U.S. says Medicare to exhaust funds sooner

(Reuters) - Two of the government's most popular programs for the elderly, Medicare and Social Security, will run out of money sooner than thought earlier as a slow-growing economy saps revenues, a report on Friday said.
http://www.reuters.com/article/2011/05/13/us-usa-budget-medicare-report-idUSTRE74C4O720110513?feedType=RSS&feedName=domesticNews

Nuff said.

Perhaps the best solution is to do nothing until they are indeed bankrupt and incapable of providing the promised benefits. Perhaps it is then, and only then, that the citizens of today will finally realize the mistake that has been made in allowing the federated government to usurp so much of the authority from the sovereign states within the union. It might indeed be the best and most expedient way of returning the federated government to its actual authority instead of its desired one.

I might agree with that- the year it goes bankrupt gets to be sooner and sooner as each year of slow growth adds up. The projections they use are optimistic- and they will need to modify the bankrupt date each year.

And- it's backrupt in 12 years- and I believe that is being optimistic at best. It could be much sooner- so I hope Americans don't plan on living more than 8 or so more years!

The time to act is now- Obama's economic policies may have us bankrupt in 6 years or so.

I don't see it. Seniors vote so I think all other budgets will be trimmed before Medicare and Social Security get cut. Means testing will reduce some of the expense, and I expect the people still working and the businesses that are still open will have to pay more.

Here's a couple of things worth considering...

http://www.washingtontimes.com/news/2011/may/13/social-security-deficits-now-permanent-feature/

The trustees stressed that exhaustion of the trust funds doesn’t mean the programs will stop paying all benefits. Social Security could fund about three-fourths of benefits past 2036, and Medicare could pay 90 percent of benefits past 2024 under current trends.

Social Security began running an annual deficit in 2010 when looking at tax income and benefit payments. The gap right now is made up by payments from the trust fund, which in theory has built up over the years when the program ran an annual surplus.

http://www.businessweek.com/news/2011-05-13/medicare-social-security-funds-expiring-sooner-u-s-says.html

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.

This is the first time I've heard that Medicare could go another 75 years if the payroll tax was rasied 24%. It's at 2.9% now (split with employeer), so that would increase it about 0.7% to 3.6%. Hell, I think the program is worth keeping for that. But I'd combine some means testing where wealthy retirees say have a bigger deductible and make that .7% even smaller.

Anyway, Republicans want to stay fixated on no tax increases, and Democrats want no drop in benefits. Let's find some compromise.

And that is the point. If/when the taxes are not raised, the alternative becomes forfeiting on the promises that were made and decreasing the benefits that the program provides such that they become in practice of no benefit at all. What support do you think the program will have then?

What happens when one generation finally draws a line in the sand and says that those that came before them had no right, no authority to saddle them with the obligation to provide the funds from which others benefit but not themselves? You and I are paying for those that are currently retired, not for our own retirement. For that we have to depend on the posterity to do as we have done. Do you and I have a moral right to do that; is it a moral obligation we can extract from those who have yet to be born? How is that consistent with individual liberty?

Hello McFly. (All politicians and citizens).

There are NO trust "funds". Never were. Never will be. Does anyone understand this?

This is an older article but it explains the truth. Why do citizens let politicians keep talking about this trust fund BS? This bogus amount of make believe money in trust funds is meaningless.

http://www.aei.org/outlook/27825

Misplaced Trust in Trust Funds. For many people, the term "trust fund" conjures up an image of financial stability and permanence. That is precisely what the New Dealers had in mind in 1939 when they relabeled the Social Security reserve fund a trust fund.[7] The new term conveyed a perception that a worker's "contributions" (a misnomer--they are taxes) were safely held in his "account" until needed to pay for his retirement. This bit of spin doctoring undoubtedly helped build the public's confidence at a time of great economic and political uncertainty.

The assets in the trust funds are not in a bank account, ready to be withdrawn when Medicare gets into trouble. They are not invested in negotiable financial securities.[10] They spend no time sitting in some vault at the Treasury Department. Instead, each dollar that is not spent by Medicare to pay for the health care of current beneficiaries is immediately lent (and spent) to the Treasury and used to finance the ongoing operations of the government.

But wait, there is more!

But there is another Medicare trust fund. The Supplementary Medical Insurance (SMI) trust fund accounts for financial transactions under Part B for outpatient services and under Part D for prescription drugs. Unlike HI, the SMI trust fund was deliberately designed so that it can never run out of money.

Although the SMI trust fund cannot become insolvent, the fund is not a fiscal perpetual motion machine. Parts B and D receive a quarter of their revenue from premiums paid by enrollees. The remainder is from general revenue, essentially income taxes, and by law the trust fund may draw as much general revenue as it needs to cover its costs. Under this arrangement, the SMI trust fund is always in balance, but that tells us nothing of interest. The trustees project that spending under Parts B and D will continue to grow rapidly, gobbling up more resources and exerting increasing pressure on the economy.

I refer you to my post here

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This is how the Social Security Administration describes the trust funds...

http://www.ssa.gov/oact/progdata/fundFAQ.html#n7

Why do some people describe the "special issue" securities held by the trust funds as worthless IOUs? What is SSA's reaction to this criticism?

As stated above, money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future. Without legislation to restore long-range solvency of the trust funds, redemption of long-term securities prior to maturity would be necessary.

Far from being "worthless IOUs," the investments held by the trust funds are backed by the full faith and credit of the U. S. Government. The government has always repaid Social Security, with interest. The special-issue securities are, therefore, just as safe as U.S. Savings Bonds or other financial instruments of the Federal government.

Many options are being considered to restore long-range trust fund solvency. These options are being considered now, over 20 years in advance of the year the funds are likely to be exhausted. It is thus likely that legislation will be enacted to restore long-term solvency, making it unlikely that the trust funds' securities will need to be redeemed on a large scale prior to maturity.

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.

In the past, the trust funds have held marketable Treasury securities, which are available to the general public.

Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.

Data on trust fund investments provide a breakdown by interest rate and trust fund for any month after 1989.


What interest rate do the trust funds' assets earn?

The rate of interest on special issues is determined by a formula enacted in 1960. The rate is determined at the end of each month and applies to new investments in the following month.

The numeric average of the 12 monthly interest rates for 2010 was 2.760 percent. The annual effective interest rate (the average rate of return on all investments over a one-year period) for the OASI and DI Trust Funds, combined, was 4.642 percent in 2010. This higher effective rate resulted because the funds hold special-issue bonds acquired in past years when interest rates were higher.

Pine: I object to the use of the term "trust fund", it is misleading to the public. The Feds make up their own definition. It is not a fund with real property or assets. See p. 71

http://www.fms.treas.gov/fr/10frusg/10notes.pdf

In the Federal budget, the term “trust fund” means only that the law requires a particular fund be accounted for separately, used only for a specified purpose, and designated as a trust fund. A change in law may change the future receipts and the terms under which the fund’s resources are spent. In the private sector, trust fund refers to funds of one party held and managed by a second party (the trustee) in a fiduciary capacity. The activity of earmarked funds differs from fiduciary activities primarily in that earmarked fund assets are Government-owned.

So they are really "earmarked" revenues, temporarily spent for another purpose, with the full faith and credit of future "income tax" payers promising to pay it back. That is my definition of the Gubmint trust fund.