To See the Problem, Turn to Appendix F, page 212
July 22, 2016

To See the Problem, Turn to Appendix F, page 212

The Social Security and Medicare Trustees reports, released last month, came and went faster than a bad sitcom. One day they were news. The next day no one remembered, a casualty of the Brexit vote.

But those reports are much more important for Americans than the Brexit vote. Retired, working, or still in school, you should be concerned. Two massive, vital and successful government programs are in trouble. They are in trouble today. They will be in more trouble tomorrow.

We get mixed messages about this from politicians. Some worry. But most play the role of reassuring uncle. They report the trust funds’ figures. Those tell us that (a) everything is fine for the next 10 years and (b) that the Social Security Trust Fund will last until 2034, just like last year. The Medicare Hospital Insurance Trust Fund will last until 2028, two years shorter than last year.

That’s pretty far away, so the news fades. Don’t worry, be happy.

But we’ve got a problem, now. These reports aren’t beach reading, but you can find where the rubber meets the road if you know where to look. One place is in the Medicare trustees report. It is called “Appendix F: Medicare and Social Security Trust Funds and the Federal Budget.” It begins on Page 210 of the new report but the real meat is in table V.F1. on page 212. That’s where you can compare how these two programs look in trust accounting and in federal cash accounting.

This year trust accounting shows that Social Security and Medicare have a combined surplus of $17.1 billion. Just above that you’ll see the federal budget accounting. It shows that in spite of employment taxes, taxes on Social Security benefits, trust fund interest and premiums for Medicare B and D, these programs were short $354.5 billion. Their cash shortage represented 80 percent of the entire federal deficit for 2015. All other government programs, after tax collections, operated at a loss of $83.9 billion.

Just to be clear, $354.5 billion of the money spent providing Social Security and Medicare benefits in 2015 had to be borrowed. That $354.5 billion represents 23 percent of total spending on those programs. That qualifies Social Security and Medicare as elephants in the room. Today.

In 2004, the first year that Appendix F appeared in the Medicare Trustees report, the combined trust surplus was $163.7 billion. The federal budget shortfall was a mere $18.5 billion, even though three-fourths of the cost of Medicare hospital insurance is paid out of general revenues.

The 75-year Social Security deficit is a big deal. The Trustees report finds that the deficit for financing the program is 2.75 percent of payroll---if the tax increase went into effect immediately. That’s a 22.2 percent increase over the current old age and disability tax for the 94 percent of all workers who earn less than the Social Security wage base maximum of $118,000 a year. This is the fastest rising tax most Americans have paid during their working lives, so increasing it to avoid a benefits crisis won’t happen easily.

More important, the 22.2 percent increase probably won’t be enough. Remember, the Social Security reform commission of 1983, led by Alan (See-No-Bubbles) Greenspan, assured us that Social Security would be well financed for 75 years. Now, only 33 years later, we’re already massively short.

Could the shortfall be eliminated some other way? Sure. All we need to do is die younger, rather than older. There are few volunteers. Most people aspire to live longer.

And the Medicare figures aren’t real either. The most important statement in the Medicare Trustees report doesn’t appear until the very end, on page 260. There, Chief Actuary Paul Spitalnic offers his statement of actuarial opinion. Like Richard Foster before him, he declares that medical costs are likely to rise faster than mandated by law.

He writes:

“Absent an unprecedented change in health care delivery systems and payment mechanisms, the prices paid by Medicare for most health services will fall increasingly short of the cost of providing such services. If this issue is not addressed by subsequent legislation, it is likely that access to, and quality of, Medicare benefits would deteriorate over time for beneficiaries.”

Rome is burning. Will the Infantile Vulgarian or the Wicked Witch talk about this between now and November? Not a chance. Don’t worry, be happy.

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