Economy Takes Toll On Medicare, Social Security
ROBERT SIEGEL, host:
From NPR News, it's ALL THINGS CONSIDERED. I'm Robert Siegel.
MICHELE NORRIS, host:
And I'm Michele Norris. You probably have a pretty good idea what the financial crisis has done to your personal retirement accounts. What might be less clear is what the recession is doing to Social Security and Medicare.
SIEGEL: Well, today, the trustees of those two programs confirmed that the bad economy is having a big effect. Medicare's in the worst shape. It's now paying out more than it takes in, and will be insolvent by 2017. Social Security will also exhaust its trust fund four years earlier than expected. NPR's John Ydstie has been looking through the report on Social Security, and NPR's Julie Rovner is covering Medicare, and both join me now in the studio. Hi.
JOHN YDSTIE: Hi, Robert.
SIEGEL: First, John. The date, I gather, for insolvency in Social Security is 2037. What does it mean, that the trust fund will be insolvent in 2037?
YDSTIE: Well, unless the Congress and the president do something about it, it means that Social Security would only be able to pay out about 75 percent of the currently promised benefits. At the current tax rates, that's all that payroll tax, which funds Social Security, would provide. That's, of course, because we're going to have fewer workers paying in for each retiree, as the baby boom retires.
SIEGEL: Why is it happening? Why is insolvency looming closer now?
YDSTIE: Well, surprisingly, the recession is not the biggest reason for the revision. The biggest reason is a new projection on longevity that shows people are just going to be living longer and collecting Social Security for longer. And the second reason is a downward adjustment in long-term U.S. economic growth not associated with the recession, which means less payroll tax revenue to fund Social Security, and third is the recession has put 5.7 million people out of work. That means they have no earned income, so they aren't paying anything into Social Security right now.
SIEGEL: John, let's bring in Julie Rovner right here. Julie, you have -Medicare is in much more immediate financial trouble. It'll be insolvent in 10 years.
JULIE ROVNER: Less than 10 years, actually. It's the Hospital Insurance Trust Fund we're talking about. That's the portion that's funded by the payroll tax. It's, as you mentioned, already spending more than it's taking in. That happened last year. So it's really sort of eating the seed corn. The new report says with the downturn in the economy and with health care costs rising, it will run out of money entirely in 2017. That's two years earlier than predicted last year. And more to the point, it's just eight years from now. So it's a much more immediate problem.
SIEGEL: You cover health care reform. Is it possible that the Medicare situation would be so acute that taking care of Medicare could take precedence over broader health care reform in the Congress?
ROVNER: Well, certainly, that's a claim that we're likely to hear, I think, mostly from people who don't like what Congress and the president are thinking about doing on health care writ large. But health economists make a pretty strong case that the best way to fix Medicare is actually to fix the entire health care. First of all, the drivers of Medicare costs are the same drivers of overall health care costs. It's new technology and using the wrong kinds of services and having the wrong kinds of incentives. So really, you can't fix Medicare without fixing the health care system as a whole. Also, a point that Secretary - HHS Secretary Sebelius made today in the press conference: If you have uninsured people coming onto Medicare, they'll need a lot more services. If you get them insurance before they're eligible for Medicare, they'll be healthier when they get there and cost the Medicare program less.
SIEGEL: But when you talk about cost reducing, reducing health care costs, a lot of the changes that would do that would take some years to phase in. And if Medicare's date with destiny is just eight years, when they're forecasting insolvency, Congress would have to come up with some real cash by that time.
ROVNER: Yes, they will. But there are already a lot of ideas on the table that would take money out of Medicare, and thereby save Medicare money, including things the Democrats have been wanting to do, like cut the overpayments to the private plans that serve Medicare. Just doing that would add two more years of solvency to the trust fund.
SIEGEL: Talking about possible solutions, John, going back to Social Security. If there's a deficit, as you described it, I guess the solutions would be increase Social Security taxes, cut Social Security benefits, or find a lot of new people to start - get a lot of new immigrants, recruit them pronto to start earning some money.
YDSTIE: Exactly. There's no shortage of solutions for Social Security. Specifically, if you did an immediate two-percentage-point hike in the payroll tax or an immediate 13-and-a-half percent cut in benefits, you would solve the problem - or some combination of the two. You could take a 1 percent rise in the payroll tax, six-and-a-half percent cut in benefits. That would do it. Another way you could do it is by limiting the cap on income that's subject to the payroll tax. That would take care of it as well.
So, no shortage of solutions for tackling Social Security. And President Obama has said he wants to do it, but not until after he's dealt with health care and Medicare.
SIEGEL: Thank you, John. John Ydstie and Julie Rovner. Bye-bye.
ROVNER: Thank you.
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