Posts Tagged ‘SSDI’

Aging Population Stresses Medicare

Tuesday, May 1st, 2012

The aging population as millions of baby boomers turn 65 and a slowly recovering economy are stretching the long-term finances of Social Security and Medicare.

Soaring healthcare costs have put Medicare in a worse position than Social Security.  But both programs are likely to become insolvent in the coming decades, unless Congress takes action.  In 2011, the trustees projected the Medicare hospital insurance fund would run out of money in 2024.  Social Security’s retirement fund was projected to dry up in 2038, while the SSDI (Social Security Disability Insurance) fund was projected to be empty by 2018. Revised projections provided a more ominous assessment of the disability program, which has seen growth in applications as more disabled workers lose jobs and apply for benefits.  The non-partisan Congressional Budget Office said the disability fund will run out of money in 2016.  Social Security’s trustees have asked Congress to strengthen the disability system by reallocating money from the retirement program.  There is precedent for this since lawmakers did the same thing in 1994.

If the Social Security and Medicare funds ever run out of money, both programs would collect only enough money in payroll taxes to pay partial benefits.  “I don’t know how to make it clear to the public, but in my mind the sirens are going off,” said Mary Johnson, policy analyst for the Senior Citizens League. “I wouldn’t say we’re under attack, but we are in a very, very serious position.”

Tax revenues have started to rebound but they are still below pre-recession levels.  Also, this year’s cost-of-living adjustment (COLA) was much higher than the trustees projected it would be.  Last spring, the trustee’s projected that Social Security recipients would get a benefit increase of 0.7 percent for this year, but higher-than-expected inflation pushed it to 3.6 percent.  That was good news for seniors but it drained more resources from the system.

The trustees overseeing the programs include Treasury Secretary Timothy Geithner, Labor Secretary Hilda Solis, Health and Human Services Secretary Kathleen Sebelius and Social Security Commissioner Michael Astrue.  More than 56 million retirees, disabled Americans, spouses and children collect Social Security.  The typical retirement benefit is $1,232 a month; the average benefit for disabled workers is $1,111.

According to Geithner, the trustees’ reports demonstrate a real need for Congress to make substantial changes to entitlement programs, although he continues to oppose Republican proposals to partially privatize Medicare.  “We will not support proposals that sow the seeds of their destruction in the name of reform, or that shift the cost of healthcare to seniors in order to sustain tax cuts for the most fortunate Americans,” Geithner said.  Last year, the trustees said that the Patient Protection and Affordable Care Act (ACA) would extend the life of the Medicare trust fund — a point that Geithner emphasized.  According to Kaiser Health News, “One of the most important things we can do right now to preserve Medicare is to implement the Affordable Care Act fully and effectively.” Geithner said.  “Still, more needs to be done.”

The positive news for Medicare is that the pace of cost increases has eased a bit. “The trends in Medicare are more modest than the cost increases we have seen in the private commercial sector,” said economist David Blitzer, who administers Standard & Poor’s index of healthcare costs.  “But both Medicare and the commercial sector face rising cost pressures no matter what, and they seem to come from virtually all directions.”

Medicare sets prices on take-it-or-leave-it terms for hospitals and doctors, who complain it doesn’t pay them adequately.  That causes them to charge privately insured patients at higher rates.  Some experts say the longer Congress waits to act on the two programs, the more difficult it could become to make effective changes.  If Congress acts quickly, it can phase in changes over time, perhaps sparing current retirees while giving those closing in on retirement time to prepare.  Unfortunately, Washington has had difficulty making tough political choices that involve raising taxes, cutting benefits or some combination of both.  Advocates for seniors oppose benefit cuts, noting that Social Security’s finances are secure for decades.

“No one is saying you don’t have to maintain it,” said Eric Kingson, co-chair of the Strengthen Social Security Campaign and professor of social work at Syracuse University.  “What I worry about is reducing the benefit structure or radically changing the system.”  Kingson believes that Social Security can be shored up by simply increasing the amount of wages subject to Social Security taxes — an idea that the majority of Republicans in Congress oppose.  Social Security is financed by a 6.2 percent tax on an individual’s first $110,100 in wages and is paid by employers and workers.  Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012; the program’s finances are being replace through increased government borrowing.  The Medicare tax rate is 1.45 percent on all wages, paid by employees and workers.