(3/26/05)-In its annual report to Congress the trustees of the Social Security and the Medicare Trust Funds concluded that the Social Security Trust Fund would be depleted in 2041 which is one-year earlier than called for under last year's report. The Medicare hospital insurance trust fund would be depleted in 2020, one year later than was predicted last year.

There are 6 trustees who comprise the board for the funds. As required by law, four of the trustees are administration officials. They are: John W. Snow, secretary of the treasury; Michael O. Leavitt, secretary of health and human services; Elaine L. Chao, secretary of labor and Jo Anne B. Barnhart, commissioner of Social Security. The two public trustees are: Thomas R. Saving, a Republican appointee, who is an economist at Texas A&M University, and John L. Palmer, the Democratic appointee, who is former dean of the Maxwell School at Syracuse University.

The trustees also stated that Medicare beneficiaries faced a 12% increase in their premium in 2006, with the charge rising to $87.70. The premium cost $78.20 in 2005, which represented a 17% increase over 2003 premium of $58.70. Please keep in mind that the new prescription drug coverage for Medicare beneficiaries that begins in 2006 is expected to cost about $35 a month, which will be separate and distinct from this Medicare premium.

The report also included the estimate that annual benefits will begin to exceed annual revenues from Social Security taxes in 2017. After 2017 the government will have to borrow money, or tap general revenues to meet the systems obligations. According to last year's report this shortfall would occur in 2018.

According to Mr. Palmer, the Democratic trustee, the main reason the projected financial condition had deteriorated was that wages grew more slowly than expected in 2004, and therefore generated less payroll tax revenue.

(3/17/05)- Under the current structure, payroll taxes will begin falling short of what will be needed to pay benefits in 2018, according to the latest estimate by the Social Security Administration. According to this same estimate the Social Security Trust fund will be exhausted by 2042. The only money left to pay Social Security benefits in 2042 will be what is paid in as Social Security taxes. This amount will be enough to pay about 75% of scheduled benefits that year.

(7/22/04)-The first comprehensive study of the Social Security system by the Congressional Budget Office, which is the nonpartisan overseer of the budget, indicated that the Social Security Trust Fund would go broke in 2052 as opposed to the Bush administration's estimate that it would be depleted by 2042. "Outlays are projected to begin exceeding revenues in 2019, with the gap growing ever wider thereafter, "the budget office said.

In 2003, the budget office said, Social Security spending equaled 4.4% of gross domestic product, somewhat less that the tax revenue dedicated to the program. The CBO's projection was that revenue will remain around 5% of the GDP for the next 100 years, but outlays will rise to 6.1% of GDP in 2030 and 6.8% in 2100.

The 221-page report by the Medicare Trustees for 2004 has just been released by Richard Foster, Medicare's chief actuary who has been in the limelight lately.. The trustees estimate that the Hospital Insurance (Part A) trust fund will go broke in 2019, 7 years earlier than last year's projection. Part A of Medicare is financed from fixed payroll taxes. This trust fund no longer meets the Trustees test of short-range financial adequacy.

The Part B, for physician care, trust fund is deemed to be adequate. It along with the new Part D, for the drug benefit, are covered by general revenues and premiums. The premiums are adjusted each year to cover about 25% of the costs. Mr. Foster estimated that the premiums will eat up 13% of a typical Social Security monthly check by 2010. It is also estimated that by the year 2012 general revenues will have to pay for 45% of all Medicare spending.

The board further warned that the fiscal outlook is even worse that the official projections because the estimates are based on the unrealistic assumption that the average Medicare fee for doctors' services will be cut by about 5% each year from 2006 to 2012, as required under the current rules. As we saw last year when a similar type cut was supposed to take place, a slight increase took place instead of the decrease called for under the forumla.

The report cites following reason for the part A trust fund's earlier exhaustion:
(1) the new Medicare legislation.
(2) higher Part A expenditures and lower payroll tax revenues in 2003 than expected.
(3) improved data on the health status of beneficiaries in HMOs, and
(4) model refinements for certain hospital payments.

