The deep economic recession has brought the days of reckoning for Social Security and Medicare much closer, with Medicare’s program for hospital stays already running in the red and Social Security expected to start taking in less cash than it pays out beginning in 2016.
A new report detailing the programs’ deteriorating finances makes it clear that Congress will have to decide sooner than it had expected to either curtail the programs or find new sources of revenue to bolster them. Taxpayers and recipients probably will have to pay more as a result, analysts said.
Both programs will run out of cash faster than expected, the programs’ trustees said Tuesday. The report revealed for the first time that because of rapidly declining revenues, the Medicare trust fund for hospital expenses has been collecting less in taxes and interest income than it pays out in benefits since last year.
The Medicare hospital trust fund will exhaust its reserves in 2017, rendering it insolvent two years earlier than the trustees predicted last year. Its unfunded obligation is $13.4 trillion, $1 trillion higher than last year’s estimate. That amount would have to be deposited in an interest-earning account today in order for Medicare’s hospital trust fund to be able to pay all its scheduled benefits over the next 75 years.
Medicare’s total unfunded obligations, including its programs that use general revenues to pay for doctors’ fees and prescription drugs, have reached $37.8 trillion.
“That’s roughly 2.5 times the size of the U.S. economy,” said Greg D’Angelo, a policy analyst at the conservative Heritage Foundation. “Every household’s share of Medicare’s unfunded obligations is like a $325,000 IOU, because those are benefits promised but not paid for by dedicated revenues.”
Assets in the Social Security trust funds will be exhausted in 2037, four years sooner than last year’s report projected. Beginning in 2037, tax income would be sufficient to pay about three-fourths of scheduled benefits through 2083, the report said.
Social Security will pay out more in benefits than it receives in taxes in 2016, one year earlier than projected last year.
Social Security’s unfunded obligation over the next 75 years is estimated at $5.3 trillion, $1 trillion higher than last year’s estimate.
“The president explicitly rejects the notion that Social Security is untouchable politically and instead believes there is opportunity for a new consensus on Social Security reform,” said Treasury Secretary Timothy F. Geithner. “After we have passed health care reform that puts our nation on a path to lower growth in health care costs and expanded affordable coverage, this president will work to build a bipartisan consensus to ensure the long-term solvency of Social Security.”
“Although Social Security faces no imminent crisis, policymakers should act sooner rather than later to restore its long-term solvency,” said Robert Greenstein, executive director of the liberal-leaning Center on Budget and Policy Priorities. “The sooner they act, the more years they will have to spread out the needed adjustments in revenue and benefit formulas.”
Since the recession began in December 2007, 5.7 million workers have lost their jobs. Those unemployed workers are no longer paying the payroll taxes that finance the Social Security and Medicare trust funds.
The Congressional Budget Office has estimated that revenue from Social Security payroll taxes will decline in fiscal 2009. Next year, the Social Security surplus from all revenues except interest income will fall to $3 billion, $83 billion less than last year’s CBO projection for 2010. In 2008, that cash surplus was $72 billion, which the federal government borrowed and spent on other programs.
As Social Security’s cash surplus dwindles, the government will have to borrow still larger sums in the private capital markets to finance its soaring budget deficits. The Obama administration revealed Monday that this year’s budget deficit will reach $1.84 trillion, more than four times last year’s $459 billion deficit, which was a record.
For the first time in 26 years, the Treasury Department reported Tuesday, the government recorded a deficit in April, when taxpayers submit payments for balances due on their income taxes.
In 2008, the combined cost of Social Security and Medicare programs totaled about 7.6 percent of the gross domestic product. By 2083, the combined cost will be 17.2 percent of GDP.
“As a point of comparison, in 2008 total federal receipts amounted to 17.3 percent of GDP,” the trustees said.