The Corner

Deciphering the Social Security and Medicare Trustees Reports

Yesterday the Social Security and Medicare Trustees released their annual reports. The Washington Post provides decent coverage.

Social Security took a double hit: First, the recession lowered payroll tax revenues; second, higher projected life expectancies will mean more seniors collecting benefits. The first payroll tax deficits shifted from 2017 to 2016 while the trust fund’s exhaustion date moves from 2041 to 2037. The biggest change, however, was less reported: Social Security’s total long-term deficit increased by 18 percent, a massive shift.

The Social Security report also showed no Cost of Living Adjustments will be paid from 2010 through 2012. Rising energy prices boosted inflation last year, but the CPI has fallen since then. When inflation is negative, no COLA is paid. Seniors groups are squealing that Congress should pay a COLA anyway. But if inflation is negative and benefits stay the same, the real purchasing power of benefits increases. Seniors groups know this, but they want another increase on top.

The Medicare report showed the system’s trust fund running out in 2017, a two-year shift forward. Administration officials latched onto these findings to promote their health-care reforms, saying that private-sector health-care inflation is what’s driving up costs for Medicare. HHS Sec. Kathleen Sebelius argued that the best way to strengthen Medicare’s finances is to “fix what’s broken in the rest of the health-care system.” But as this chart from Obama’s budget shows, the main entitlement cost driver over the next 40 years isn’t health-care inflation, but simple population aging — more retirees collecting Social Security, Medicare, and Medicaid benefits, fewer workers supporting them. But population aging is a problem peculiar to government programs, which focus on seniors, and you don’t need to nationalize health care for working-age Americans to fix that.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute and a former principal deputy commissioner at the Social Security Administration.

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