What About Entitlement Reform?

On May 13, 2009 the trustees of Medicare and Social Security released a report detailing the impending insolvency of our nation’s two biggest entitlement programs: Medicare in 2017 and Social Security in 2037. Projections have pushed these bankruptcy dates up from the previous report’s estimates of 2019 for Medicare and 2041 for Social Security. The percentage of federal spending sucked up by these two entitlements has been increasing for years. In 1990 they made up 28 percent of federal spending. This number is expected to soar to nearly 40 percent by 2019. By the numbers, converted to today’s dollars, over the next 75 years Social Security and Medicare will cost approximately $103.2 trillion, while taxes and premiums toward the trusts’ replenishment will total only $57.4 trillion. This will leave a gap of an astounding $45.8 trillion. The frightening reality is that no provision exists under the current policy regime to address the programs’ projected bankruptcy, meaning that once current assets are exhausted benefits will fall. Medicare will be literally unable to pay all its hospital bills just seven short years from now. The first Social Security beneficiaries to be hit by this failure will be disabled Americans whose fund will run out of money in 2020.

Entitlement Reform: What happens when Medicare and Social Security Are Bankrupt?

This threat has been looming in the background for years, and though successive administrations have “kicked the can” down the road we must confront the fact that the financial health of our two major entitlement programs has withered more during this recession than at any time since the mid-1990s. Though the economic downturn has contributed significantly to the programs’ rate of decline given the fact that worsening unemployment figures mean fewer workers are paying into the trusts’ funds through payroll taxes, the pressure of baby-boomers aging into the programs has pushed their financial health to the breaking point independent of current economic conditions.

These facts point glaringly to the need for entitlement reform. Obama administration officials have suggested that if the legislature were to act the programs’ insolvency could be bridged in three ways: by raising workers’ Social Security payroll taxes by 2 percentage points, by reducing benefits by 13 percent, or by a combination of the two.

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Tags: Baby Boomers, entitlement, health insurance, healthcare, Medicare, obama, Reform, Social Security