Reports Says Medicare and Social Security Trust Running on Empty 


National concerns over the financial solvency of the nation’s two of the leading entitlement programs could once again be heightened with the annual release of the Trustees Report on Medicare and Social Security. The reports, published on May 1, found that the Medicare hospital insurance trust fund could be exhausted by 2018, while the Social Security trust would be exhausted by 2040. 


The 2006 projections also show that the financial outlook of the programs have worsened since 2005. For Social Security, the 2040 insolvency projection is one year earlier than last year’s report and as 2018 for the Medicare trust is two years sooner. 


The report also found that by 2012, Medicare spending would exceed program funding by 45 percent and in 2040, social security tax collections would be adequate to pay only 74 percent of scheduled benefits. 


Given the number of Americans who use the programs, lawmakers have said they would never allow the trust funds to run dry, but the projections could spur long simmering debates in Congress for Social Security and Medicare reform. It has been further speculated by some political observers that the fate of the programs could become a hot-button issue for the 2006 mid-term elections in November. 


Reacting to the latest findings, Health and Human Services Secretary Michael Levitt noted that “the projections demonstrate the need for timely and effective action to address Medicare’s financial challenges,” and that those reforms should occur “in the relatively near future”. 


Secretary Leavitt is once again asking Congress to adopt the White House’s plan to cut Medicare spending, reducing the Medicare growth rate to 7.7 percent from the current growth level of 8.1 percent. As a result, spending would be cut by $36 billion from 2007 to 2011. 


While the administration hopes to convince Congress to take action, analysts fear that the options being proposed, either raising tax levels, cutting spending or a combination of both would not provide an adequate long-term fix. 


For instance, Medicare spending levels are tied to rising health care costs and as more and more of the approximate 80 million baby boomers approach retirement, the demand for more complex health services is expected to increase. 


The annual projections demonstrate critical funding problems for both programs; however, experts agree that the problems for Medicare are much more severe and could prove more difficult to resolve in the short term. 


To read the Medicare and Social Security reports in their entirety, visit: 


http://www.treas.gov/offices/economic-policy/reports/oasdi.pdf 


http://www.treas.gov/offices/economic-policy/reports/medicare.pdf 




-Spring 2006 Issue




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