Last week, the U.S. Treasury department published the annual reports for Social Security and Medicare. The new volumes — all 460 pages, five pounds worth — met a so-what, ho-hum reception by both the national media and congressional leaders.
Not much changed since last year; what’s the big deal, right?
Social Security and Medicare are hurtling toward a cliff like lemmings… ho hum… $70 trillion in unfunded promises… yadda yadda, whatever… disaster, death, destruction. We’ve heard it all before.
But this time, just maybe, it will turn out different. This time the president and Congress have to do something about it.
An obscure provision in the 2003 law that added prescription drugs to Medicare — with, incidentally, a $17 trillion price tag — requires the Medicare trustees to raise a flag if two consecutive reports predict Medicare will draw more than 45 percent of its funding from general revenues within the next seven years. The measure is generally referred to as a “general revenue trigger.”
In short, if Medicare is expected to drain too much income tax money from the federal government within the next seven years, the trustees have to alert Congress. The 2006 report was the first to cross the threshold, and this year’s report required the trustees to officially sound the alarm.
Now what? Under the 2003 rule, President Bush must propose a plan to deal with the imbalance as part of his next budget, for 2009. Congress is required to “fast track” consideration of the president’s plan.
Both the president and congressional leaders should take the warning to heart: Medicare is growing really fast. Thanks to the retirement of the 77 million Baby Boomers — and the soaring costs of medical care — Medicare will start sucking big bucks away from other treasured federal programs.
Within the next two decades, Medicare will drain almost a quarter of federal income tax revenue. By 2030, about the midpoint of the baby boomer retirement years, Medicare will take more than a third. That means the government will have to raise income taxes by a third or stop doing about a third of what it does today. Maybe we won’t miss NASA or federal education funding or subsidies for farmers. But maybe your favorite program will be the one on the chopping block.
Eventually, Medicare spending will drain nearly every tax dollar the government raises. In all, we’re talking somewhere in the neighborhood of $60 trillion. As Tom Saving, one of the Social Security and Medicare trustees, says, we can fully fund Medicare by taking 60 percent of all federal income tax revenue — starting today and continuing forever — and actually invest it outside the government’s reach. That’s just not going to happen.
What should we do? First, our leaders should take the hint: Reform is needed. Badly. Skip the blue ribbon commissions. Skip the fancy speeches. Fix the problem. Piecemeal “solutions” (raising the retirement age, bumping up the tax rate and so forth) might alleviate the current crunch, but they won’t do enough to fix the long-term problem.
We need to rethink how Medicare works. For example, we could combine all the parts of Medicare, including the prescription drug benefit and individually-purchased Medigap policies, into a single plan with a single premium. In addition, people should be allowed and encouraged to save money while working to fund future elderly health care benefits.
Here’s the big kicker: The Medicare trigger doesn’t actually force Congress to do anything real about these very real problems. It requires that a debate take place — but, conveniently, doesn’t require Congress to actually pass anything.
Thus, instead of embracing a real solution that prevents the economic indenturement of an entire generation, Congress may well pass something painless — for themselves and for the retiring Baby Boomers — but also something that will do nothing to alleviate the plight of today’s younger workers. After all — with a few notable exceptions — neither Republicans nor Democrats seem to have the stomach for — or much interest in — getting the job done.
Perhaps the warning from the trustees will prompt them to do the right thing: fix Medicare and avert a financial disaster. Or… so what? Ho hum. I’m sure all this will come up again next year.
Matt Moore is a senior policy analyst with the National Center for Policy Analysis.