Improvements in healthcare costs have extended the life of Medicare’s main trust fund by four years, the annual report of the Social Security and Medicare trustees said Monday, a further sign of the positive effect of lower medical inflation.
Medicare Part B premiums are expected to remain the same through 2015 because of that improvement, Health and Human Services Secretary Sylvia Burwell told reporters as the report was released.
Medicare is “considerably stronger than it was just four years ago,” she said.
By contrast, the fund that guarantees Social Security disability payments remains in urgent need of a fix, the trustees warned. As they warned in last year’s report, the trustees said the disability fund will run out of money at the end of 2016, meaning that only 81% of disability benefits could be paid unless Congress comes up with a solution.
The status of the larger Old Age and Survivors trust fund remains unchanged, with the balance projected to hit zero in 2033, after which current taxes would cover 77% of promised benefits, the report said.
In the short term, the only way to resolve the disability trust fund’s problems will be to change the current rule that allocates taxes between the disability and old-age trust funds, Treasury Secretary Jacob J. Lew said.
That shift would shore up the disability system at the cost of the making the finances of the retirement system somewhat weaker.
But “there’s probably no other alternative” for solving the disability problem by the end of 2016, Lew said. Congress so far has shown no desire to consider more long-term changes in the disability system.
The disability trust fund is much closer to running out of money than is the old age trust fund in large part because members of the baby-boom generation are currently hitting the age in which people make maximum use of disability insurance, noted Charles Blahous, a former advisor to President George W. Bush who serves as one of the system’s public trustees.
Over time, as baby boomers move into retirement, the main pressure will shift to the retiree system, Blahous said, noting that some of that shift already has begun.
While those problems have remained unchanged, the longer life for Medicare’s Hospital Insurance trust fund, which is now projected to remain solvent through 2030, provides the latest evidence of how the slowdown in the growth of medical costs has improved government finances.
The cost per beneficiary for Medicare has remained flat for two years, noted Robert Reischauer, the former director of the Congressional Budget Office who serves as the system’s other public trustee. The projected size of Medicare’s long-term deficit relative to payrolls has been cut by more than one-third since the trustees’ 2012 report, he noted.
Even with those improvements, however, as the number of retirees continues to grow, Medicare will need either additional revenue or new steps to hold down costs in order to be fiscally stable, Reischauer warned. Moreover, he noted, the current positive trends can’t be guaranteed to continue.
“The sooner lawmakers face reality, the better,” he said.
Lew and Burwell said President Obama’s healthcare law deserves some of the credit for the improvement in healthcare costs.
Blahous and Reischauer offered a more cautious assessment.
“We’re probably many years away” from being able to say for sure how much of the improvement has resulted from the Affordable Care Act and how much has stemmed from other factors, Reischauer said.
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