Social Security, Medicare Still Going Broke

By Paul Ausick Updated Apr 23, 4:26PM EDT · Published Apr 23, 3:23PM EDT

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The annual report of the Trustees of the Social Security and Medicare trust funds has been released, and no matter what one believes about how the US should provide a safety net for its retired population, the report provides plenty of food for thought — and some fear.

The Social Security trust funds for Old Age and Survivors Insurance (OASI) plus Disability Insurance (DI) “continues to fail the long-range [75 years] test of close actuarial balance, [although] it does satisfy the conditions for short-range financial adequacy.” The trust fund for the Disability Insurance program alone is expected to be exhaused by 2018. For OASI the picture is similarly grim:

After 2022, [OASI+DI] trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.

Medicare posts equally sobering numbers. The Health Insurance (HI) portion of Medicare is being hit by the slow US economic recovery and by higher costs for medical care. The Trustees project that the HI trust fund will be exhausted in 2024:

Over 75 years, HI’s actuarial imbalance is estimated to be equivalent to 21 percent of tax receipts or 17 percent of program outlays.

Medicare parts B and D (supplemental insurance and prescription drugs) are projected to be adequately financed indefinitely, but that’s due to a guaranteed Congressional allocation that currently amounts to 1.9% of GDP in 2010 and will reach 4.1% of GDP by 2085.

Obamacare lowers projected Medicare costs by 25% over the 75-year term. Most of the savings are related to reducing annual payment increases to providers, of which the Trustees note, “the long-term viability of this provision is debatable.”

The summary concludes:

Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided.

The financial challenges facing Social Security and Medicare should be addressed soon. If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected can adequately prepare.

The Trustees summary is available here and the full report is available here.

Paul Ausick

About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.