January 23, 2019

Medicare reserves seen lasting three years less than prior forecast

07 June 2018, 10:44 | Joann Bryant

Health and Human Services Secretary Alex Azar is one of the trustees overseeing Medicare

Health and Human Services Secretary Alex Azar is one of the trustees overseeing Medicare

The combined reserves of the Social Security trust funds are expected to be depleted in 2034, the same time frame projected past year, according to the latest annual report from the Social Security and Medicare Board of Trustees released Tuesday.

Depletion of the Social Security trust funds means that the program would no longer be able to pay its full benefits. Income to the Medicare fund is expected to be lower than estimated previous year because of "lower payroll taxes attributable to lowered wages in 2017 and lower levels of projected gross domestic product", the Treasury said in a "fact sheet" accompanying the report.

President Trump pledged during the 2016 campaign to leave Social Security and Medicare benefits untouched, putting him on a crash course with Republicans on Capitol Hill who have said they wanted to tackle the programs' problems by limiting future benefit increases. Taken separately, the fund for retirees is now expected to be depleted in 2034, a year earlier than last year's report, while the disability insurance reserves run out in 2032, four years later than projected last year. "The Administration's economic agenda - tax cuts, regulatory reform, and improved trade agreements - will generate the long-term growth needed to help secure these programs and lead them to a more stable path", Treasury Secretary Steven Mnuchin said in a statement.

The trustees said the share of Medicare hospital benefits that can be covered by the program's payroll tax revenues will decline from 91 percent in 2026 to 78 percent in 2039 before rising to 85 percent in 2092. SSA had previously estimated that the Protecting and Preserving Social Security Act would strengthen the program by covering these costs and benefits for an additional 25 years, until 2059-further strengthening the basic safety net for millions of Americans, including many of those who have worked hard for their entire lives. The ratio of workers to beneficiaries fell to 3.3 in 2005 and then to 2.8 in 2016. The problems in the entitlement programs only add to those woes.

The updates on the health of the two largest USA entitlement programs were the first since December's sweeping tax cuts, which the White House said would increase growth, offsetting lost tax revenues, something economists doubt.

The trustees also expect Medicare spending "will increase in future years at a faster pace than either aggregate workers' earnings or the economy overall". This is because premium income and general revenue income are reset each year to cover the expected rise in costs.

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