Posts Tagged ‘Medicare budget forecast’

Social Security fund insolvent? running dry?

April 24, 2012

SOCIAL SECURITY CLOSER TO INSOLVENCY: Government says trust funds will run dry in 2033.

That was the headline over the lede [1] story this morning in my local newspaper, the Democrat and Chronicle.  Stephen Ohlemacher, the Associated Press reporter, began as follows:

Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians’ reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033—three years earlier than previously projected—the government said Monday.

There was no change in the year that Medicare’s hospital insurance fund is projected to run out of money.  It’s still 2024. … …

But then when you get to paragraph six, you learn what “running dry” means.

If the Social Security and Medicare funds ever become exhausted, the nation’s two biggest benefit programs would only collect enough money in payroll taxes to pay partial benefits.  Social Security could only cover about 75 percent of benefits, the trustees said in their annual report.  Medicare’s giant hospital fund could pay 87 percent of costs.

In other words, Social Security and Medicare will not have run out of money when the funds “run dry”.  The two programs will have used up the surplus in the Social Security and Medicare trust funds that were created by increasing payroll taxes during the Reagan administration, in anticipation of the retirement of the Baby Boom generation.  There are different ways this could be handled, including a moderate increase in the ceiling for payroll taxes.  But Social Security and Medicare will not be broke.

The estimated date that Social Security and Medicare will exhaust their surpluses fluctuates a great deal from year to year, depending on changes in the current state of the economic and forecasts for the future.  By some past estimates, these funds should already have been exhausted.

There is a larger issue than the amount of Treasury bonds in the Social Security trust fund.   Financial assets are not wealth, whether they be Treasury bonds, corporate stocks or bank savings certificates.  They are claims on wealth.  The real wealth is the amount of goods and services that are produced in any given year.  If the working-age population is not producing enough to support themselves and us retirees as well, that is a problem, no matter what we have in our retirement accounts or the Social Security administration has in its trust fund.

The answer is to somehow get back to a high-wage, full-employment economy, where somebody in their 50s who loses their job is not unemployable.  We need both better productivity and a more widely-shared prosperity. If a quarter of the nation’s increase in wealth is flowing to the upper 1 percent of the population, as it is now, there is not much left over for 85-year-old widows who depend on Social Security.  And if productivity increases are not keeping up with the increase in the aging population, then there is less to go around.   Of course we can improve the demographic balance by increasing the number of working-age immigrants.

Click on Robert Greenstein for a sober statement on the Social Security trustees’ report by the founder and President of the Center on Budget and Policy Priorities.

Click on Paul Van de Water for a sober statement on the Medicare trustees’ report by a senior fellow for the Center on Budget and Policy Priorities.

Click on Let’s beef up Social Security benefits instead of cutting them for a column by economics writer Michael Hiltzik in the Los Angeles Times. [Added 4/25/12]

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When will Medicare become insolvent?

June 16, 2011

When will Medicare become insolvent?  Pick a number from the chart below.

In 1991, the Medicare trustees predicted the fund would run short by 1999.  The latest prediction is that will be be okay until 2024.

Now, the failure of dire predictions to come true doesn’t mean they never will.  The ending of the story of the boy who cried “wolf” was that, one day, the wolf really came.

But remember that “insolvent” does not mean “broke.”  It means that, at some future date which we cannot predict, Medicare will not be able to pay 100 percent of promised benefits unless a change is made in the meantime.

Hat tip to Hullabaloo

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