Medicare's trust fund will run dry in 2024, five years earlier than forecast just last year, and Social Security's will be exhaused by 2036, adding fuel to the debate over cutting one or both programs to reduce annual budget deficits.
The government programs' trustees issued their gloomy findings today amid a rancorous debate in Washington over the future of the New Deal and Great Society programs, which eat up huge and growing shares of the federal budget.
The pessimistic outlook was hastened since the last report in August 2010 by the continued impact of the recession, which has sapped revenue and increased spending.
Both programs are running in the red and will continue to do so, the trustees said. Medicare is paying out more in benefits each year than it takes in in taxes. Last year, its trust fund wasn't expected to run dry until 2029.
Another factor: longevity. The report projects that men who turned age 65 in 2010 can expect to live another 18.6 years, an extra half-year compared to last year's report. Life expectancy for women at age 65 is projected at 20.7 years, up from 20.4 years in 2010.
"Americans are living longer, and health care costs are continuing to rise," Treasury Secretary Timothy Geithner said. "And if we do not do more to contain health care costs, our commitments will become unsustainable."
Social Security has longer before its trust fund runs dry in 2036, but it ran a deficit last year for the first time since 1983. Now it's projected to run deficits every year; last August, the trustees had projected a few more years of surpluses from 2012-14.
If the trust funds run out, the programs no longer would be able to pay full benefits. Social Security would be able to pay only about 75% of promised benefits through 2085. Medicare could pay 90% starting in 2024, dropping to 75% in 2045.
The Social Security Disability Insurance program is in the worst shape. Its trust fund will run out before 2018, the trustees reported, forcing it to borrow funds from the retirement insurance program.
The Medicare figures are suspect, because they rely on billions of dollars in savings projected under the health care law signed by President Obama last year. Without passage of that law, the Medicare trust fund would be projected to run out in 2016, just five years from now.
The savings in the law depend on many factors, such as cuts in payments to doctors that Congress habitually sidesteps, as well as improvements in doctors' and hospitals' productivity. There is no guarantee those will happen; in fact, the physician payment cuts surely will not.
Richard Foster, Medicare's chief actuary, mentioned these and other factors in a separate opinion at the end of the lengthy report which, in essence, calls its conclusions into question:
The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range, as a result of the unsustainable reductions in physician payment rates, or the long range....
The economic outlook remains more uncertain than usual. Due to the sensitivity of hospital insurance trust fund operations to wage increases and unemployment, the current slow recovery from the recent recession adds a significant further element of uncertainty to the trust fund projections.
Unlike past years, the annual report could have an immediate impact on the most important domestic policy issue pending before President Obama and Congress -- how to reduce annual budget deficits and get a handle on the nation's $14.3 trillion debt.
Geithner has said that debt ceiling must be raised by Aug. 2, or the country would face an unprecedented default on its obligations. Republican leaders in Congress have said they won't vote to raise the debt ceiling without substantial spending cuts. House Speaker John Boehner wants $2 trillion.
"For decades, politicians in Washington, D.C., have looked up at the size and scale of the fiscal challenges facing our country, particularly in Medicare, and chosen to kick the can down the road," Boehner said. "Today's trustees report is another reminder that we've run out of road. With tens of millions of Baby Boomers beginning to retire, this is the moment to act. The time is now."
The GOP leaders have ruled out tax increases, but the White House insists they remain on the table. That could include raising the Social Security payroll tax cap or increasing the Medicare tax that pays for hospital insurance.
See photos of: Barack Obama, Timothy F. Geithner
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