Law Will Extend Medicare Fund, Report Says

Published: August 5, 2010 - New York Times

WASHINGTON — Medicare will remain financially solvent for 12 years longer than projected a year ago — until 2029 — because of the cost-cutting measures in President Obama’s recently enacted health care legislation, the program’s trustees reported on Thursday.

Social Security’s long-term finances also stand to improve slightly, the report said, though in the short run the retirement program’s condition has worsened because of high unemployment, which has reduced payroll tax revenues.

Both programs continue to face intense financial pressure in coming decades as the population ages and health care costs rise. Medicare, in particular, faces eventual insolvency if more is not done to balance its obligations to provide health care coverage to the elderly with the tax revenues that pay for the program.

Medicare’s hospital insurance trust fund should remain solvent until 2029, or 12 years more than projected in last year’s report, the trustees said. The long-term, 75-year shortfall for the hospital fund also is reduced, as are the projected costs of the separate Medicare Supplementary Insurance program. But both parts of the Medicare system will require additional reforms to be financially sustainable, the trustees say.

Social Security’s long-range finances stand to improve slightly starting in 2019, they said, from a new tax that takes effect that year on the priciest health insurance plans, which generally go to highly paid managers and executives. The tax is expected to result in a shift of compensation for such individuals from health benefits to income, which is subject to the payroll taxes for Social Security and Medicare.

In the short run, however, Social Security’s picture has continued to deteriorate because of the recession. For the first time, benefit payments this year will exceed the revenues coming into the program — six years earlier than was projected in the 2009 trustees report.

The trustees project that Social Security’s benefits and revenues will return to rough balance for the next several years as the economy continues to improve. But, they caution, the swelling of the retiree population by aging baby boomers soon will cause the program’s deficits to grow rapidly.

Current payroll tax and interest income for Social Security will cover benefits through 2024, projections show. After that, the program will have to draw down the Social Security trust fund, which is not an actual reserve of money but an accounting device tracking the accumulated surplus. The fund is projected to be emptied in 2037 — the same date as projected last year.

Thereafter, incoming payroll tax revenues would only cover somewhat more than three-quarters of scheduled benefits — requiring reduced benefits, higher taxes or both.

“Despite the projection that Social Security can continue to pay full benefits for nearly 30 years, the sooner action is taken, the more options for reform will be available, and the fairer reforms will be to our children and grandchildren,” Treasury Secretary Timothy F. Geithner, a trustee, said in a statement.