Social Security will pay more in benefits this year than it will take in because of payroll taxes in the sluggish economy, but Medicare’s solvency could be extended by years thanks to the new health care law, according to two reports on the government’s big entitlement programs released Thursday.
Medicare actuary Richard Foster, though, warned that the brighter picture depends on whether Congress and the administration will follow through on stiff, planned cuts. Lawmakers have balked at such moves in recent years.
The annual reports are the first since the health care legislation was signed in March, and Medicare’s actuary said the program’s basic Hospital Insurance is better off than last year, thanks to some cost controls included in the bill.
“These are very, very, very substantial improvements in the rate of growth in health care costs that make a very substantial improvement in our long-term fiscal position - much, much larger than anything we have considered, much less embraced, as a country over the last several decades,” said Treasury Secretary Timothy F. Geithner, touting a 12-year improvement in the solvency of the Hospital Insurance program.
Critics, though, said the health care overhaul does little to shore up Medicare in the long run, when rising medical costs and an aging population will outstrip the programs’ finances. They also questioned the 12-year improvement, arguing that rather than plowing the new savings back into Medicare, the administration instead is spending the money on other programs, so Medicare won’t actually benefit.
“This supposed extension is nothing more than an accounting gimmick,” said Rep. Tom Price of Georgia, chairman of the Republican Study Committee. “The money is not in the Medicare bank account because Democrats have already spent it elsewhere. Even Washington cannot spend the same dollar twice.”
Mr. Foster, Medicare’s actuary, also poked at the administration’s calculations.
He included his own cautionary note in the Medicare report saying that the savings from the health care bill assume cost controls that most health care providers cannot achieve.
“While the Patient Protection and Affordable Care Act, as amended, makes important changes to the Medicare program and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range,” he said.
Social Security and Medicare together are the largest government-operated entitlement programs.
With Medicare, the government pays about an average of slightly less than $12,000 for each of the estimated 47.4 million beneficiaries.
That per-person cost includes $5,230 for Medicare’s basic Hospital Insurance, $4,936 for so-called Part B care that covers outpatient and other extra care, and another $1,797 for the prescription drug program added under President George W. Bush.
Social Security, meanwhile, will cover 53.5 million beneficiaries and will pay out $703.4 billion in benefits, while it takes in $674.4 billion in payroll taxes.
The grim news on Social Security is that the program will sink into the red this year for the first time since lawmakers overhauled its finances in the early 1980s.
That deficit will last through next year, then an improving economy will put the fund back into balance for three years, then it will dip back into the red, the actuary said.
The program has enough money in its trust fund to cover the annual deficit for two decades beyond that - though critics argue that the figure is useless since the trust fund money is regularly borrowed and spent on the rest of government operations.
Health care’s overhaul helped Social Security’s long-term outlook slightly because, with a looming excise tax on high-value health care plans, some businesses are likely to shift that compensation to taxable income.
But some analysts cautioned not to see too bleak a picture.
The Center on Budget and Policy Priorities, a liberal-leaning economic think tank, said that even once the trust fund is exhausted, Social Security’s yearly income will be enough to pay more than 75 percent of promised benefits.
Still, all sides said, over the 75-year actuarial window Social Security will face a shortfall that will need to be addressed.
President Obama has convened a commission to offer suggestions for addressing the country’s long-term debt, and Social Security is one program the panel is likely to try to tackle.
Social Security’s actuaries said in their report that to keep the program solvent for the next 75 years either payroll taxes could be increased by 1.8 percentage points, benefits could be cut by 12 percent or the government could enact some combination of the two.
Beyond 75 years, “significantly larger changes would be required,” the report said.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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