Aging workforce strains Social Security, Medicare

[April 23, 2012]  WASHINGTON (AP) -- An aging population and an economy that has been slow to rebound are straining the long-term finances of Social Security and Medicare, the government's two largest benefit programs.

Those problems are getting new attention Monday as the trustees who oversee the massive programs release their annual financial reports.

Medicare is in worse shape than Social Security because of rising health care costs. But both programs are on a path to become insolvent in the coming decades, unless Congress acts, according to the trustees.

Last year, the trustees projected the Medicare hospital insurance fund for seniors would run out of money in 2024. Social Security's retirement fund was projected to run dry in 2038, while the disability fund was projected to be drained by 2018.

New projections in March gave a more dire assessment of the disability program, which has seen a spike in applications as more disabled workers lose jobs and apply for benefits.

The nonpartisan Congressional Budget Office said the disability fund would run out of money in 2016. Social Security's trustees are again urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994.

If the Social Security and Medicare funds ever become exhausted, both programs would collect only enough money in payroll taxes to pay partial benefits, the trustees said.

"I don't know how to make it clear to the public, but in my mind the sirens are going off," said Mary Johnson, policy analyst for the Senior Citizens League. "I wouldn't say we're under attack, but we are in a very, very serious position."

Don't expect the finances to look much better, if at all, in the new report. Tax revenues have started to rebound but they are still below pre-recession levels. Also, this year's cost-of-living adjustment, or COLA, was much higher than the trustees projected it would be.

Last spring, the trustee's projected that Social Security recipients would get a benefit increase of 0.7 percent for this year, but higher-than-expected inflation pushed it to 3.6 percent. That was good news for seniors but it drained more resources from the system.

More than 56 million retirees, disabled workers, spouses and children receive Social Security. The average retirement benefit is $1,232 a month; the average monthly benefit for disabled workers is $1,111.

About 50 million people are covered by Medicare, the medical insurance program for older Americans.

One bright spot for Medicare is that the pace of cost increases has eased somewhat, even as baby boomers are turning 65 at the rate of 10,000 a day and becoming eligible for the program. So instead of speeding toward a budget cliff, Medicare is merely steering toward insolvency.

"The trends in Medicare are more modest than the cost increases we have seen in the private commercial sector," said economist David Blitzer, who oversees Standard & Poor's index of health care costs. "But both Medicare and the commercial sector face rising cost pressures no matter what, and they seem to come from virtually all directions."

Because Medicare is a government program, it sets prices on take-it-or-leave-it terms for hospitals and doctors, who complain it doesn't pay enough and that causes them to charge more to privately insured patients.

Many experts say the longer Congress waits to address the two programs, the more difficult it could become to impose adequate changes. If Congress acts soon, it can phase in changes over time, perhaps sparing current retirees while giving those closing in on retirement time to prepare.

But Washington has struggled to make tough political choices that could involve raising taxes, cutting benefits or some combination of both.

Advocates for seniors oppose benefit cuts in either program. They say Social Security's finances are secure for decades to come.

"No one is saying you don't have to maintain it," said Eric Kingson, co-chair of the Strengthen Social Security Campaign and a professor of social work at Syracuse University. "What I worry about is reducing he benefit structure or radically changing the system."

Kingson and other advocates say Social Security could be shored up by simply increasing the amount of wages subject to Social Security taxes -- an idea that most Republicans in Congress flatly oppose.

Social Security is financed by a 6.2 percent tax on the first $110,100 in wages. It is paid by both employers and workers. Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program's finances are being made whole through increased government borrowing.

The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers.

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Online:

2011 reports:
http://www.ssa.gov/OACT/TRSUM/index.html

[Associated Press; By STEPHEN OHLEMACHER]

Associated Press writer Ricardo Alonso-Zaldivar contributed to this report.

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