By MARTIN CRUTSINGER, AP Economics Writer
45 minutes ago
WASHINGTON - Trustees for the government's two biggest benefit programs warned Tuesday that Social Security and Medicare are facing "enormous challenges" with the threat to Medicare's solvency far more severe.
The trustees, issuing a once-a-year analysis of the government's two biggest benefit programs, said the resources in the Social Security trust fund will be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019.
Both those dates were the same as in last year's report. But the trustees warned that financial pressures will begin much sooner when the programs begin paying out more in benefits each year than they collect in payroll taxes. For Medicare, that threshhold is projected to be reached this year and for Social Security it is projected to occur in 2017.
The first year that payments will exceed income for Social Security will occur in 2017, just nine years from now, reflecting growing demands from the retirement of 78 million baby boomers. Medicare is projected to pay out more than it receives in income starting this year.
"The financial difficulties facing Social Security and Medicare pose enormous challenges," the trustees said in their report. "The sooner these challenges are addressed, the more varied and less disruptive their solutions can be."
Treasury Secretary Henry Paulson, one of the trustees, warned that the country was facing a fiscal train wreck unless something is done.
"Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity," Paulson said in releasing the new report. "Our nation needs a bipartisan effort to strengthen both programs for future retirees."
President Bush, who wanted to make overhauling Social Security his top domestic priority in his second term, tapped Paulson to lead that effort. However, Paulson has been unable to forge a consensus with Democrats, who took control of Congress in 2006.
Democrats contend that Bush lost valuable time after his 2004 re-election pushing a plan to allow younger workers to direct their payroll tax contributions into private accounts, an idea that went nowhere in Congress.
While the Social Security trust fund will have resources until 2041, the more critical date in terms of government revenues will occur in 2017. That is the date that Social Security will have to pay out more in benefits than it collects in payroll taxes. At present, Social Security is running large surpluses that are going to fund the rest of government.
However, in 2017, the situation will be reversed and the government will have to start filling the gap between what Social Security will be collecting in payroll taxes and what it must pay out. Technically, it will do that by redeeming the non-marketable Treasury securities that are held in the trust fund. However, those bonds are simply government IOUs.
To get the money to pay the benefits, the government will have to borrow or close the gap in other ways such as cutting benefits or raising taxes
Showing posts with label Medicare. Show all posts
Showing posts with label Medicare. Show all posts
Tuesday, March 25, 2008
Tuesday, March 4, 2008
Medicare - The Issue No One Is Talking About
The $34 trillion problem
Medicare is poised to wreak havoc on the economy. And our presidential candidates are avoiding the issue.
By Geoff Colvin, senior editor at large
Twice I have asked Alan Greenspan what he considers the greatest threat to the U.S. economy, and both times he has answered immediately with a single word: Medicare. He isn't so worried about the trade deficit and the housing crash; he figures market forces will sort them out. But Medicare is something else - a multitrillion-dollar problem that's about to get dramatically worse, and one that nobody wants to talk about. You'd think that the greatest threat to America's economy would be Topic A for the presidential candidates. But it's actually a topic they hate to touch.
Especially now. An analysis of their speeches shows that last year Senators Hillary Clinton, John McCain, and Barack Obama would occasionally mention the Medicare mess. But recently, with the economy slowing and voters feeling insecure, all three candidates have turned more populist: Their economic talking points are about feel-good reassurances, not about facing hard realities.
Unfortunately the day of reckoning is imminent. Sometime in the next President's first term, Medicare Part A (hospital insurance) will go cash-flow-negative, and it's all downhill from there. Medicare provides a wide range of services and subsidies to more than 40 million old and disabled Americans. As the country ages, Medicare and Medicaid (for those of any age with low incomes) will devour growing chunks of U.S. economic output. So will Social Security, but its cut of GDP should stop increasing around 2030. The federal budget has averaged about 18% of GDP over the past several decades. If that average holds and if the rules of our social insurance programs don't change, then by 2070, when today's kids are retiring, Medicare, Medicaid, and Social Security will consume the entire federal budget, with Medicare taking by far the largest share. No Army, no Navy, no Education Department - just those three programs.
But wait - the situation is actually much worse. Those estimates, reported in the latest Financial Report of the U.S. Government, assume that Medicare payments to doctors will be slashed drastically, by some 41% over the next nine years, as required by current law. It won't happen. Every year for the past five years, Congress has overridden the mandatory cuts. As for future cuts, the Financial Report says drily, "Reductions of this magnitude are not feasible and are very unlikely to occur fully in practice." So in reality, Medicare will go into the hole even faster than official projections reflect. And they show that if Medicare had to be accounted for like a company pension fund, it would be underfunded by $34 trillion.
