Urgency to fix Social Security financing growing

Social Security’s retirement and disability programs have enough resources to cover benefits for the next 20 years, according to the latest Social Security and Medicare trustees report, issued today.
After the trust fund surplus is exhausted in 2033, there will be sufficient income from the dedicated payroll tax to pay about three-quarters of scheduled benefits through 2087.
But Congress must act long before that to stabilize the critical-benefits program. Currently, nearly 46 million workers and family members receive Social Security retirement benefits, and 11 million people rely on disability benefits to replace income when they can no longer work.
“Projected long-range costs for both Medicare and Social Security are not sustainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers,” the report said. “If lawmakers act sooner rather than later, they can consider more options, and more time will be available to phase in the changes, giving the public adequate time to prepare.”
Possible solutions include payroll tax hikes, benefit reductions or a combination of the two.
Although the trustees’ report on Social Security’s long-term financial outlook is essentially unchanged from last year’s report, the program’s long-term income shortfall is now larger than it has been at any point since before the landmark reforms of 1983, said Charles Blahous, one of six trustees who presented the report’s findings during a news conference at the Treasury Department.
“The fact that the combined trust fund surplus is projected to last until 2033 should not mislead us into thinking that we have that long to deal with the financing problem,” Mr. Blauhous, a research fellow at the Hoover Institution, warned. “By then, it would be pretty implausible for lawmakers to close those gaps.”
Even if a Social Security solution were enacted today and effective immediately, it would require financing corrections that would be substantially more severe than those enacted in the 1983 program amendments that gradually raised the age for full retirement benefits and instituted the taxation of Social Security benefits for wealthier retirees.
When viewed separately, the disability trust fund is in much worse shape than the retirement trust fund. The disability trust fund is expected to be exhausted in three years — 2016 — whereas the retirement trust fund is expected to last through 2035.
“While legislation is needed to address all of Social Security’s financial imbalances, the need has become most urgent with respect to the program’s disability insurance component,” the report said.
Despite the still-dour outlook, the Medicare picture is actually improved from a year ago.
The Medicare Hospital Insurance trust fund, which finances Medicare Part A, will have sufficient funds to cover its obligations until 2026, two years later than projected last year, partially due to cost savings from the Affordable Care Act. After 2026, the share of the health insurance trust fund costs that could be financed with dedicated payroll tax revenue would decline slowly to about 87%.
Medicare Part B, which covers doctors’ visits and outpatient services, as well as Part D, which covers prescription drugs, are financed through premiums paid by beneficiaries.
Health and Human Services Secretary Kathleen Sebelius, one of the program’s trustees, said Medicare Part B premiums are likely to remain at current levels next year based on cost projections in the report. This year, most Medicare beneficiaries pay $104.90 per month for Medicare Part B coverage. Higher-income beneficiaries pay more. Medicare premiums for 2014 will be announced at the end of the summer.