Research
July 28, 2014
The Future of America’s Entitlements: What You Need to Know About the Medicare Trustees Report
Executive Summary
Today, the Medicare Trustees issued their annual report detailing the financial state of America’s entitlement programs. The report echoed past conclusions: Medicare and Social Security are still going bankrupt.
At its current pace, Medicare will be bankrupt in 2030 (four years later than last year’s projection) and Social Security will go bankrupt in 2033.
Despite what many will herald as good news for Medicare, a deeper look at the data proves just how broken our current entitlement programs are. An American Action Forum (AAF) analysis of the data found other startling statistics, including:
- Medicare’s Annual Cash Shortfall in 2013 was $289.2 billion
- Payroll taxes would have to increase 21% to pay for Medicare Part A just this year
- Over the next 75 years, Social Security will owe nearly $9 trillion more than it is projected to take in
What You Need to Know About the Medicare Trustees Report includes one-pagers and relevant statistics on:
- The solvency of Medicare
- President Obama’s stewardship of Medicare
- The solvency of the Social Security Trust Fund
- The solvency of the Social Security Disability Insurance (DI) program
- The solvency of the Social Security Old-age and Survivors Insurance (OASI) Program
The Solvency of Medicare
The board of trustees released the 2014 Medicare Trustees Report. This annual rite delivered yet another reminder to the American public that Medicare is undeniably going bankrupt.
The report estimated that the Medicare Hospital Insurance Trust Fund will be bankrupt by 2030. While the bankruptcy projection may snag the headlines, there are 3 key budgetary numbers that shouldn’t go unnoticed:
$289.2 Billion |
Medicare’s Annual Cash Shortfall in 2013
only collected $283 billion in payroll taxes and monthly premiums.
|
$3.4 Trillion |
Medicare’s Cumulative Cash Shortfall Since 1965
unrelated tax revenues from other programs.
|
29.3% |
Medicare’s True Contribution to the National Debt
source of red ink driving this trajectory.
|
Continuing with the Medicare status quo is unacceptable. Balancing Medicare’s annual cash shortfalls under the existing system would prove devastating to seniors and require:
21% Increase |
Annual Payroll Tax Increase Needed to Balance Medicare Part A
|
$3,676 Increase |
Annual Premium Increase Needed to Balance Medicare Part B
|
$2,174 Increase |
Annual Premium Increase Needed to Balance Medicare Part D
|
At its current pace, Medicare will be bankrupt in 2030 (four years later than last year’s projection) and Social Security will go bankrupt in 2033.
President Obama’s Stewardship of Medicare
“Now, these steps will ensure that you — America's seniors — get the benefits you've been promised. They will ensure that Medicare is there for future generations.” — President Barack Obama, Remarks to a Joint Session of Congress, September 9, 2009
An Evaluation of President Obama’s Medicare Stewardship
The 2014 Trustees Report provides a non-partisan evaluation of President Obama’s Medicare stewardship. Prepared annually for Congress by the Office of the Chief Actuary, the Trustees Report offers unparalleled detail on the financial operations and actuarial status of the Medicare program. In short, it’s where every President’s soaring Medicare rhetoric meets fiscal reality:
MEDICARE FINANCIAL OPERATIONS UNDER PRESIDENT OBAMA
|
2009 |
2010 |
2011 |
2012 |
2013 |
2014* |
2009-2013 |
Medicare Revenue |
$253 B |
$240 B |
$261 B |
$272 B |
$293 B |
$299 B |
$1,320 B |
Medicare Spending |
$509 B |
$523 B |
$549 B |
$574 B |
$583 B |
$612 B |
$2,738 B |
Cash Deficit |
-$256 B |
-$282 B |
-$288 B |
-$302 B |
-$289 B |
-$308 B |
-$1,418 B |
*2014 Projections
For President Obama’s Medicare policies, the fiscal reality is that they all but guarantee bankruptcy. Since taking office, President Obama has run a Medicare cash flow deficit of over $1.4 trillion (2009-2013). This includes $1.2 trillion in red ink accumulated since the passage of the President’s signature healthcare reform law. By the end of 2014, the trustees project that the Obama Administration will have overseen a $1.7 trillion Medicare cash shortfall.
