Medicare and Social Security Reports Released

May 1, 2012

Last week, the Medicare and Social Security Trustees released their annual reports which underscore the growing financial burden both programs pose to the federal budget.

The 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (the Medicare Trustees Report) was released April 23. It can be seen by clicking here. Additionally, the 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (the Social Security Trustees Report) was released April 25. It can be seen by clicking here.

Medicare Report

The situation with Medicare is more unclear than usual given the uncertainty surrounding the Patient Protection and Affordable Care Act (PPACA) which contains roughly 165 provisions affecting the Medicare program. Under highly plausible scenarios (see p. 4 of the report), Medicare, which consumed two percent of the Gross Domestic Product (GDP) in 2000, will consume four percent of GDP by 2020, six percent of GDP by 2030 and nearly eight percent of GDP by 2050.

Medicare will require both the dedicated revenue from the 2.9 percent Medicare payroll tax plus nearly one-fifth of all individual and corporate income tax revenue in order to pays its promised benefits (see p. 43 of the report.) The present discounted value of the unfunded obligations of the Medicare system is $27.2 trillion, nearly twice the national debt (see page 238).

In reality, however, these figures are likely to be much worse because the huge provider cuts in current law are unlikely to survive absent major reform to the system. Congress has passed a temporary so-called “doc-fix” for years avoiding these cuts. As the Trustees noted:

The Trustees believe that this outcome, while plausible, will depend on the achievement of unprecedented improvements in health care provider productivity. If the health sector could not transition to more efficient models of care delivery and achieve productivity increases commensurate with economy-wide productivity, and if the provider reimbursement rates paid by commercial insurers continued to follow the same negotiated process used to date, then the availability and quality of health care received by Medicare beneficiaries relative to that received by those with private health insurance would fall over time, generating pressure to modify Medicare’s payment rates.Social SecurityIn 2012, Social Security will pay $778 billion in benefits and have payroll tax revenue of $593 billion, a difference of $185 billion annually. Once the interest paid by the federal government general fund to the Social Security system and the taxation of Social Security benefits is considered, the program will show a surplus of $57 billion. However, even including the interest that the federal government pays into the trust fund, the program will run a deficit in 2021 and its trust fund will be exhausted in 2033. The Disability Income trust fund is exhausted, however, in 2016.

The present discounted value of the unfunded obligations of the Social Security system is $8.6 trillion, about half the national debt.