WASHINGTON – The funds for Social Security and Medicare, the federal government's two largest entitlement programs, will go bust sooner than estimated just one year ago, reveals a report released on Monday.
The funding shortfalls come at no surprise with the trust fund for Social Security projected to be depleted in 2040 while Medicare will have no fund reserves left in 12 years. In last year's report, Social Security was projected to be depleted by 2041, one year later than projected now, and Medicare in 2020, two years later.
"Looking ahead, the financing problems facing Social Security will be challenging to address. Reflecting back, our nation has a proud history of grappling with difficult issues," said Jo Anne Barnhart, commissioner of Social Security.
The country faces a "looming fiscal crisis as the baby boom generation moves into retirement," Treasury Secretary John Snow, chairman of the trustees' panel, told a news conference.
Snow, Barnhart, Secretary of Health and Human Services Michael Leavitt, Secretary of Labor Elaine Chao and two public trustees, John L. Palmer and Thomas R. Saving, make up Board of Trustees. Their 75-year projection on how to pay retirement funds for an estimated 78 million baby boomers reveals that the projected actuarial deficit over that period is 2.02 percent of taxable payroll — up .09 percent from last year’s report.
The government will need to collect $4.6 trillion in additional revenue in today’s dollars to pay all scheduled benefits. This unfunded obligation is $600 billion higher than the amount estimated last year.
The trust funds actually are government IOUs to be paid back by either borrowing more money from the public by issuing marketable Treasury securities, raising taxes or cutting spending in other programs.
In the 2006 Annual Report to Congress, trustees urged lawmakers to prepare for the changes and to give advance notice to those baby boomers that their retirement funds are in danger.
"We do not believe the currently projected long-run growth rates of Social Security or Medicare are sustainable under current financing arrangements," the trustees said in this year's report. Barnhart added that the trustees are committed to strengthening the program.
President Bush has attempted to push Social Security reforms but disagreement stalled the effort in Congress. While even members in his own party rejected reforms, in his State of the Union address the president called for creation of a bipartisan panel to study the issue and come up with recommendations.
"There's a lot of baby boomers who are living longer. And there are fewer workers per beneficiary paying money in the system to support future retirees like me," Bush said Monday in a speech on health care initiatives in Washington, D.C. "And so the systems are going broke, and now is the time to do something about it. We got too much politics in Washington, D.C. It's time to set aside politics and restructure Social Security and Medicare for generations to come."
"The serious concerns raised by the trustees' reports demand the attention of America's policymakers and the public," echoed Snow, adding that the administration stands ready to work with Congress to reach a solution.
The report shows that the Social Security trust paid out nearly $521 billion in calendar year 2005 — up $27 million from 2004. As many as 48 million beneficiaries collected Social Security by the end of last year. The good news, trustees noted, is that the cost to administer the program in 2005 — $5.3 billion — was only 1.0 percent of total expenditures.
The Medicare program's viability has decreased in part due to financing issues that forced Medicare into the red in 2004, when payouts exceeded revenues to the program. Medicare is expected to turn back into the black again before finally heading toward bankruptcy.
For Social Security, the point at which the program will pay out more in benefits than it takes in will occur in 2017, the trustees projected, the same as in last year's report.
While the prescription for Medicare funding is being ignored in Congress, the Medicare prescription drug benefit continues to draw in registrants. Americans have until May 15 to enroll in a program that has been popular with seniors, but will bring new challenges to Medicare's sustainability.
Speaking Monday, Bush said the more seniors enroll in Part D, as the drug benefit is called, the less it costs government to pay for people's surgeries or other health care expenses. So far, 30 million seniors have enrolled in Part D, he said. In addition, on average, Medicare will pay for more than 95 percent of the costs of prescription drugs for low-income seniors.
During the speech, the president said health savings accounts would also help protect Americans, particularly those without insurance plans, from the rising costs of health care. But his remarks were met by skepticism from House Minority Whip Steny Hoyer, D-Md., who blasted Bush for his health savings account proposal.
"The fact is, there are 46 million uninsured Americans today, an increase of 6 million over the last five years. The President's continued insistence on Health Savings Accounts as a remedy for America's health care crisis shows that Republicans have no plan to help the uninsured. But at least President Bush is raising the issue; House Republicans are ignoring it," Hoyer said, arguing that health savings accounts will drive up the price of traditional group insurance and "discourage American families from seeking important preventative care."
The Associated Press contributed to this report.