Recessionary times have a detrimental effect on the Social Security (SOC) also called Old-Age and Survivors Insurance (OASI), and the Disability Insurance (DI) funding estimates.
SOC expects a 2 percent short fall of funds over the next 75 years, close to 20 percent more than was reported in 2008, according to “The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,” released this month.
By 2016, SOC benefit payments will exceed payroll tax income. By 2037, estimated SOC tax income will cover only 76 percent of payment to retirees. Existing funds may be exhausted by 2039. Benefit payments will then come only from the annual payroll taxes.
Medicare, also called Hospital Insurance (HI), trust funds will experience a 19 percent funding shortfall by 2017 instead of 2019 because of the recession, coupled with layoffs and reduction in earnings from payroll taxes.
Baby boomers retirement between 2012 and 2030 increases in longevity, lower fertility when compared to the baby boomers era and the recession will put additional stress on the system and contribute to the accelerated fund shortages projections.
Tough and unpopular decisions may be able to salvage the programs until 2084 unless more troubled times are looming or the recession lasts longer than predicted.
To keep SOC alive, the Trustees of the SOC funds recommend that payroll taxes increase by 16 percent or benefits decrease by 13 percent.
Medicare requires a 134 percent payroll tax hike, a 3.88 percent increase over the present. 2.9 percent payroll tax. Inversely, a 53 percent decrease in benefits instead of the payroll tax increase would save the program over the next 75 years.
Medicare Part B, the Supplementary Medical Insurance (SMI) Trust Fund that pays doctor and outpatient expenditures, as well Pat D that pays for medicines, will remain healthy, as under existing laws the programs are automatically funded on an annual basis by general tax revenues.
The SOC and Medicare Funds Trustees advocate that “The projected trust fund deficits should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them. Implementing changes sooner will allow their effects to be spread over more generations.”
Close to 51 million Americans were paid SOC and Medicare during 2008. Around 162 million employees paid $615 billion into the programs during the same year. Total program earnings for both programs amounted to $805 billion and assets in U.S. Treasury securities held by the programs reached $2.4 trillion during 2008.
Social Security plays a critical role in the lives of 52 million beneficiaries and 160 million covered workers and their families in 2009. With informed discussion, creative thinking, and timely legislative action, present and future Congresses and Presidents can ensure that Social Security continues to protect future generations.
Six Trustees control the Social Security and Medicare funds. Four “serve by virtue of t heir positions in the Federal Government: The Secretary of t he Treasury, the Secretary of Labor, The secretary of Health and Human services, and the Commission of Social Security.” The remaining two positions are appointed by the President of the United States and confirmed by the Senate and have not yet been appointed by President Obama.
The funds are invested by the Department of Treasury in “special non-marketable securities of the U.S. Government.
Addressing Health Cost Quagmire
“While many people worry about the billions of dollars spent bailing out banks, auto makers and other sectors, looming shortfalls in Medicare and Social Security are what could ultimately sink efforts to revive the sagging U.S. economy,” Knowledge& Wharton (KW), the publishing arm of the University of Pennsylvania, suggests in the May article, “Social Security and Medicare: Trying to Tackle Two 800-pound Gorillas.
Wharton professors suggest although SOC has serious problems, Medicare is lethal to the recovery of the U.S. Economy and would have filed many times for bankruptcy if it were a company.
Health care costs accelerated with a speed that doesn’t match the funding efforts of Medicare. In response, the American Medical Association (AMA) announced in a May press release to voluntarily develop programs that will “bend the health care cost curve” away from its unhealthy growth, cutting costs by $2 trillion by 2019. The goal is to reduce costs by 1.5 percent annually.
“If successful, the effort would not decrease total spending on health care but would significantly reduce the rate of spending growth. Government actuaries have estimated that such growth otherwise would average 6.2% per year over the next decade,” according to an AMA press release.
To revive Medicare and save it from extinction, competitive forces need to be brought into the equation. The call is out to convert Medicare to a voucher system that lets patients decide the amount he/she is willing to spend on medical support,” Mark V. Pauly, Wharton Professor, suggests in his book “Markets Without Magic: How Competition Might Save Medicare.”
Pauly claims that saving Medicare and SOC is a daunting process, as “elected officials do not currently have the political spine to reign in doctors and medical spending to make Medicare sustainable,” according to the KW article.
