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Are Medicare and Social Security Safe Now?

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In his Inaugural Address, the president called the Medicare, Medicaid and Social Security programs commitments we make to each other that strengthen us. His exact words were:

"We, the people, still believe that every citizen deserves a basic measure of security and dignity. We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future. For we remember the lessons of our past, when twilight years were spent in poverty, and parents of a child with a disability had nowhere to turn. We do not believe that in this country, freedom is reserved for the lucky, or happiness for the few. We recognize that no matter how responsibly we live our lives, any one of us, at any time, may face a job loss, or a sudden illness, or a home swept away in a terrible storm. The commitments we make to each other -- through Medicare, and Medicaid, and Social Security - these things do not sap our initiative; they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great."

So are these programs safe from significant "structural change" now? Changes such as raising the eligibility age for Medicare or changing Medicare to a premium support/voucher program? Changes that would require the wealthy to pay more for Social Security? Changes to the eligibility or benefits for Medicaid? While the President has previously indicated at least an interest in discussing these options, these were strong words about his commitment to these programs as they are currently designed.

But aren't these programs going broke? Yes, eventually. But how fast and how much is a matter of a lot of debate. Putting aside Medicaid, which will become an important health care program for the poor when the Affordable Care Act is fully implemented, and which is exempted from cuts in the upcoming Sequester -- let's take a look at Medicare and Social Security. You may be surprised at some of these facts from the Board of Trustees that govern both programs. The 2012 report starts out by stating pretty bluntly:

"Both Medicare and Social Security (a third of federal expenditures) cannot sustain projected long-run program costs under currently scheduled financing, and legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers."

Social Security -- As most people know, Social Security is funded largely by the payroll tax, the employee portion of which was reduced for the past several years because of the recession. A quarter of retirees have no other income than Social Security. But because of the aging population, in the words of the Trustees, "After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033, three years earlier than projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086." In plain language, the Commissioner of Social Security says,

"Please, please remember that 'exhaustion' is an actuarial term of art and it does not mean there will be no money left to pay any benefits... After 2033, even if Congress does nothing there will still be sufficient assets to pay about 75 percent of the current level of benefits."

The short answer to whether or not Social Security is "safe" from drastic changes in the next four years is "probably." There will need to be tweaks in the program, and perhaps the wealthier can contribute more or the income levels that are taxed can be modified, but the urgency to act this year or the world comes to an end, simply does not accurately describe the facts of the situation. What we need is a rational fact-based discussion about how to strengthen Social Security, but that does not seem likely in the current political environment.

Medicare, however, faces greater challenges. Here's where it can get mind-bogglingly technical and complicated. Medicare has several parts -- Part A, the Hospital Insurance Trust Fund which we all receive currently at age 65 and which will largely run out of revenues by 2024; Part B, which pays for doctors, laboratory and other outpatient services, and which requires a monthly premium (this year it will be $104.90); Part C, which is the managed care option of Medicare called "Medicare Advantage"; and Part D, which is the voluntary Prescription Drug program that also requires a monthly premium from members. Parts B,C and D are financially stable for the foreseeable future, because the law automatically provides funding to meet the next year's expected costs.

Medicare Part A, the part that pays hospitals, does indeed need change, preferably sooner rather than later in the 11 year period before 2024. There are, indeed, many options available for saving money in Part A. More efficient delivery of care sounds good, but so far the results have been less than convincing. Counter to Republican charges during the 2012 election, the Affordable Care Act actually extended the life of Medicare by 8 years. And even if there were no changes at all to Medicare in the next 11 years, the payroll tax which funds the Medicare Hospital Trust Fund, would still pay out 87 percent of expenditures.

Do we need to modernize Medicare? Absolutely. Although the administrative costs are low, their systems need upgrading. There is fraud and abuse that can be prosecuted, saving some money. There are various ways to pay providers (doctors, hospitals, etc.) more efficiently on the basis of outcomes and quality of care. But making people wait longer to get Medicare (raising the eligibility age) is a bad idea because paying for private insurance at age 65, even with the ACA, will be expensive. The premium support idea advocated by Rep. Paul Ryan during the election fails because it does just what the president says we should not do -- shift costs to the elderly because of our failure to solve this problem equitably.

Bottom line? Are Medicare and Social Security safe now? They are for the moment. They are until 2014 when the Senate Democratic majority will be at stake. They are until 2016 when we next elect a president. But just because they are safe from drastic cuts should not give us all a license to ignore the problems and refuse to start tackling them.