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Reports on Medicare, Social Security Fuel Budget Debate

By David Harrison, CQ Staff

May 13, 2011 -- The Medicare trust fund will run out of money by 2024, five years sooner than projected a year ago, according to the annual report released by the program's trustees.

The projection—and, to a lesser extent, a separate report on Social Security that predicted that program's insolvency by 2036 under current conditions—immediately became fodder in the debate over federal spending and the national debt.

Despite last year's enactment of the health care law, which added several years to the program's solvency, the continuing economic downturn has depressed payroll tax collections, which replenish the trust fund, according to the trustees.

The Social Security trustees said that program's fund is expected to take in $46 billion less than it will pay out in 2011, and if current trends continue it will be insolvent by 2036, a year earlier than previously anticipated.

"The trustees' reports underscore the need to act sooner rather than later to make reforms to our entitlement programs," Treasury Secretary Timothy F. Geithner, the managing trustee, said in a prepared statement. "Last year, the president and Congress took a timely, first step by enacting the most significant entitlement reform in decades. But we must go beyond The Affordable Care Act and identify additional reforms. Americans are living longer and health-care costs are continuing to rise. And if we do not do more to contain health-care costs, our commitments will become unsustainable."

The Medicare trust fund covers hospital care for seniors in the program, known as Part A. Other services, like outpatient care and doctor visits, are funded by premiums and taxes and thus are not in danger.

Republican lawmakers seized on the report as a validation of their demands to overhaul Medicare and reduce spending on the program. Medicare has emerged as a key issue in the debate over raising the nation's debt ceiling, which currently stands at $14.3 trillion, a level that is expected to be reached by August.

Some lawmakers are also urging changes to Social Security to shore up its finances.

"Today's report makes it clearer than ever that doing nothing is not an option," House Ways and Means Chairman Dave Camp, R-Mich., Health Subcommittee Chairman Wally Herger, R-Calif., and Social Security Subcommittee Chairman Sam Johnson, R-Texas, said in a joint statement.

"The failure to act means current, as well as future, beneficiaries will face significant cuts even sooner than previously estimated. We call on the president and all of our colleagues in the House and Senate to act now and take the long overdue steps to strengthen these vital programs."

Health and Human Services Secretary Kathleen Sebelius said the administration had already taken significant steps to shore up Medicare through the health care overhaul and noted that President Obama recently proposed a "fiscal framework" designed to save at least $200 billion more for the program over the next 10 years.

"Some in Congress want to take us backwards and have proposed a plan that would end Medicare as we know it and shift costs to seniors and the most vulnerable. That's the wrong way to reform Medicare," Sebelius said in a White House blog post. "The right way to reform Medicare is to improve it so people get better care at a lower cost."

Last month, the House passed a budget resolution (H Con Res 34) authored by Budget Chairman Paul D. Ryan, R-Wis., that would transform Medicare beginning in 2022. Republicans say the plan to give seniors a set sum every year to purchase private insurance would cap taxpayers' liability and curb the program's growth, while Democrats counter that it would transfer costs to seniors and raise their out-of-pocket medical costs.

Senate Minority Leader Mitch McConnell, R-Ky., said he wanted spending caps on Medicare and Medicaid over the next 10 years in exchange for agreeing to raise the debt ceiling. But he said Social Security would not be part of the bipartisan negotiations with the White House.

The trustees project that Medicare costs will continue to grow from 3.6 percent of GDP in 2010 to 5.5 percent in 2035 and 6.2 percent in 2085. They base that on several assumptions, including that the health care overhaul law (PL 111-148, PL 111-152) will be implemented in full, although Republicans in Congress have made it their No. 1 goal to prevent its implementation. They also assumed payments to doctors would be cut almost 30 percent, as scheduled—reductions that Congress has repeatedly postponed through a regular series of "doc fix" bills.

As the economy improves, the trustees expect the Social Security trust fund shortfall to shrink to $20 billion from 2012 to 2014, when baby boom retirements push the fund further into insolvency.

Assets in the fund will be completely depleted by 2036, one year earlier than anticipated After that, payroll tax revenues will only pay for three-quarters of the costs of benefits through 2085. The Social Security disability insurance fund faces the greatest risk, the trustees found, anticipating that it will run out of money by 2018.

The report called on lawmakers to address the looming deficits in the program. But Congress is unlikely to take up Social Security changes as part of the debt discussion. McConnell acknowledged that Social Security would not be part of any bargain.

"Our assumption is they don't want to do it. I wish they did," he said, referring to congressional Democrats and the Obama administration. "I don't expect that, frankly, to be dealt with in the context of the debt ceiling.

Still, some Republicans are urging Obama to address the issue now. "Social Security has been once again treated as the third rail of politics," a frustrated Sen. Orrin G. Hatch, R-Utah, said at a hearing earlier this week. "Eventually, the financial electricity of that rail will run out if it is not reformed."

But Senate Finance Chairman Max Baucus, D-Mont., is trying to fend off calls for tackling Social Security as part of the current fiscal debate.

"Though we have high deficits and debt, Social Security is not the cause of those problems and shouldn't be a scapegoat in our answer to them," he said in a written statement. "Social Security's benefits are fully financed by contributions from future beneficiaries and they don't add a dime to the federal deficit. We should not try to use the Social Security benefits seniors have earned as an easy way out of this deficit crisis. Social Security needs a long term-answer, and we should develop a long-term solution, but the current situation does not necessitate rushed or severe action."

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