On the one hand, the funding level of the program hasn’t lost ground, with both the dates by when the program costs are anticipated to exceed tax revenues (2017) and Trust Fund exhaustion (2041) unchanged from a year ago (see Predictions for Medicare and Social Security no Brighter than Last Year ).
The 2008 Trustees Report shows improvement in the projected long-term financial status of the Social Security program from last year, principally the result of methodological changes for projecting certain aspects of immigration. Over the 75-year period, the Trust Funds would require additional revenue equivalent to $4.3 trillion in today’s dollars to pay all scheduled benefits.
Nonetheless, Treasury Secretary and Managing Trustee Henry M. Paulson, Jr. cautioned that the report “â€¦again demonstrates that the Social Security program is financially unsustainable and requires reform.”
Paulson noted that the difference between the present values of Social Security inflows and outflows less the existing Trust Fund totaled $4.3 trillion over the next 75 years, and $13.6 trillion on a permanent basis. “To make the system whole on a permanent basis, the combined payroll tax rate would have to be raised immediately by 26%”, from 12.4% at present to about 15.6%, or “â€¦benefits reduced immediately by 20%.”
At the end of 2007, almost 50 million people were receiving Social Security benefits:
- 34 million retired workers and their dependents,
- 6 million survivors of deceased workers, and
- 9 million disabled workers and their dependents.
During the year an estimated 163 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2007 were $585 billion. Income was $785 billion, and assets held in special issue U.S. Treasury securities grew to $2.2 trillion.
While Social Security certainly faces funding challenges, an even greater concern was identified with Medicare.
In 2007, 44.1 million people were covered by Medicare:
- 36.9 million aged 65 and older, and
- 7.2 million disabled.
Total benefits paid in 2007 were $425 billion. Income was $462 billion, expenditures were $432 billion, and assets held in special issue U.S. Treasury securities grew to $369 billion.
However, the trustees report notes that, from the beginning of 2008 to the end of 2017, the assets of the Medicare HI trust fund are projected to decrease from $326 billion to $96 billion, which would "â€¦be far less than the recommended minimum level of 1 year's expenditures."
According to the report, the SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to match expected costs. By mid-2008, the Part B assets will have been restored to an adequate level, based in part on the expected reimbursement of the Part B account for certain Part A hospice benefits that were erroneously paid by Part B from 2005 through 2007. However, the report notes that Part B costs have been increasing rapidly, having averaged 9.6% annual growth over the last 5 years, and "are likely to continue doing so."
The report goes on to note that, "â€¦under current law, an average annual growth rate of 6.2% is projected for the next 10 years," a rate, the report says is "â€¦unrealistically constrained due to multiple years of physician fee reductions that would occur under current law, including a scheduled reduction of 10.1% for the second half of 2008."
The report goes on to note that if Congress continues to override these reductions, as they have for 2003 through the first half of 2008, the Part B growth rate would instead average roughly 8%, and for Part D, the average annual increase in expenditures is estimated to be 11.1% through 2017. This at a time when the U.S. economy is projected to grow by 4.8%, on average, during this period, "â€¦significantly more slowly than either Part B or Part D."
"The facts are clear: the sooner Social Security and Medicare are reformed, the fairer reforms will be to future generations," said Paulson.