Stress Rises on Social Security and Medicare


Social Security, which pays retirement and disability benefits to 56 million Americans, will exhaust its reserves by 2033, three years sooner than previously estimated, a new government report said Monday.

The forecast raises pressure on the White House and Congress to tackle the entitlement program, which many politicians fear changing because of potential voter backlash.

The trustees who oversee Social Security’s two trust funds—one for disability benefits, the other for retirees—said reserves for the fund that pays disability benefits would be exhausted by 2016, two years earlier than projected last year. And if the disability fund were combined with the larger fund that pays retiree benefits, all reserves would be exhausted by 2033, three years sooner than projected last year.

Benefits would automatically be cut roughly 25% if the trust funds were exhausted. Monthly Social Security benefits averaged $1,125 per recipient in March, according to government data.

Social Security and Medicare, the government-run health plan for senior citizens, are together the largest U.S. public benefit programs and account for one-third of the federal budget. The programs’ costs are projected to grow rapidly because of the aging U.S. population and, in Medicare’s case, the rising cost of health care.

Democrats and Republicans, in a battle over public spending, are making the role of government a central issue in the November election. Social Security is yet to emerge in the debate because, according to one argument, the program’s financial problems remain decades away. Also, many older Americans who receive the government benefits vote in large numbers and have resisted cuts, striking fear in politicians.

“It is time for Congress to take on the task of retooling Social Security for the long haul,” said Social Security Administration Commissioner Michael Astrue.

 Many past proposals haven’t gone far. The Republican-controlled House this year and last approved a budget that would change Medicare.

The proposal hasn’t passed the Senate, which is controlled by Democrats. In 2005, then-President George W. Bush proposed to partially privatize Social Security but couldn’t get Congress, at the time controlled by his own party, to approve the plan.

The Social Security trust-fund balances are essentially the difference between the taxes that have been paid into the programs and the total number of benefits that have been paid out over the years.

The government has borrowed from the Social Security trust fund to pay for other operations and pays interest to the program. By law, benefits are paid in full as long as the fund balances represent a surplus.

Treasury Secretary Timothy Geithner said the Obama administration would seek to work with Congress to come up with a long-term solution to repair the solvency of the disability trust fund but didn’t offer specifics. “The best thing to do is a long-term solution,” he said.

Social Security and Medicare are primarily funded through taxes paid by workers and employers. An effort to bolster the programs’ finances would require increasing revenue, cutting costs, or some combination.

Congress has lowered the payroll tax that funds Social Security since 2011 to spur economic growth, and the Treasury Department has made up the lost revenue by essentially making payments into the Social Security funds.









The Social Security disability program and the Medicare program that covers hospital care are already paying more in benefits than they collect through tax revenue. They make up the difference by drawing down trust funds built over many years when they collected more than they spent. The Social Security retirement system still collects more than it spends.

Social Security’s worsening outlook comes from a combination of higher cost-of-living adjustments pushing benefits up and lagging wage growth holding down tax revenue.

In recent years, the Social Security disability rolls have soared, as many Americans with mental and physical health problems sought to enter the program and others with less severe issues applied because of a scarcity of work.

In 2011, Social Security paid $596.2 billion in retirement benefits to 44.8 million Americans and $128.9 billion in disability benefits to 10.6 million recipients.

Charles Blahous, a Republican trustee for Social Security and Medicare, said, “By any objective measure, the problems in Social Security are growing somewhat more serious.” He called for a congressional deal, which he said needed to be “responsible, decisive, and prompt.”

Mr. Astrue, a Republican, urged Congress to address the funding shortfalls but said in the interim lawmakers could consider redirecting some of the money meant for the retiree program to the disability fund.

The trustees also provided an update on Medicare’s finances. They projected the Medicare fund that pays for hospital benefits would be exhausted in 2024, unchanged from their projection last year.

But, foreshadowing the financial pressures on Medicare in coming years, the trustees said the number of people covered by Medicare rose to 48.7 million in 2011. That meant, on average, 100,000 Americans joined Medicare each month.

The Obama administration has said it would support changes to Social Security to improve the program’s solvency but hasn’t proposed any. White House officials and congressional Republicans met privately last year to discuss possible changes to Social Security. Those talks fell apart when negotiators couldn’t reach a broader deal to reduce the federal budget deficit. One change discussed by both sides would have slowed how benefits are increased to take account for inflation.

Mitt Romney, the likely Republican presidential nominee, has proposed gradually raising the retirement age and slowing the rate of benefit inflation for wealthier Americans. Currently, Americans can claim full Social Security retiree benefits at age 66, or seek smaller benefits when they turn 62.

President Barack Obama’s re-election campaign used the new data to attack Mr. Romney, with spokesman Ben LaBolt saying the former Massachusetts governor would make “devastating cuts to Medicare and Social Security” which “would end America’s social compact with our seniors.”

Lanhee Chen, Mr. Romney’s policy director, said in a statement that Mr. Obama’s “inaction on Social Security reforms means that seniors will be left to face across-the-board benefit cuts. His failure on this issue stands in stark contrast to the meaningful reforms that Mitt Romney has proposed—reforms that will ensure Social Security remains solvent and strong for at least the next 75 years.”

On Medicare, White House officials say the 2010 health care law has added eight years to the program’s solvency and last year they proposed even more changes. Republicans dispute many of the figures. Last year, Mr. Obama privately explored with Republicans the idea of raising the eligibility age for Medicare, but those talks collapsed.

Mr. Romney has proposed changing Medicare to allow seniors to sign up with the government program or shop for private insurance, with the government providing some assistance for premium payments. He would also change the program to give more support to low-income seniors and less support to wealthier Americans. He has proposed curbing the growth of Medicare spending, in part, by raising the eligibility age from 65 by one month per year beginning in 2022.

With the Bush-era tax cuts set to expire at the end of the year, and $1.2 trillion in defense and other spending reductions set to begin in January, lawmakers in both parties have said they hope a broad, bipartisan deficit-reduction plan could come together by the end of the year.

Republicans have said that big changes to Medicare and potentially Social Security should be included in any talks that might raise new taxes, but so far both sides appear far apart on any deal.

 A version of this article appeared April 24, 2012, on page A1 in some U.S. editions of The Wall Street Journal, with the headline: Stress Rises on Social Security.

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