Social Security and Medicare and the question of mandated reductions

[grantcart]

This is not meant to argue any particular policy suggestion for Social Security or Medicare but simply to add to the information available.

Reading various discussions about Social Security it appears that some are not aware that both SS and Medicare are on the path to draconian cuts in benefits as required by law.

The trustees are required to issue annual reports on the solvency of the fund where they project the ability to pay based on balance, interest revenue and payments. If it reaches a point of technical insolvency (expected expenditures exceed expected revenues) then benefits are automatically cut.

Currently the trustees project that will happen in 2033 when benefits would be automatically reduced by 25%

•The projected point at which the combined Trust Funds will be exhausted comes in 2033 – three years sooner than projected last year. At that time, there will be sufficient non-interest income coming in to pay about 75 percent of scheduled benefits.

The report is prepared by the Office of the Chief Actuary

This year's summary in full here:

http://www.ssa.gov/oact/trsum/

Full report here

http://www.ssa.gov/oact/tr/2013/index.html

Again not arguing for any particularly policy simply pointing out, if no changes are made mandatory draconian changes will be automatically triggered by the law itself and the same is true for Medicare.

[MannyGoldstein]

1. And I'm simply pointing out - not arguing any particular position - that those numbers are cooked.

The Trustee's report projects that our economy never really recovers from its current depression - it assumes rates of productivity growth and GDP growth that are far below anything the US has ever seen in a sustained way.

And EVEN with those nonsensical numbers, of the three projections that Trustees made, the one that shows the economy doing best - but still with productivity growth and GDP growth that are far below anything the US has ever seen in a sustained way - shows that Social Security is fully funded as far out as was examined (75 years). The "middle" projection is the one that's publicized, and it's a joke.

It's interesting that, historically, the Trustee's report has wildly underestimated future economic growth. It's also interesting that the Trustees were appointed by the same President who's called for Grand Bargaining the 99%'s Social Security.

It's also interesting that the Social Security cuts recommended by the President's hand-picked commission (Simpson-Bowles) result in an eventual 22% in the average recipients benefits anyway - they just start cutting the benefits earlier so the wealthy can have more tax breaks.

And finally, it's interesting that you mention Medicare. If US health care costs were anywhere near what they are in ANY other industrialized country on our planet, Medicare would be fully funded. Perhaps one day, we'll elect people who want to fight for that, rather than fighting to cover more people by subsidizing health insurance companies with our tax dollars.

[leftstreet]

2. +1

Outstanding post

[grantcart]

3. You may be right, but that is somewhat beside the point.

The figures are determined by the office of Chief Actuarial, not by any political side.

I assume that the office uses the peer review methods that is common in the insurance industry.

In San Diego the City Council moved to put aside professional actuarial guidelines (ironically as part of a deal to get union support for hosting the Republican Convention) and with the economic downturn of 2008 found themselves underfunded by $ 2 billion.

In any case the formula for cuts is not something "to be legislated" as many DUers seem to think but is something that will happen "unless legislation is passed" or significant differences in economic growth take place.

I am not well informed on the particulars of the trustees report.

What are the rates of of future growth projection that the trustees report is based on that you find so objectionable, and what were the rates of growth that were so wildly off before?

Thanks.

[MannyGoldstein]

4. Social Security: the little secret that's fooling even most DUers.

Social Security: the little secret that's fooling even most DUers.

[grantcart]

11. The rates in the link don't reflect actual results:

The chart shows 2010 GDP growth rate at 2.9 % but the actual rate was only 2.2, very close to what the trustees used.


http://www.oecd-ilibrary.org/docserver/download/191100301e1t004.pdf?expires=1381686828&id=id&accname=freeContent&checksum=7C26D20925E1A996BB39AD3A3C287240


As for using an average GDP rate for a 50 year period this is not an acceptable economic tool because over time the larger the economic base the more difficult it is to sustain 3% growth. Eventually China will struggle to sustain 3%. There are no economic models that show highly developed countries sustaining 3+% growth for 50 years and you can't average a year from 50 years ago with one today and make any sense.

Based on the OECD statistics in the above table the average growth rate for the last 7 years shown is 1.9%

2004 3.1
2005 1.4
2006 4.0
2007 2.0
2008 2.7
2009 -2.1
2010 2.2

7 year total = 13.3/7 = 1.9

In any case this is all academic. The law requires the Chief Actuary to establish the projections and if it reaches a point of technical insolvability automatic cuts will take place. That is not some proposed legislation, that is the legislation as it now exists.

[dkf]

6. Well current GDP growth is abysmal.

Why isn't this the "new normal"?

[Pretzel_Warrior]

10. You crack me up. Long range fiscal planning clearly not your strength

[MannyGoldstein]

12. Yes, I use "facts" and "math" as a crutch

to cover up my disability.

[Pretzel_Warrior]

13. Maybe nothing wrong with your math, but the assumption

That review of future projections should include the rosiest of projections for expected revenue into social security trust fund is bonkers.

[MannyGoldstein]

14. So you agree that Social Security should be cut right away

Eventually reaching a 22% cut - just in case the economy never recovers and we have to cut it by 22% in 25 years?

Oh boy.

[Pretzel_Warrior]

15. Not what I said at all. If CURRENT projection show something MIGHT happen

20 years out, it would be ludicrous to overreact in policy. Just saying they have to look at these numbers and prepare for middle of the road scenario or worse based on CURRENT information.

As you know, not all social security reforms mean cuts. Could raise the annual income cut off that contributes into social security significantly more than inflation. Could slightly increase payroll deduction percentage.

[dkf]

5. If anything that would be medicare part A, hospitals.

Medicare part b and d don't have their own funds, it's subsidized by federal taxes.

[grantcart]

7. "if anything"? From the trustee report alrealdy linked

Medicare

The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be the next to face depletion after the DI Trust Fund. The projected date of HI Trust Fund depletion is 2026, two years later than projected in last year’s report, at which time dedicated revenues would be sufficient to pay 87 percent of HI cost. The Trustees project that the share of HI cost that can be financed with HI dedicated revenues will decline slowly to 71 percent in 2047, and then rise slowly until it reaches 73 percent in 2087. As it has since 2008, the HI Trust Fund will pay out more in hospital benefits and other expenditures than it receives in income in all years until reserve depletion.

The projected HI Trust Fund’s long-term actuarial imbalance is smaller than that of the combined Social Security trust funds under the assumptions employed in this report.

The estimated 75-year actuarial deficit in the HI Trust Fund is 1.11 percent of taxable payroll, down from 1.35 percent projected in last year’s report. The HI fund again fails the test of short-range financial adequacy, as its trust fund ratio is already below 100 percent and is expected to decline continuously until reserve depletion in 2026. The fund also continues to fail the long-range test of close actuarial balance. The HI 75-year actuarial imbalance amounts to 29 percent of tax receipts or 23 percent of program cost.

[socialist_n_TN]

8. That doesn't really matter...........

Even the projections don't really matter. Social Security could be fully funded with just the minor tweak of raising the cap. And if you REALLY wanted to fund EVERYTHING, just institute a tiny tax per share on Wall Street trades. Billions of new income.

[Eleanors38]

9. That tax you reference is long overdue.

[RebelOne]

16. I won't worry about it as I will not be here in 2033,

but if I am still here, I will be 94 years old. But I fear for my grand kids, and if they are still around then, my son and daughter.