The report estimates total Medicare expenditures were 2.6% of the GDP in 2003..In 2006, with the implementation of the new prescription drug benefit, the report estimates total expenditures to be 3.4% of GDP and to increase to 7.7% by 2035 and to 13.8% by 2078. Projected Medicare costs would exceed those for Social Security in 2024.

The trustees of Medicare and Social Security annual reports projected that Medicare would run out of money to pay benefits in 2026, which was 4 years earlier than what had been projected last year. Social Security gained a year from last year's projection so that its expected life span now extends to 2042.

Included in the reasons for the lowering of the projected solvency life for Medicare are the more pessimistic assumptions abut wages, which could erode Medicare payroll taxes. The solvency assumptions also included the fact that we have an aging population base so that more people will become eligible for Medicare with each passing year. The increase in assumptions about future immigration trends was one of the main items leading to the extension in the solvency of Social Security.

In saying that Social Security is "unsustainable for the long term" Mr. Bush reiterated his thoughts for Social Security which includes using a portion of payroll-tax revenues to fund personal investment accounts. According to Rep.Pete Stark (Dem-Ca.) however, "Solvency is still close to an all-time high….Those who try to use ill-conceived, so-called reform proposals are simply trying to deflect attention from their ultimate goal to siphon tax-payer funds to the insurance industry by pushing elderly and disabled Medicare beneficiaries into managed-care and other private plans."

President George W. Bush had appointed a panel to look into the need to overhaul the Medicare and Social Security systems. Former Senator Patrick Moynihan of New York, and Richard D. Parsons, the then vice-chairman of AOL, headed the panel. The report of the panel included comments allowing participants to invest in stocks and bonds as soon as possible. It did not show how it could accomplish it since it did not set out any financial proposals showing how to set up of such a system.

According to the panel the key date takes place in 2016. That would be the first year that payroll tax revenues coming into Social Security from employees and employers would fall short of benefit payments to beneficiaries. To cover this gap we would have to dip into the Social Security Trust Fund for the first time in the history of the system. According to leading Democrats however, there is no reason to believe that Social Security would run short of money until 2038 when the system will have redeemed all its bonds and be able to pay only 72% of promised benefits out of payroll tax revenues.

The Board of Trustees of the Social Security Trust Fund is composed of six members. Four of the members serve automatically by virtue of their positions with the federal government. They are the Secretary of the Treasury, who is the managing Trustee; the Secretary of Labor; the Secretary of Health and Human Services; and the Commissioner of Social Security.

The other two members are appointed by the President and confirmed by the Senate to serve as public representatives. The two present members who were appointed by the president are John L. Palmer, former dean of the Maxwell School at Syracuse University and Thomas R. Saving. The purpose of the 6-member panel was to evaluate the assumptions, estimates and forecasts made each year by the trustees regarding Medicare and Social Security.

In the fiscal year that ended September 30, 2000 Medicare spent about $218 billion for the 39 million people covered by the plan. The panel estimated that the cost would double to over $440 billion by the year 2010. Please keep in mind that health care spending is currently about 13.5% of gross domestic product. Also keep in mind that prescription drugs are not covered under Medicare.

Last year the trustees estimated that the Medicare Trust Fund was projected to stay solvent till 2029, which is up 14 years from the prior year's projection of 2015. The Social Security trust fund solvency was projected to 2038 from the prior year's projection of 2034. The trustees also projected that life expectancy will rise from 76.6 years in 2002 to 82.7 years by 2070, a 1 1/2 year longevity improvement over the estimate made in 2001.

Three years ago the trustees of the Medicare and the Social Security trust funds reported that Medicare would go insolvent in the year 2001, and Social Security would go insolvent in the year 2029. It seems as if predicting the stock market is easier than predicting the health of the Medicare and Social Security Trust Funds.

