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Social Security, Medicare outlook improves The nation's retirement programs will not run out of cash as early as previously thought, reflecting the vibrant health of the U.S. economy through much of last year, Social Security and Medicare trustees said Monday. The projected insolvency date of the Medicare trust fund was delayed by four years to 2029, and insolvency of the Social Security fund was put off by one year to 2038, the trustees' annual report said. It marked the fourth year in a row that the retirement programs gained new years of life, reflecting the sizzling state of the nation's economy during the first half of last year. But the economy began to weaken at the end of last year and is now sputtering. This year's improvement in the financial outlook of the retirement programs wasn't as dramatic as last year's projections. Medicare, the health insurance program for the elderly and the disabled, had been projected last year to run out of cash in 2025, 10 years later than earlier forecast. That was moved to 2029 in the new estimate. Social Security, the largest federal benefit program, had been expected to exhaust its trust funds in 2037, a three-year extension, in last year's report. The new date now is 2038. The Bush administration said the programs, which now run huge surpluses, still face financial challenges as the aging baby boom generation begins to retire in the next decade. "We have only so many years to get the systems back on track," Bush told Hispanic business leaders meeting at the White House. "These nonpartisan reports underline and add an exclamation point to the need to reform and strengthen both Social Security and Medicare." The trustees paid particular attention to Medicare, whose spending is ultimately expected to exceed the costs of Social Security. "The Medicare program as a whole presents financial challenges that will require integrated and comprehensive solutions," said Treasury Secretary Paul O'Neill, who sits on the board of trustees. The additional four years added to Medicare's life in this report shouldn't been used as an "excuse for complacency," O'Neill said. O'Neill told reporters at a briefing that the recent stock market volatility should have no impact on the new projections about when Social Security and Medicare will run out of money. "When you are doing a 75-year estimate ... what is happening today almost doesn't matter," he said. The long-range forecasts are based on estimates of economic growth, employment and incomes in the coming decades. The projections come as Republicans in Congress and liberal Democrats battle over expanding the Medicare program, including potentially costly but politically popular prescription drug benefits. Bush had called for overhauling the program to include competition from private health plans before extending benefits to all participants. Democrats prefer coverage for all participants with incremental reforms to ensure the program's future ability to handle the baby boom generation. Health and Human Services Secretary Tommy Thompson, another trustee, said momentum to add the drug benefit should include a program overhaul. "Why don't we do the whole thing now?" he said. "We have the time and the means to modernize and improve Medicare. This report tells us that we must." The report also said that Social Security and Medicare will have to start dipping into their trust funds in 2016, when they will no longer be taking in more money than they have to pay out. Economic factors that brought brighter prospects for Social Security and Medicare this year included low unemployment rates. More Americans working meant more payroll taxes to support the two programs, padding their balance sheets. Low inflation also saves money for the Social Security system because yearly cost-of-living raises to retirees are smaller. But rapidly rising health costs pose an additional challenge for Medicare's financial health, experts say. Medicare spending had slowed slightly in recent years, mainly because of cuts mandated by Congress in 1997 and a crackdown on fraud and billing errors. That spending won't keep falling, however, as Congress restores some of the cuts and the nation's elderly population grows. Health care costs could also temper the optimism of the traditionally conservative trustees, who include the secretaries of labor, treasury and health, plus the Social Security commissioner and scholars. "The trustees might have to go back and reconsider some of the assumptions about medical costs," David Johns, a Social Security analyst with the Heritage Foundation, said in an interview Friday. Recent reports put the nation's annual health care spending at a record $1.2 trillion -- with prescription drugs accounting for nearly 10 percent of the costs. Federal economists expect drug spending alone to increase fourfold by 2010. And Congress, looking to keep election-year vows to add benefits to Medicare, will have to confront the program's financial health. President Bush and some Republican leaders are insisting on a comprehensive long-term plan for reforming Medicare. |
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