At such unprecedented levels of cash shortfalls, it’s evident that President Obama and the Affordable Care Act have failed to ensure that Medicare will be there for today’s seniors, let alone the future generations of older Americans. The law’s Medicare reforms have failed to meaningfully control costs and are harming seniors in the process:
13.3% Cuts to Medicare Advantage Benefits |
The ACA has cut Medicare Advantage benefits per-enrollee by over $1,500
|
14 Million enrollees facing potential drug plan cancellation |
The administration has pursued a Part D rule that puts 14 million plans at risk.
|
The Solvency of the Social Security Trust Fund
On July 28th, the board of trustees that oversees the Social Security program released their annual report. The report shows a the nation’s primary safety net for retirees, survivors and the disabled remains in financial distress and proves that, absent reform, the program will fail to meet its promises to future seniors.
Monday’s report estimated that the combined (retirement and disability) Social Security Trust Funds will be bankrupt by 2033. Less than two decades until bankruptcy is only the beginning of the bad news. The Trustees reported more critical data that make clear the program’s structural imbalances:
$70.7 Billion |
Social Security’s Contribution to the Debt in 2013
|
$10.6 Trillion |
Social Security’s Unfunded 75 Year Liability
|
19 Years |
Years Until the Trust Funds are Exhausted
|
The Trustees’ report paints a distressed picture of Social Security’s financial health and proves that the present course is unsustainable. Social Security is now contributing to the annual deficit, while promised benefits vastly exceed planned funding. The implications of failing to reform the status quo are:
23 Percent |
Reduction in Benefits in 2033
|
24 Percent |
Payroll Tax Increase
|
The Solvency of Social Security Disability Insurance (DI)
On July 28th, the board of trustees that oversees the Social Security program released their annual report. The report demonstrates the pressing collapse of the Disability Insurance (DI) program, which will require near-term attention.
The report estimated that Social Security Disability Insurance Trust Fund will be bankrupt by 2016. This is not the first time the DI program has faced near-term shortfalls. To avoid trust fund exhaustion, in 1994 Congress increased the allocation of payroll taxes devoted to the DI Trust Fund. However, as experience makes clear, absent long-term reform, similar measures will only provide short-term solvency.
$36.9 Billion |
DI’s Contribution to the Debt in 2013
non-interest income.
|
$1.2 Trillion |
DI’s Unfunded 75 Year Liability
|
2 Years |
Years Until the DI Trust Fund is Exhausted
|
11.4 Million |
Number of Beneficiaries in 2015
|
The Trustees’ report makes clear that the nation’s primary assistance program for disabled workers is facing imminent financial distress. Absent long-term reform, the program will remain on a financially precarious trajectory, undermining a critical feature of America’s safety net.
Solvency of Social Security Old-Age and Survivors Insurance (OASI)
On Monday, the board of trustees that oversees the Social Security program released their annual report. The report shows that the Old-age and Survivors Insurance (OASI) remains in distress following the material deterioration in its finances of the prior year, and will be unable to meet the needs of future beneficiaries absent reform.
The report estimated that Social Security’s retirement and survivors’ Trust Funds will be bankrupt by 2034. The report also makes clear several additional structural challenges that endanger the millions of current and future retirees and survivors who rely on this program.
$33.8 Billion |
OASI’s Contribution to the Debt in 2013
|
$9.4 Trillion |
OASI’s Unfunded 75 Year Liability
|
20 Years |
Years Until the OASI Trust Fund is Exhausted
|
78 Million |
Number of Beneficiaries in 2034 (Trust Fund Exhaustion Year)
|
The Trustees’ report makes clear that the principle federal retirement program is facing its worst financial outlook since the program was last overhauled. On its present course, the program is on track to slash the benefits of nearly 78 million Americans, or significantly raise taxes on future workers.