The bad economy has shortened the life of the trust funds that support Social Security and Medicare, the nation's two biggest benefit programs, the government reported Friday. Here are eight things to know about the new estimate:
1 What is the new estimate? Medicare could begin running a deficit in 2024, five years earlier than projected last year. And Social Security, which last year began paying out more in benefits than it collected in taxes, now faces insolvency in 2036, compared to 2037 in last year's projections.
2Why the change? The trustees said the new estimate is because of a weaker economy, which means fewer people working and paying payroll taxes into the fund, and continued increases in health care costs. Last year's report had extended the life of the Medicare fund by 12 years to reflect the savings that were included in the health care overhaul. Without the changes in health care law, the administration said, the Medicare trust fund would be exhausted in 2016. The savings in the health care legislation are still included in the projections but have been updated to reflect economic data over the past year.
3 What it means: Many experts believe that the outlook for Medicare is actually worse because the trustees' projections assume deep cuts in payments to doctors that Congress has routinely waived, and because other cost savings from the health care law will be difficult to realize. The report increases pressure on Congress to make changes soon. The longer lawmakers wait, the more likely they will be forced to impose steep tax increases, deep benefit cuts, or both, to save the programs. By acting sooner, the trustees who oversee the two programs said, Congress can impose gradual changes that don't hurt current beneficiaries and give future retirees time to prepare.
4 Who gets the benefits? Nearly 55 million retirees, disabled people and children who have lost parents receive Social Security benefits, which average $1,077 monthly. Medicare, the U.S. health insurance program for the elderly and disabled, covers more than 46 million people.
5 Will there be a cost of living increase? The report projected that the millions of Social Security recipients would receive a small -- 0.7 percent -- cost of living increase in their benefit checks in 2012. In 2010 and 2011, there were no cost of living increases in the checks because inflation was low. A 0.7 percent increase would not be seen by many beneficiaries because the extra money would be eaten up by higher insurance premium payments for Medicare. The actual benefit increase will be determined based on the performance of the government's Consumer Price Index. That figure will be released in October.
6 What would it take to stay solvent? Medicare, to stay solvent for the next 75 years, would have to immediately raise payroll taxes by 24 percent, or cut current benefit payments by 17 percent, said Cori Uccello, a senior health fellow with the American Academy of Actuaries in Washington.
7 What's the political debate about? Democrats and Republicans agree that Medicare must be addressed soon, but the consensus ends there, even as a bipartisan group of lawmakers is holding talks on ways to tackle the nation's mounting debt. Changes to Medicare could be part of an agreement to increase the debt ceiling with most Republicans and some Democrats saying they won't vote to increase the government's ability to borrow without significant spending cuts. The government is expected to reach its borrowing limit of $14.3 trillion soon. Treasury Secretary and trustee Tim Geithner urged Congress to "move as quickly as possible" to raise the borrowing limit. He has told lawmakers that he can take steps to delay until Aug. 2 what would be an unprecedented default on the debt.
Meanwhile, Social Security appears to be off the table. Many Democrats, including Senate Majority Leader Harry Reid, D-Nev., have been adamant that they will not support cuts in Social Security benefits, even if they target only future retirees. Senate Republican leader Mitch McConnell acknowledged that changes to Social Security won't be part of any agreement.
8 What will happen if Congress does not act? The Social Security trust fund that finances aid to about 10 million disabled Americans and their dependents will be the first to dry up, with funding scheduled to run out in 2018, trustees said. The fund, when combined with a separate and much larger trust fund paying benefits to seniors, has enough money to stay solvent until 2036. Social Security law requires program spending to match revenue, so a lack of action by lawmakers by that time will mean benefits will have to be cut 23 percent or the Social Security payroll tax increased to 16 percent, or a combination, the report said. A U.S. delay in extending Medicare's fiscal life may force cuts for current beneficiaries rather than diminishing them for people who enter the program several years from now.
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