This guest post is courtesy of Mr. Jim Loxley of My Compensation.
It was recently reported that the Social Security and Medicare programs will run out of funds at an earlier date than previously predicted. An annual report written by trustees of the two funds stated that the shorter timelines point towards the urgency of reforms being required to maintain the solvency of the programs. The Social Security trust fund for disability benefits was expected to last up until 2018. However, it is now projected that funds will run out two years sooner in 2016. Furthermore, the portion of the Social Security funding designated to retirees will be exhausted in 2033, which is three years sooner than the previously projected 2036. The dates predicted for the bankruptcy of Medicare is still predicted at 2024, the same as the previous year’s report. The report has stated that there are four primary factors which are driving the insolvencies of the programs.
The first, and perhaps the most obvious, is the economic downturn resulting in a loss of revenue for the country and less taxes being generated through the payroll. So called ‘baby boomer’ retirements are on the increase, meaning that there are more individuals receiving benefits from the two programs. Thirdly, as health and medical care improves, people are living longer, resulting in them receiving benefits for a longer period of time. And finally, with regards to Medicare specifically, the costs for the healthcare industry in general are rising faster than the rate of inflation.
The trustees are appointed by the President and are both from political parties. The report urgently encouraged Congress to instigate changes to the programs, stating that delays in doing so will damage those that rely on them the most. The report went on to say that the people making the laws should not delay the addressing of long-term financial challenges which face Social Security and Medicare. Taking early action will maximum the number of options available to the programs in the future, whilst allowing sufficient time for changes to be phased in and for the public to prepare for those changes. In addition, quick action will help minimise adverse effects impacting vulnerable populations such as lower income workers already benefiting from the programs.
A separate report written by Medicare’s chief actuary, Rick Foster, was quick to defend the program stating that the report written by the trustees was based on a set of assumptions which he described as “unrealistic”. Under the Affordable Care Act (2010), which is being called “Obamacare” by some, there are cuts in payments to doctors which are set to go into effect soon. Foster believes that Congress will be forced to rescind the cuts. He stated that the Affordable Care Act does make important changes to Medicare, substantially improving its financial outlook, but there’s a strong likelihood that certain changes will not be viable over the long term. Further concerns over the Affordable Care Act were voiced by Charles Blahous who is one of the Republicans trustees. He warned that the act was intended to reduce the cost of healthcare and ensure lower deficits, but instead a further $342-$530 billion will be added to the national debt over the next decade.
With these opinions and reports coming to light, the reform of Medicare and Medicaid has been centralised as an issue in the 2012 election. It should come as no surprise that the Democrats are accusing the Republicans of attempting to end the programs, while the Republicans are accusing the Democrats of not taking enough action to save them. The Concord Coalition is a think tank tasked with scrutinising such matters and executive director Robert Bixby has also stated concerns surrounding fiscal stability in the federal budgets. He stated that mutual sacrifice would need to be made if we are to see the desperately needed reforms. He stated that in an ideal world, responsible changes in the entitlement programs should be implemented as a part of a comprehensive program of fiscal reform, seeing cuts in other domestic programs, reductions in the defence budget and also sweeping changes in the tax system. As Bixby said, using a more philosophical angle in a recent press release, “everyone may think that their cow is sacred but, in fact, there can be no sacred cows in the search for solutions.”