Social Security, Medicare Face Insolvency Sooner
By T.W. Farnam
The Wall Street Journal
Wednesday, May 13, 2009
-- The government revised estimates for the long-term solvency
of Medicare and Social Security on Tuesday, moving up the date
when trust funds for the entitlement programs will run out of
The Medicare fund for hospital care will be depleted in 2017,
two years earlier than government actuaries estimated a year
ago. Last year marked the first time that Medicare ran a
deficit, paying out more in benefits than it generates from
taxes and other revenue.
The report also factors in a 21% cut in payments this year,
required by law, to doctors working for Medicare. But for
the past several years, Congress has canceled that reduction.
The picture for Social Security is better, according to the
Medicare and Social Security trustees who issued their annual
reports on the two funds Tuesday. The Social Security
trust fund wouldn't be exhausted until 2037, but that is four
years earlier than last year's report predicted.
The actuaries estimated that Social Security beneficiaries would
not receive a cost-of-living increase for the next two years,
and that a quarter of Medicare beneficiaries would pay
higher-than-usual increases in monthly premiums, 8% in 2010 and
15% in 2011. The trustees are the secretaries of labor,
Treasury and health and human services, as well as the
commissioner of Social Security.
Obama administration officials used the new estimates as a
rationale for overhauling health care. "Today, we're not
issuing just another government report," HHS Secretary Kathleen
Sebelius said. "It's a wake-up call for anyone concerned
about Medicare and the health of our economy. And it's
another sign that we can't wait for real, comprehensive health
The costs of both entitlement programs are expected to jump as
the country's nearly 80 million baby boomers reach retirement
age. In December, nearly 51 million people received Social
Security benefits and 45.2 million received Medicare benefits.
President Barack Obama has pledged to cut deficits in half by
the end of his first term. Any attempt to address
long-term fiscal problems will require big changes to the way
entitlements are funded or paid out.
The financial-rescue and economic-stimulus packages have pushed
the annual federal deficit to an estimated $1.84 trillion.
For the first time in the nation's history, the federal
government ran a deficit in April, the month when revenue from
personal income taxes soar because of the April 15 tax-filing
The Obama administration has proposed several ways to control
Medicare costs, including cutting payments to private insurers
and allowing the government to negotiate drug prices with
pharmaceutical companies. Some of those cuts face
resistance in Congress, which will need to approve them.
Even if approved, the savings won't come close to fully
offsetting the increasing cost of the program. Many of the
savings have already been reserved to pay for the
administration's plan to overhaul health care.
"In the end, there's going to be a lot of huffing and puffing
and some genuine savings from changes in Medicare, but there is
no way to balance Medicare without significant increases in
taxes," said Henry Aaron, an economist with the liberal-leaning
Write to T.W. Farnam at