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Policy: Entitlements

Trustees say long-run Medicare, Social Security deficit is $66 trillion

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Politics,Beltway Confidential,Philip Klein,Social Security,Entitlements

Social Security and Medicare – the two largest federal programs – are on track to generate $66 trillion in deficits over time, according to the latest analysis from the programs’ trustees.

Taken together, the reports underscore the fact that whatever modest improvement there has been in the near-term deficit outlook, the nation still faces deep long-term fiscal challenges.

In 2013, Social Security’s trustees expect the program to pay out $79 billion more in benefits than the government collects in Social Security taxes, and anticipate the program running deficits in perpetuity. This is despite the expiration of the 2011-12 payroll tax holiday and the improvement in the economy. Back when President Bush advocated Social Security reform, the program wasn’t supposed to start running annual deficits until 2018.

Typically, the media places emphasis on the Social Security “trust fund.” That is, in past years in which the government was collecting more in Social Security taxes than it cost to provide benefits, it spent the surplus on other government functions and issued IOUs to the Social Security system. Though the distinction is silly given that the money all has to come from the same bank account, the trustees estimate that these IOUs will now run out in 2033, at which point, absent other changes, the federal government would have to automatically cut Social Security benefits by 23 percent. When Bush was advocating Social Security reform, this wasn’t projected to happen until 2042. Put another way, the trust fund exhaustion date that was 37 years away during the Bush era when liberals denied the existence of a Social Security crisis, is now just 20 years away.

Under the trustees’ “infinite horizon” estimates that project the cost of Social Security over time in present dollars, the program is running a long-term deficit of $23.1 trillion.

When it comes to Medicare, the outlook is even grimmer, because the demographics of an expanding older generation, which challenge the finances of Social Security, interact with rising health care costs.

The finances of Medicare are also more complicated, because the program has several different funding streams. The hospital payment program, Medicare Part A, like Social Security, is financed by a payroll tax, in addition to general federal revenue. Medicare Part B (which covers services such as doctors visits and lab tests in addition to equipment such as wheelchairs) and Medicare Part D (which covers prescription drugs) are financed by a combination of collecting premiums from beneficiaries and general revenue.

Over time, the trustees project the hospital fund has $3.5 trillion in unfunded obligations, Part B will require $25 trillion in general revenue to finance, and Part D — passed by a Republican Congress and signed by Bush — will require an injection of $14.4 trillion. All told, Medicare will run $42.9 trillion short. Combined with Social Security, the long-term deficit of the two programs is $66 trillion.

This, however, likely understates the true extent of the financial problems facing Medicare. The reason is that these projections assume that all of the Medicare cuts in President Obama’s health care law will be fully implemented and that Congress will allow scheduled cuts to doctors’ payments to go into effect, even though lawmakers routinely vote to delay such cuts.

Paul Spitalnic, the acting chief actuary of the Centers for Medicare and Medicaid Services, in a statement at the end of the report, cautioned that the projections were ultimately “implausible.” For instance, they would require a cut to Medicare physicians’ payments of nearly 25 percent this January.

“Further, while the Affordable Care Act makes important changes to the Medicare program and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range,” Spitalnic wrote. He continued: “Without unprecedented changes in health care delivery systems and payment mechanisms, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level without consideration of the productivity price reductions. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to substantially higher costs for Medicare in the long range than those projected under current law.”

According to an alternate set of assumptions in which Congress undoes these cuts, the trustees estimate that the Medicare program could cost about 50 percent more over a 75-year period.

On paper, the Medicare hospital “trust fund” won’t be exhausted until 2026, which is two years later than last year and nine years later than before the passage of Obamacare. But, this estimate is based on the same unreasonable assumptions. Additionally, it’s misleading, because the projected Medicare savings are really supposed to be used to help finance the health care law’s new spending rather than extend the solvency of Medicare.

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