Trustees warn of looming insolvency for Social Security, Medicare

WASHINGTON -- The nation’s Social Security and Medicare programs are sliding closer to insolvency, the federal government warned Monday in a new report underscoring the fiscal challenges facing the two mammoth retirement programs as baby boomers begin to retire.

Medicare, which is expected to provide health insurance to more than 50 million elderly and disabled Americans this year, is expected to start operating in the red in its largest fund in 2024, according to the annual assessment by the trustees charged with overseeing the programs.

And the Social Security trust fund, which will provide assistance to more than 45 million people in 2012, will be unable to fulfill its obligations in 2033, three years earlier than projected last year.

“We must take steps to keep these programs whole for the future,” Treasury Secretary Timothy F. Geithner, the senior trustee, told reporters Monday.

When the Social Security and Medicare funds are exhausted, they will still be able to pay benefits because they will continue to collect tax revenue. But the deficits would probably force major cuts.

The dismal outlook was fueled in part by the sluggish economy, which has slowed growth in payroll taxes that sustain the trust funds, according to trustees, who include Cabinet secretaries and two public representatives.

That sparked a new round of calls from around Washington on Monday for a new effort to tackle the entitlement programs. Most immediately, the trust fund that pays for disability benefits is projected to run out of money in just four years.

“Leaving Medicare and Social Security on autopilot and allowing them to continue to grow beyond their means is no longer an option,” said Utah Sen. Orrin G. Hatch, the senior Republican on the Senate Finance Committee.

Over the last three decades, the two political parties have periodically forged compromises that extended the solvency of Medicare and Social Security. At one point in the mid-1990s, Medicare’s hospital trust fund was projected to run out of money in just four years, before an improving economy and a budget deal between Democrats and Republicans headed off disaster.

It is unclear whether a similar compromise is possible in today’s hyper-partisan environment.

Medicare, in particular, has emerged as a central flash point between the two parties, which are pushing starkly different plans for the 46-year-old insurance program.

Congressional Republicans have twice in the last two years pushed legislation to largely privatize Medicare by giving beneficiaries a voucher to shop for commercial insurance, a plan they say would give seniors more choice and help bring down costs. Former Massachusetts Gov. Mitt Romney, the presumptive GOP presidential nominee, is backing a similar strategy.

Depending on how they are structured, voucher programs – or “premium support,” as proponents call them – can shift thousands of dollars of medical bills onto seniors. The nonpartisan Congressional Budget Office has calculated this is the primary way in which such programs save the government money.

Republicans are also pushing to raise the eligibility age for Medicare from 65 to 67, in another move to contain costs.

President Obama and his allies on Capitol Hill have largely resisted these proposals, looking instead to the new healthcare law the president signed two years ago to restrain rising costs in Medicare. This would be done largely by using the program to force medical providers to become more efficient.

This strategy has produced mixed results in the past, as elected leaders sometimes retreat from making politically difficult cuts. Just this week, the Government Accountability Office questioned the Obama administration’s decision to roll back planned cutbacks in payments to commercial insurers that administer Medicare Advantage plans, a popular option with seniors.

There is some evidence that other cost-cutting steps have been successful. And growth in Medicare spending per person in the program has slowed markedly in recent years, a major milestone.

But Medicare faces a larger problem as baby boomers retire, and even administration officials acknowledge more change will be required. The number of beneficiaries is projected to hit 80 million by 2030, according to the trustees.

noam.levey@latimes.com