Social Security, Medicare Healthier Than Expected

Social Security will be able to pay full benefits through 2037, and thanks to health care reform, Medicare will sustain itself until 2029—12 years longer than forecast a year ago—according to the trustees report released Thursday.

Both programs will last another 75 years under current funding rules, though benefit cuts of up to 25 percent for Social Security and 23 percent for Medicare might be necessary a few decades from now.

But analysts and officials say more tweaks are needed to bolster both systems—and the four trust funds that support them—amid uncertainty over rising medical costs and an expected wave of new retirees.

The yearly report examines the short-term and long-term financial health of the Medicare and Social Security systems, based on forecasts of income and outgo.

The authors admit that the forecasts are unable to account for all possible variables in the economy, employment, health care costs and demographics, but analysts say the fiscal snapshots paint an encouraging picture overall.

Building up Medicare

Adjusting payments to providers, more taxes on high earners, and other aspects of health care reform will help stretch Medicare trust funds to 2029, the report says.

After that, the payouts to recipients—currently about 46 million—would be sustained on a pay-as-you-go basis from payroll taxes collected.

Boosting Medicare payroll taxes by 0.66 percent for all workers would make Medicare self-sustaining for the next 75 years, the report said.

However, it’s unclear whether the cuts to health provider payments truly are feasible, the report cautions.

The system faces a real crunch from 2020 to 2045, when a large number of Gen-Xers will join boomers in the program.

“The financial problems facing Medicare are the same problems facing private plans and younger people: rising health care costs,” said Pamela Herd, associate professor of public affairs and sociology at the University of Wisconsin-Madison. “If anything, Medicare has been more efficient than the private sector in controlling costs.

“It’s clear we are going to have some savings. What’s unclear is how large they will be.”

As for Social Security ...

“Social Security is not in that bad of shape,” said Herd. “And this has been consistent for a long time now.”

Social Security this year will pay its 52.5 million recipients some $41 billion more than it takes in via payroll taxes, which have been eroded by several years of high unemployment rates. The deficit is due in part to an accounting adjustment, but a $7 billion shortfall also is expected in 2011.

The fund that covers retiree and survivor benefits—which were paid to nearly 43 million people by the end of 2009—is running a surplus. But the disability pool, which provided benefits for 9.7 million recipients last year, is on track to exhaust its own assets by 2018. Disability payouts still can be fully covered through 2037, trustees said, if lawmakers allow the retirement and survivor trust funds to be tapped.