Medicare, Social Security Reports Show Serious ProblemsJune 5, 2013
The Social Security and Medicare Trustees have each released their annual report analyzing the actual position of these two entitlement programs. The financial position of both programs is very serious and the burden they will place on future workers is extremely high.
“Social Security and Medicare together accounted for 38 percent of federal expenditures in fiscal year 2012. Both programs will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment and, in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per capita GDP,” said the Trustees. “Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers,” they said.
Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings will grow rapidly from 11.3 percent in 2007, the last pre-recession year, to roughly 17.0 percent in 2037.
Under current projections, the annual cost of Medicare Part A benefits expressed as a share of workers’ taxable earnings will grow from 3.1 percent in 2007 to roughly 5.0 percent in 2037. NSBA estimates that including Medicare Part B would increase the annual cost of Medicare expressed as a share of workers’ taxable earnings from approximately 6.7 percent in 2007 to roughly 10.2 percent in 2037.
Thus, the total annual costs of Medicare and Social Security combined expressed as a share of workers’ taxable earnings will increase from 18 percent in 2007 to 27.2 percent in 2037.
2012 Social Security tax revenue was $616.8 billion. Social Security expenditures in 2012 were $785.8 billion. Thus, excluding interest the federal government pays to itself and general fund subsidies it is currently running an annual deficit of $169 billion.
2012 Medicare tax revenue was $224.3 billion. Medicare premium revenue was $69.8 billion. Medicare expenditures in 2012 were $574.2 billion. Thus, excluding interest the federal government pays to itself and general fund subsidies it is currently running an annual deficit of $280.1 billion.
Excluding interest the federal government pays to itself and general fund subsidies the two programs combined are currently running an annual deficit of $449 billion. These deficits will accelerate quickly as more baby boomers retire.
The Gross Domestic Product (GDP) in 2013 will be an estimated $16 trillion. The present value of the unfunded liabilities in Medicare are estimated to be $27.3 trillion. The present value of the unfunded liabilities in Social Security are estimated to be $12.3 trillion. Thus, the combined unfunded liabilities in these two programs stand at $39.6 trillion, or over three times the current federal debt held by the public of $11.9 trillion. And these figures take at face value the Medicare provider payment cuts that are in current law but have been waived by Congress for over a decade. If those provider cuts are eliminated, these unfunded liabilities increase by approximately $20 trillion. Thus, the official unfunded liabilities in these two federal programs are about 2 ½ times the GDP but the actual unfunded liabilities are closer to four times the GDP.
The Social Security Trust Fund will be depleted by 2033 and the Medicare Trust Fund will be depleted by 2026. However, the trust funds rely on massive subsidies from general revenue and from interest paid to the trust funds by the Treasury (i.e. interest the government pays to itself).
The chart below is from the Trustees’ summary. More are available by clicking the summary link below.
To read the 2013, Medicare Trustees Report, click here.
To read the 2013 Social Security Trustees Report, click here.
To read a summary of both reports, click here.
Current Treasury debt statistics can be read here.