Medicare Funds to Run Out in 2024 Without Fix, Faster Than U.S. Estimated

Medicare, the U.S. health insurance program for the elderly and disabled, and the Social Security trust for the disabled and retirees are running out of money sooner than the government had projected.

While Medicare won’t have sufficient funds to pay full benefits starting in 2024, five years earlier than last year’s estimate, Social Security’s cash to pay full benefits runs short in 2036, a year sooner than the 2010 projection, the U.S. government said today in an annual report.

Both forecasts were affected by a slower-than-anticipated economic recovery, the government said. The estimates for funding add urgency to talks between Democrats and Republicans on ways to cut spending to reduce the U.S. budget deficit.

“Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided,” according to the report summary.

The 2010 health-care overhaul backed by Democrats extended the life of Medicare, though a greater effort is needed to shore up the program’s long-term funding, Treasury Secretary Timothy Geithner said in a statement distributed with the report.

“If we do not do more to contain health-care costs, our commitments will become unsustainable,” said Geithner, managing trustee of Medicare and Social Security, in the statement.

Debt-Limit Deal

When Medicare and Social Security funds run short, they will pay less in benefits rather than stop paying entirely. Social Security would have to cut payments by 23 percent, while Medicare would reduce by 10 percent what it pays hospitals and other inpatient care providers.

Congress is debating potentially sweeping changes in the federal budget as part of a deal to raise the government’s $14.3 trillion debt limit, which the Treasury Department said will be needed by Aug. 2.

Two groups of lawmakers have held private meetings to negotiate a deficit-reduction plan while President Barack Obama met yesterday with Senate Republicans, a day after meeting with their Democratic counterparts.

Republicans demanding that the U.S. cut its budget deficit have proposed privatizing Medicare by giving individuals a subsidy to buy coverage from private insurers. Lawmakers such as House Budget Committee Chairman Paul Ryan, Republican of Wisconsin, said today’s forecasts were justification for action.

“Leadership is required from both sides to ensure that Medicare and Social Security are saved for current seniors and strengthened to meet the need of future generations,” he said.

Time To Respond

Democrats, who have resisted changes to Social Security, said the trustees’ analysis shows there’s time to respond.

“The current situation does not necessitate rushed or severe action,” said Senate Finance Committee Chairman Max Baucus, Democrat of Montana. “We must continue to protect the Social Security benefits our seniors count on.”

The Social Security trust fund that finances aid to about 10 million disabled Americans and their dependents will be the first to dry up, with funding scheduled to run out in 2018, according to the trustees.

The fund, when combined with a separate and much larger trust fund paying benefits to seniors, has enough money to stay solvent until 2036.

The new projections partly roll back last year’s trustees analysis, which credited the 2010 health care overhaul with expanding the life of the Medicare trust fund by 12 years.

Spending Law

Social Security law requires program spending to match revenue, so a lack of action by lawmakers by that time will mean benefits will have to be cut 23 percent -- or the Social Security payroll tax increased to 16 percent, or a combination, the report said. Congress has never allowed the program’s two trust funds to be depleted.

Medicare, to stay solvent for the next 75 years, would have to immediately raise payroll taxes by 24 percent, or cut current benefit payments by 17 percent, Cori Uccello, a senior health fellow with the American Academy of Actuaries in Washington, said in a phone interview.

The longer the U.S. waits to address the coming shortages in Medicare and Social Security, the more painful it may be, said Uccello. A U.S. delay in extending Medicare’s fiscal life may force cuts for current beneficiaries rather than diminishing them for people who enter the program several years from now.

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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