Obviously those long-term scenarios won't happen, because they can't happen - we won't be shutting down the Army, Navy, and so on. But it's easy to see why the candidates don't want to discuss it. As you listen to them, keep three points in mind:
Pain-free remedies won't do the job. All three major candidates, on those rare occasions when they mention Medicare's finances, stress how they'll make the system more efficient, eliminate errors, and improve incentives. That's all wonderful, but it won't be nearly enough. Only John McCain has hinted at what else will be required, including means-testing and limits on benefits. Give him major points, but it's unlikely we'll hear much more on that theme.
Any mention of trust funds is bogus. They're too complicated to explain here, but the bottom line is that no piles of money are socked away to cover future Medicare expenses. Any money the government needs to pay out this year, it needs to take in this year, and every year.
Tax and spending plans must Include Medicare. We'll hear plenty of budget proposals over the next eight months. But without changes to Medicare, they're meaningless. Medicare will eventually overwhelm everything else in the budget, except for the interest on the mushrooming debt to pay for it.
If this is the greatest threat to the U.S. economy and the candidates haven't told us what they'd do about it, they haven't told us a thing.
Medicare is poised to wreak havoc on the economy. And our presidential candidates are avoiding the issue.
By Geoff Colvin, senior editor at large
Twice I have asked Alan Greenspan what he considers the greatest threat to the U.S. economy, and both times he has answered immediately with a single word: Medicare. He isn't so worried about the trade deficit and the housing crash; he figures market forces will sort them out. But Medicare is something else - a multitrillion-dollar problem that's about to get dramatically worse, and one that nobody wants to talk about. You'd think that the greatest threat to America's economy would be Topic A for the presidential candidates. But it's actually a topic they hate to touch.
Especially now. An analysis of their speeches shows that last year Senators Hillary Clinton, John McCain, and Barack Obama would occasionally mention the Medicare mess. But recently, with the economy slowing and voters feeling insecure, all three candidates have turned more populist: Their economic talking points are about feel-good reassurances, not about facing hard realities.
Unfortunately the day of reckoning is imminent. Sometime in the next President's first term, Medicare Part A (hospital insurance) will go cash-flow-negative, and it's all downhill from there. Medicare provides a wide range of services and subsidies to more than 40 million old and disabled Americans. As the country ages, Medicare and Medicaid (for those of any age with low incomes) will devour growing chunks of U.S. economic output. So will Social Security, but its cut of GDP should stop increasing around 2030. The federal budget has averaged about 18% of GDP over the past several decades. If that average holds and if the rules of our social insurance programs don't change, then by 2070, when today's kids are retiring, Medicare, Medicaid, and Social Security will consume the entire federal budget, with Medicare taking by far the largest share. No Army, no Navy, no Education Department - just those three programs.
But wait - the situation is actually much worse. Those estimates, reported in the latest Financial Report of the U.S. Government, assume that Medicare payments to doctors will be slashed drastically, by some 41% over the next nine years, as required by current law. It won't happen. Every year for the past five years, Congress has overridden the mandatory cuts. As for future cuts, the Financial Report says drily, "Reductions of this magnitude are not feasible and are very unlikely to occur fully in practice." So in reality, Medicare will go into the hole even faster than official projections reflect. And they show that if Medicare had to be accounted for like a company pension fund, it would be underfunded by $34 trillion.
Obviously those long-term scenarios won't happen, because they can't happen - we won't be shutting down the Army, Navy, and so on. But it's easy to see why the candidates don't want to discuss it. As you listen to them, keep three points in mind:
Pain-free remedies won't do the job. All three major candidates, on those rare occasions when they mention Medicare's finances, stress how they'll make the system more efficient, eliminate errors, and improve incentives. That's all wonderful, but it won't be nearly enough. Only John McCain has hinted at what else will be required, including means-testing and limits on benefits. Give him major points, but it's unlikely we'll hear much more on that theme.
Any mention of trust funds is bogus. They're too complicated to explain here, but the bottom line is that no piles of money are socked away to cover future Medicare expenses. Any money the government needs to pay out this year, it needs to take in this year, and every year.
Tax and spending plans must Include Medicare. We'll hear plenty of budget proposals over the next eight months. But without changes to Medicare, they're meaningless. Medicare will eventually overwhelm everything else in the budget, except for the interest on the mushrooming debt to pay for it.
If this is the greatest threat to the U.S. economy and the candidates haven't told us what they'd do about it, they haven't told us a thing.
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