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Policy: Economy

Only two years until Social Security's disability fund runs out

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Medicare and Medicaid,Social Security,Entitlements,PennAve,Joseph Lawler,Economy,Jack Lew

The Social Security disability trust fund is only two years away from exhaustion, Social Security's Board of Trustees announced Monday, while saying that Medicare's finances appear to have strengthened, thanks to slowing growth in the cost of health care.

The trustees, tasked by Congress with overseeing the trust funds of the nation's retirement programs, estimated that the combined trust for Social Security's retirement and disability programs would be depleted by 2033, the same year as in last year's projections. After that point, beneficiaries will face a 25 percent cut in benefits, as all payments must be financed by incoming tax revenue.

Social Security has been spending more than it has been taking in since 2010, and that imbalance is expected to worsen.

"What is changing is we're rapidly running out of time,” warned Charles Blahous, the Republican-nominated public trustee, at a press conference Monday. Blahous noted that Social Security's fiscal problems are especially acute in the disability program because the baby boomers have entered peak disability years before retirement.

While the disability trust fund is projected to run out in late 2016, Congress has avoided a benefits cut in past years by moving around money between the two trust funds.

Treasury Secretary Jack Lew at the press conference advocated redirecting payroll tax funds to the disability trust fund. Lew noted that while the Obama administration intends to pursue reforms to save money on the disability program in the long term, an immediate change is needed to prevent the trust fund from running out and imposing steep cuts on recipients in 2016. Congressional Democrats have introduced legislation to divert payroll taxes to the disability trust fund.

While warning that the disability fund faces an imminent crisis, the trustees also noted improvements to the outlook for Medicare's financial situation, while noting that it still remains dire in the long run.

The trustees upgraded the outlook for the Medicare hospital insurance trust fund, moving the projected date of exhaustion to 2030 from 2026, and up from 2024 two years ago.

The trustees attributed the improvement in Medicare's finances to the broader slowdown in health care cost growth over the past few years, but decline to specify specific factors behind that broad trend. “It's a number of things that are coming together,” said Department of Health and Human Services Secretary Sylvia Mathews Burwell. One such item, said Burwell, were changes to payments to Medicare plans made by Obamacare.

Per-beneficiary spending on traditional Medicare grew at an annual rate of roughly 8 percent between 1980 and 2005, before slowing to just 3 percent between 2005 and 2012, according to the Congressional Budget Office.

Robert Reischauer, the Democratic public trustee, cautioned that “there’s an active debate going on among experts” over what’s driving the slowdown in health care price gains and that “we’re probably many years away from being able to allocate these various factors with any precision.”

Despite the improvement, the trustees still warned in the report summary that “Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers and taxpayers.”

“We have to make manageable changes now so we don’t have to make drastic changes later,” Lew said.

Once the trust fund is exhausted, dedicated revenues will be sufficient to pay only 85 percent of hospital insurance costs.

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