Social Security and Medicare ain’t broke

Social Security and Medicare are of vital concern for older Americans. Yet as the nation debates the balance between a growing national debt and meeting the needs of our aging population, misunderstanding and purposeful misinformation has clouded the debate and confused seniors.Social Security and Medicare Part “A” are not broke, and they do not contribute to the national debt or the deficit. Under current law, the Social Security and Medicare Trust Funds cannot borrow from the general fund, and Congress cannot appropriate funds for their operational costs without changing the law.In 1983, to address the coming retirement of the baby boomers, President Reagan raised the Social Security payroll tax and the retirement age. The result is a $2.6 trillion surplus in the Social Security trust fund held in the form of special-issue Treasury notes. This means that Social Security actually lends money to the U.S. Treasury, reducing publicly held debt. When Social Security expenses exceed income, Treasury notes are called, and the Treasury must come up with the funds to cover the call, but this is not deficit spending.When Treasury notes are redeemed, the government debt to the Social Security Trust Fund is decreased, not increased. If the Treasury has to borrow money elsewhere to pay for the redemption of the Treasury notes, the net effect on the national debt is zero; the Treasury has just traded one creditor for another.The chief actuary for the Social Security Trust Fund, Stephen Goss, has verified this in testimony before the House Budget Committee. Even if no changes are made to Social Security taxes or benefits (unlikely), full benefits are still payable from the trust fund until 2036, after which 75 percent of benefits will still be paid without adding to the debt or the deficit.Similarly, Medicare’s Hospital Insurance Part “A” trust fund has a $344 billion surplus in the form of special issue Treasury notes, but this trust fund is being exhausted at a more rapid rate than Social Security’s. Two primary factors are driving Medicare expenditures to exceed income: increased enrollment and increased medical care expenses.According to the 2011 Annual Report to Congress of the Medicare Boards of Trustees and the January 2010 Congressional Budget Office report to the Senate Budget Committee, the Affordable Care Act is moderating the increase in costs of medical care. It has, according to the report, brought about “sizable improvement in the financial outlook for Medicare compared to the law in effect prior to the Affordable Care Act.”If the health reform law is repealed or defunded, the effect will drive up expenditures from the Medicare Trust Fund and accelerate the date of exhaustion of the fund. However, while Medicare does face a shortfall, it is not going bankrupt. Absent any corrective action (again, not likely), when the trust fund becomes exhausted, currently projected to occur in 2024, its income from Medicare payroll taxes and other sources will still meet 90 percent of its projected obligations without adding to the debt or the deficit.Although Medicare expenditures are high, they have grown more slowly than insurance premiums over the past 40 years. A private health insurance plan covering the standardized benefit would, the CBO estimates, be more expensive than traditional Medicare. Both administrative costs (including profits) and payment rates to providers are higher for private plans than for Medicare. However, according to a recent study published in the Archives of Internal Medicine, 12 percent of medical professionals currently refuse to accept private insurance due to administrative burden and inadequate reimbursement rates. The corresponding Medicare refusal rate is 7 percent. The claim that Medicare patients find it more difficult to find providers is not consistent with the facts.Medicare is not a primary driver of the deficit. It is the rapidly escalating cost of medical care itself that drives the deficit threat. Recent proposed changes to Medicare will shift the cost burden to seniors but do nothing to reduce the primary cause of the problem. The CBO estimates that the most recent congressional proposal for changes to Medicare would increase the cost to seniors by more than 40 percent.Although Social Security and Medicare present difficult challenges for current and future generations, under current law neither can contribute to the debt or the deficit. The New Hampshire State Committee on Aging believes strongly that we must base our national debate and decisions regarding these important programs on factual information.Russ Armstrong and Steve Gorin represent the New Hampshire State Committee on Aging.