Entitlements in the outyears

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In order to meet the promises made to Medicare and Social Security beneficiaries through 2082, the government would have to deposit $42.9 trillion in an interest-bearing account today and then draw down the cumulating funds as needed over the next 75 years. That is the essential conclusion from the latest reports by the Medicare and Social Security trustees.

The $42.9 trillion is the "net present value" of Social Security and Medicare obligations above and beyond the premiums that will be paid during the next 75 years by Medicare beneficiaries (for doctors' fees, outpatient services and prescription drugs) and the payroll taxes that will be collected from workers and their employers between now and 2082 to fund Social Security and Medicare's hospital-insurance program. When you hear talk about "unfunded liabilities" or "unfunded obligations" for Medicare and Social Security, the bottom-line cost in today's dollars is $42.9 trillion, which is more than three times last year's gross domestic product (GDP) of $13.8 trillion.

None of this is a surprise, as the trends have been crystal clear for years. Yet Congress and the White House have repeatedly failed to address the problems in a responsible, bipartisan manner.

In December, the Congressional Budget Office released its long-term budget outlook, and in it reported that: (a) Medicare's share of GDP (net of premiums) would rise from 2.7 percent last year to 8.9 percent in 2050 and 14.8 percent in 2082; (b) Social Security would increase from 4.3 percent of GDP in 2007 to 6.1 percent in 2030 and 6.4 percent in 2082; and (c) the total budget deficit would soar from 1.2 percent of GDP last year to 18.1 percent in 2082, when interest payments alone would total 11 percent of GDP. Clearly, such a path would become unsustainable long before the end of the 75-year period.

Breaking down the present value of unfunded obligations by program from a budget perspective, the trustees reported the Social Security total to be $6.6 trillion. That includes $2.3 trillion in its trust funds, which will have to be redeemed by using general revenues or by borrowing. The present value of the unfunded obligation of Medicare's hospital-insurance program is $12.7 trillion. For Medicare Part B (doctors' fees, outpatient services, etc.), the present value of the unfunded obligation (above and beyond the current beneficiary premium of $96.40 per month) is $15.7 trillion. For Medicare Part D (the prescription-drug program, which was created in 2003), the unfunded liability (above and beyond beneficiary premiums, which currently average about $28 per month) is $7.9 trillion.

Regrettably, none of the presidential candidates — sitting senators all — has even begun to responsibly address the $42.9 trillion in unfunded obligations.