion this year — will continue in perpetuity without changes.
$5 Trillion In Extra Debt
Those deficits would run to $4 trillion in today's dollars until 2035 — just before the trust fund is exhausted. Assuming the Treasury redeems those trust fund IOUs by issuing more public debt, interest costs would raise debt by an additional $1 trillion.
This means, under present law, Social Security's unfunded liability would raise public debt by 20% of GDP by 2035.
After the trust fund is exhausted, benefits would have to be cut by 23% to make ends meet. Fixing Social Security today, even while treating the trust fund like money in the bank, would require an immediate 14% across-the-board benefit cut.
New trustees Charles Blahous and Robert Reischauer wrote that lawmakers would likely shield current retirees:
"Therefore, changes adversely affecting younger generations are likely to be much more severe than indicated in these simple illustrations. The costs that will be borne by younger generations will grow significantly each year that a new cohort of baby boomers joins the benefit rolls."

No comments: