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Despite good news, benefit programs face problems

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. The Associated Press
Tuesday, July 29, 2014 - 9:24 am

WASHINGTON — Despite some good news, Medicare and Social Security still face long-term financial problems as millions of baby boomers reach retirement. Social Security's disability program is already in crisis as it edges toward the brink of insolvency.

Getting relief from a slowdown in health care spending, Medicare's giant hospital trust fund won't be exhausted until 2030, the government said Monday. That's four years later than last year's estimate.

As for Social Security, its massive retirement program will remain solvent until 2034. The disability trust fund, however, is slated to run dry in just two years. At that point, unless Congress acts, the program will collect only enough payroll taxes to pay 81 percent of benefits.

"The fact is, without bipartisan action, benefits will be cut," said Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee.

The trustees who oversee Social Security and Medicare issued their annual report Monday on the financial health of the government's two largest benefit programs. Together, they accounted for 41 percent of all federal spending last year.

Though both programs are "fundamentally secure," Treasury Secretary Jacob Lew said, "the reports also remind us of something we all understand: We must reform these programs if we want to keep them sound for future generations."

There is little appetite in Congress to tackle such big issues. However, the longer Congress waits to act, the more difficult it will become to avoid either large tax increases or significant benefit cuts in both programs, said economist Charles Blahous III, one of two public trustees.

"What is changing is that we are rapidly running out of time," Blahous said.

If Congress acts quickly, Social Security could be shored up for several generations through relatively modest changes to benefits and revenues. However, many advocates oppose any cuts to benefits, while many Republicans in Congress oppose any increase in taxes.

"The president will not support any proposal that would hurt Americans who depend on these programs today, and he will not support any effort that slashes benefits for future retirees," Lew said.

In 2030, when the hospital trust fund is expected to be depleted, Medicare will collect enough payroll taxes to pay 85 percent of inpatient costs.

Medicare is adding 10,000 new beneficiaries a day as baby boomers reach age 65. But the report said costs per beneficiary were essentially unchanged in 2013, for the second year in a row. That is a contrast with previous years, when both per-person costs and overall enrollment were growing.

Experts debate whether the health-spending slowdown is the result of a sluggish economy or represents a dividend from Obama's health care overhaul, which cut program spending to finance coverage for the uninsured. Congress and the administration later agreed to more cuts.

How all those trends converge, "no one knows and there is an active debate going on," Blahous said. "That debate is certainly not one that the trustees are going to settle."

The trustees are the secretaries of the Treasury, Health and Human Services, and Labor Departments, as well as the Social Security commissioner and two public trustees — a Democrat and a Republican.

Social Security's disability program could be shored up in the short run by shifting tax revenue from the much larger retirement program, as Congress has done in the past. However, that would slightly worsen the retirement program's long-term finances.

Lew endorsed such a move Monday.

If the two trust funds were combined, they would have enough money to last until 2033, the report said. That's the same exhaustion date as in last year's report.

The trustees are projecting a 1.5 percent increase in monthly Social Security payments to beneficiaries next year. That would be among the lowest since automatic adjustments were adopted in the 1970s. The increase will be based on a government measure of inflation.

Medicare's Part B monthly premium for outpatient care is expected to remain unchanged for 2015, at $104.90. Average premiums for prescription coverage are expected to increase by less than $2 a month.

Medicare's hospitalization deductible is projected to rise to $1,248 in 2015, an increase of $32 from this year.