Trustees for the government's Social Security and Medicare programs have warned that the two programs faced the prospect of financial collapse. Resources in the Social Security trust fund are expected to be exhausted by 2041 and those in the Medicare trust fund even earlier, by 2019. The financial crunch will start when the two programs start paying out more in benefits, than they collect in payroll taxes.For Medicare the tipping point will be reached this year, and for Social Security in 2017. However despite long term financial dificulties, both programs will be able to pay all promised benefits for at least 10 more years without additional funding.
The annual report of the two programs was released Tuesday by the trustees. 'This report confirms the need for acton,' said Treasury Secretary Henry Paulson. 'The sooner we take action to strengthen Social Security's financial footing, the less drastic the needed reforms will be to future generations.'
The Medicare program is in worse shape than Social Security mainly because health care costs are rising quickly. Proposals regarding the two programs have caused intense bickering in Congress between the Republicans and the Democrats. Republicans have urged quick action while the Democrats accuse them of using the report as an excuse to make cuts in benefits. Any immediate change is unlikely in an election year, and it will only be the next President who will have to find a solution. There is no easy fix to the problem. Social Security's funding over 75 years would take an inrease in the payrolls tax from 12.1% to 14%, or a 12% decrease in benefits, or a combination of both. Fixing Medicare's funding over the next 75 years would require an increase in the Medicare payroll tax from 2.9% to 6.4% or a 51% reduction in outlays to hospitals, nursing homes and home health care, or again a combination of the two.