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Outlook Weakens for Social Security, Medicare

Both trust funds to be exhausted earlier than predicted

The trust funds that pay for Social Security and Medicare will run out earlier than predicted as the soft economy continues to drain revenue, heightening the need for congressional action, according to a government report Friday.

See also: AARP statement on 2011 Security and Medicare Trustees' reports.

The Social Security trustees' report, which examines the finances of both benefit programs each year, says that the Medicare hospital insurance fund will be exhausted in 2024, five years earlier than last year's report predicted.

The Social Security Old Age and Survivors trust fund will be exhausted in 2036, one year earlier than expected. After that, it will be able to pay 77 percent of scheduled benefits.

Social Security's Disability Insurance trust fund, which remained unchanged from last year, will run out in 2018, the report said.

About 54 million people collect Social Security retiree and disability benefits.

The recession and the slow pace of the recovery were largely to blame for straining the trust funds. High unemployment meant fewer workers were paying into the Medicare and Social Security systems. Also, an increase in life expectancy included in the report contributed to the projected deterioration of the trust funds. Men who turned 65 in 2010 can expect to live another 18.6 years, compared with 18.1 years in last year's report. For women, life expectancy increased to 20.7 years in 2011 from 20.4 years last year.

The 2 percent payroll tax holiday for employees this year, enacted as an economic stimulus, had no effect on Social Security's shrinking finances.

John Rother, executive vice president of policy and strategy at AARP, which has launched a campaign to protect and strengthen Social Security, says the report underscores the need for lawmakers to enact modest changes to both programs so retiree and health benefits can continue without disruption.

"The Social Security trustees reaffirm that the program is financially strong for decades to come and can be strengthened for the future with relatively modest adjustments," he says. "With pensions, savings and home equity down, many older workers unable to find jobs, and health costs continuing their upward climb, Social Security's guaranteed benefits are more crucial than ever."

Blame health care costs, economy

"Unfortunately, rising health care costs and a weakened economy have shortened the life of Medicare's Hospital Insurance trust fund," Rother says. "While provisions of the Affordable Care Act are helping to control spending in Medicare, far more must be done to reduce costs throughout the system and extend the Hospital Insurance trust fund for the long term."

Robert Greenstein, president of the Center on Budget and Policy Priorities, says that slowing the growth of health care costs, without compromising access or quality, is the single most important change that would lengthen the life of the Medicare trust fund.

Last year's trustee's report said savings from the new health care law had extended the life of the Medicare trust fund by about 12 years. Without those changes, the Medicare fund was projected to run out in 2016. But a reduction in payroll taxes flowing into the program last year shortened those projections.

Next: Lawmakers may have to raise taxes and cut programs. >>

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