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Social Security and Medicare still face serious financial challenges, annual review says

But the new healthcare law may provide added stability to the two massive programs, which could stay in the black until 2029 and 2037.

August 05, 2010|By Noam N. Levey, Tribune Washington Bureau

Reporting from Washington — Social Security and Medicare continue to face grave financial challenges even though the new healthcare law may provide added stability to the two massive programs, according to the government's annual review.

This year, for the first time since 1983, Social Security is projected to pay out more in benefits than it collects in taxes.

And Medicare confronts a new test as the healthcare law envisions using billions of dollars of projected savings over the next decade to expand medical coverage for younger Americans.

The report, released Thursday by the Social Security and Medicare trustees, estimated that the Social Security trust fund that pays retiree benefits will remain solvent until 2037, the same outlook as last year.

And it predicted that the Medicare fund covering hospital services for the elderly, which government officials last year said would run out of money in 2017, could now stay in the black until 2029.

Senior administration officials and Democrats on Capitol Hill hailed that as validation of what House Speaker Nancy Pelosi (D- San Francisco) called the "remarkable impact of health reform."

Speaking at a fundraiser in Illinois, President Obama said the new report underscored Medicare's improved health. "It is going to be more secure for our seniors and it's going to be there for future generations because of the changes we made," he said.

But the outlook for Medicare is still extremely cloudy, according to budget experts, including the program's chief actuary, Richard S. Foster. The new report itself highlights "the need for additional steps to address Medicare's remaining financial challenges," he said.

As a result of the new healthcare law, Medicare, which provides health insurance to more than 45 million mostly older Americans, will undergo significant changes that many experts believe will make it more efficient.

The healthcare law does not guarantee that the program will be able to keep all the anticipated savings, however. That means that unless Congress finds more funding, Medicare could run out of money much more quickly than Thursday's report predicts.

Further complicating Medicare's future, it is unclear whether many of the initiatives in the healthcare law will yield the projected savings.

The law calls for a series of cuts to hospitals and other medical providers that are designed to reflect increased efficiency in the system and the growing number of Americans projected to obtain health insurance starting in 2014.

But Medicare's independent actuaries have raised questions about whether Congress will agree to these cuts in future years in the face of political pressure from the healthcare industry.

Senior administration officials also said Thursday that the success of the healthcare law would depend on ongoing vigilance by lawmakers on Capitol Hill.

"It's important to note that for the benefits of these reforms to be realized, they have to produce large improvements in efficiency and productivity," said Treasury Secretary Timothy F. Geithner. "They have to be allowed to work. Congress will have to stick with them."

Republican lawmakers, who fought the healthcare overhaul earlier this year, kept up their criticism Thursday, highlighting the costs of expanding coverage to more than 30 million uninsured Americans over the next decade.

"Democrats are raiding Medicare, not saving it," said House Minority Leader John A. Boehner (R- Ohio).

The trustees' report found the outlook for Social Security to be less bleak, despite the imbalance this year.

Government officials estimate that the program will begin taking in more than it pays out again in 2012 and will benefit in the longer run as the healthcare law encourages employers to pay workers more as they pare back health benefits.

That is expected to generate higher tax revenue, which would in turn prop up the program. Social Security and Medicare are financed primarily by taxes evenly divided between workers and employers that amount to 15.3% of wages.

The Social Security fund used to support disabled Americans faces more immediate challenges, as it is projected to run out of money in 2018.

And like Medicare, the main Social Security fund that pays retiree benefits faces long-term problems that the president and lawmakers are just beginning to talk about.

"That means some changes," Sen. Orrin Hatch (R- Utah) said Thursday. "We have no really long-term approach."

noam.levey@latimes.com

Lisa Mascaro in the Washington bureau contributed to this report.

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