For the fiscal year 2000 the Congressional Budget Office has projected a non-Social Security surplus of $20 billion which is expected to grow to $100 billion by the year 2005. If you include Social Security surplus into the equation the government had a record $124.4 billion surplus in 1999, following a $69.2 surplus in 1998.

The solvency problem becomes more acute because we will reach a point in which more people will be receiving benefits through entitlements, than there will be people working who are contributing new funds to the two trusts. Up until 2001 we were in a period of economic prosperity, which had been the main factor behind the increases in projected solvency for the 2 trust funds. What will happen to the estimates during a period of economic pullback or recession? If we do nothing to correct the problem in the good times, we will have our backs to the wall when we try to fix things during periods of economic weakness.

The improvement in Medicare solvency estimate had been as a result of several factors. The improved economy has certainly helped a lot. The Government has undertaken a sharp cost containment since 1997. A crackdown on waste, fraud and abuse has resulted in an approximate savings of $1.2 billion dollars with even more savings expected in the coming years.

Social Security estimates had also benefited greatly by the healthier economy up until 2001. The estimate has also benefited from the lowered inflation rate factored into the equation. That has lowered long term expectations of benefits payments, which are indexed to inflation. In arriving at the estimates in 2002, the trustees utilized a relatively conservative economic assumption. They estimated that economic growth between 2010 and 2050,would average less than 1 1/2 % per year. That is about half the actual growth rate that has occurred in the last 75 years. Although the trustees are political appointees, their annual report in reality is the work of a staff of government actuaries and economists.

In the coming months you will read and hear much about saving these 2 systems. Keep in mind that Medicare spending increased only by 1.5 % in 2001. The Medicare Hospital Insurance Trust Fund posted a surplus of $1 billion in 2001. Spending from this fund declined by one-half of one percent in 2001.

Save the Social Security surplus for the solvency of the Medicare and Social Security systems. That is the common theme emanating from the mouths of many of our politicians. Well, easier said than done. As an example of this all we have to do is look at a $14.7 billion emergency spending package passed by Congress and signed by the president in 2001.

The bill was originally intended to cover the costs of the Yugoslavian campaign and aid to Central American victims of Hurricane Mitch. The Balanced Budget Act of 1997 requires that before there can be any additional spending of Federal moneys there must be an offsetting decrease in spending to balance out the increase.

If however a spending is deemed and "emergency spending" it is not included within the provisions of the act. See our article Security and Social Security-Can They Co-Exist in a Balanced Budget. About $13 billion of the money needed for the additional spending came from the surplus in the Social Security Trust Fund. $1.25 billion of the money will came from some elimination in the food stamp program. Included in the bill was almost $5 billion more than what the President had asked for because of a combination of pork barreling by the legislators and increases in defense spending.

As an example of the horse-trading that goes on to get the budget passed the Clinton Administration had to make a very costly concession to get its last budget passed by Congress. The federal government will be barred from claiming any part of the $246 billion settlement between the states and the tobacco industry. They had hoped to be able to recover $16 billion of federal costs under the joint federal-state Medicaid health care program for the poor. Most of the pork barrel legislation was placed in a separate emergency package for future consideration. Some of it was included in this bill. Commercial fishermen in Alaska received $26 million to compensate them for Federal fishing restrictions. The local airport in Washington got $30 million, and $3.76 million was allocated to redo the dorms of the House pages. Salt Lake City got $2.2 million for sewers for the 2002 Winter Olympics. $2 million will go to intensify security at the Holocaust Memorial Museum in Washington and $250,000 will help revitalize downtown Los Angeles. $56 million was added to help school districts in states such as Iowa that would otherwise lose money under updated population numbers used by the Education Department.

FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"  

See our article on Proposed Medicare Revisions

By Allan Rubin
Updated March 26, 2005

http://www.therubins.com

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e-mail: rubin@brainlink.com or hrubin12@nyc.rr.com