Thursday, April 26, 2007

The results of the annual Social Security and Medicare Trustees report released this week are not good.

The government’s will is once again bigger than its wallet.

The report shows an unfunded liability in Social Security and Medicare over the next 75 years at $51.7 trillion.

“In just five years, these two programs will require 10 percent of other federal revenues. That means in five years the federal government will have to stop doing about one in every 10 non-entitlement things it has been doing in order to balance the budget and keep its promises to the elderly,” said John Goodman, president of the National Center for Policy Analysis.

Because of the Bush administration’s emphasis on reforming Social Security, people are not as aware about Medicare’s fiscal problems. The truth, as reflected in the report, is that Medicare is in worse shape.

Medicare expenditures are expected to reach $483 billion this year, making it the second-largest government expense behind the Defenses Department.

Medicare costs are at the mercy of a two-headed monster. A ballooning price tag for medical care will be coupled with an explosion in the number of retirees with 76 million members of the baby boom generation moving closer to becoming eligible for benefits. Combined, those forces will overwhelm Medicare hospitalization program by 2019, while Social Security is slated to run out of money by 2041.

“While the Medicare warning is new, it simply reflects the same dire fiscal reality we’ve been reporting for years, and that has been exacerbated by the addition of the new prescription benefit,” said John Palmer, an economics professor at Syracuse University and a public trustee. “The challenge here has been understated.”

This president has taken his shot at Social Security reform, making an effort at Medicare seem unlikely. Under a law passed in 2003, President Bush must propose a strategy to address the program’s fiscal crisis when he submits his 2009 budget and Congress must immediately consider the proposal, but neither the president nor Congress is bound to pass a new law.

Neither the House nor the Senate version of the 2008 budget contains any savings from Medicare or Social Security. Indeed, cutting Medicare is an extremely dicey proposition for lawmakers.

“There are no lobbyists for Medicare savings, but there are perhaps 2,000 lobbyists against Medicare savings. So which team would you bet on?” said Alex Vachon, a Medicare analyst for Wall Street and former Senate Finance Committee aide.

The only positive signs to come from the report was a decline in spending from Medicare’s Hospital Insurance Trust Fund, which was lower than expected last year because of “an abrupt decrease in the number of hospital admissions.” After increasing about 2 percent a year for some years, the number of admissions appeared to decline by 4 percent last year, to 13.1 million, the trustees said.

The trustees also said their new estimate of the cost of Medicare’s prescription drug benefit over the next decade was significantly lower than the estimate they made a year ago. They said private insurers are willing to administer the drug benefit at a lower cost because they are counting on a major increase in generic drug use over more expensive brand-name medications.

• Health Care runs Fridays. Contact Gregory Lopes at 202/636-4892 or

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