Gains Seen for Medicare, but Social Security Holds Steady

The New York Times by Robert Pear –

July 28, 2014:

Medicare’s financial condition improved significantly in the last year, thanks in part to the Affordable Care Act, but the outlook for Social Security is basically unchanged, the Obama administration said Monday.

If Congress makes no change in existing law, officials said, Medicare’s hospital insurance trust fund will be exhausted in 2030, four years later than the administration projected in May 2013. The Social Security trust fund, they said, will be depleted in 2033, the same as expected last year.

The forecasts were included in the government’s annual report on the two programs, which together account for about 40 percent of federal spending.

Medicare spending on hospital care was lower than expected last year, the administration said, and officials have lowered their assumptions about the use of inpatient hospital services in the future.

Reports from the trustees — four federal officials and two public representatives — are largely prepared by career civil servants, who take pains to provide an objective assessment of the programs’ finances.

Social Security provides benefits to 59 million people, and, on average, about 10,000 baby boomers become eligible each day. Payroll taxes and other revenue dedicated to Social Security would be sufficient to pay about three-fourths of promised benefits if its trust fund runs out, administration officials said.

The Treasury secretary, Jacob J. Lew, said the reports showed that “Social Security and Medicare are fundamentally secure.” But he expressed concern about Social Security’s disability program because, he said, its dedicated funds will cover the full amount of promised benefits for only two more years.

Mr. Lew endorsed a stopgap solution, which would temporarily reallocate some payroll tax revenue to disability benefits from the surplus built up for retirement benefits. “There is probably no other alternative that could provide the desired results” in the next two years, Mr. Lew said. Congress approved a similar reallocation in the 1990s.

With the aging of the population, the number of Medicare beneficiaries is also growing rapidly.

The financial condition of Medicare has benefited from a slowdown in national health spending, attributed in part to the Affordable Care Act, which curbed Medicare payments to many health care providers and encouraged them to find more efficient ways of delivering care. The slow growth of wages and prices, following the economic recession of 2007-09, was also cited by the trustees as a factor restraining the growth of Medicare.

Two numbers illustrate the slowdown in Medicare spending.

The trustees estimate that the standard monthly Medicare premium will be $104.90 next year, unchanged from 2013 and 2014. In addition, the trustees said that Medicare spending per beneficiary averaged $12,210 last year, the same as in 2012, and it is expected to be about the same in 2015.

However, in the coming decade, average spending per Medicare beneficiary is expected to grow about 40 percent, to $17,360 in 2023, with outlays expected to rise much faster for prescription drugs and doctors’ services than for inpatient hospital care.

Jeanne M. Lambrew, a health policy coordinator at the White House, said that in 2009, a year before adoption of the health care law, the trustees predicted that the Medicare trust fund would run out of money in 2017. “Today’s new date is 2030,” she said, “13 years later than that projection — an improvement that is thanks in part to reforms in the Affordable Care Act.”

Robert D. Reischauer, one of the public trustees, said the latest projections still indicated that Medicare spending would grow faster than the economy as a whole, workers’ earnings or the incomes of retirees.

“Under current law,” Mr. Reischauer said, “both of these very important programs are fiscally unsustainable over the long run and will require legislative intervention.”

Members of Congress have discussed the idea of higher premiums for high-income Medicare beneficiaries and a reduction in the annual cost-of-living adjustments for Social Security. Such proposals often come up in the context of efforts to negotiate a broader agreement on federal spending and taxes, but the prospects of such a deal have shrunk to the vanishing point in this election year.

The trustees’ report says that the Social Security trust fund ran a surplus of $32 billion last year and is on track to run another one, increasing its total reserves to nearly $2.8 trillion by the end of this year. The trust fund’s assets will decline at a rapid rate starting in about a decade, the report shows.

Representative Dave Camp, Republican of Michigan and chairman of the Ways and Means Committee, said: “This administration continues to ignore the fast-approaching crisis that Medicare and Social Security face, especially our Social Security disability program. The fact is, without bipartisan action, benefits will be cut.”

Democrats and their allies tend to favor tax changes that could, for example, eliminate the cap on earnings subject to the Social Security payroll tax.

“If Congress listens to the American people and requires millionaires and billionaires to pay their fair share, the report shows, all benefits can be paid for the next three-quarters of a century and beyond,” said Nancy J. Altman, co-chairwoman of Strengthen Social Security, a coalition that includes many liberal organizations.

The chief Medicare actuary, Paul Spitalnic, said that future costs could well be higher than indicated in the report. The 2010 health law reduces the growth of Medicare payments to hospitals and many other providers, on the assumption that they will increase their productivity, but, Mr. Spitalnic said, “there is a strong possibility that certain of these changes will not be viable in the long range.”