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Retirement Planning > Social Security

Social Security Founders, Medicare Gains

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WASHINGTON BUREAU – The Affordable Care Act could extend Medicare trust fund solvency 12 additional years, to 2029, program trustees say.

Meanwhile, because of the weight of the recession, Social Security and Social Security Disability Insurance (SSDI) program expenditures will exceed earnings this year and next for the first time since the 1970s, the government reported today.

Treasury Secretary Timothy Geithner said that a new tax on high-cost healthcare plans, the so-called “Cadillac tax,” will help the Social Security deficit over the medium term.

The tax, part of the Patient Protection and Affordable Care Act (PPACA), an Affordable Care Act component, is set to take effect in 2019. The provision could shift some compensation that could be paid in the form of tax-free health benefits into ordinary cash earnings, which are subject to Social Security and Medicare taxes, Geithner said.

“This factor more than accounts for the reduction in Social Security’s actuarial deficit to 1.92% of taxable payroll from 2% percent of taxable payroll projected last year,” Geithner said.

Geithner said the Medicare Part D prescription drug program is in financial balance because of annual updating of enrollee premiums and federal payment rates.

He said projected Part D costs are slightly lower overall than in the 2009 report, reflecting lower-than-expected costs in 2008-2009, which were partially offset by higher benefits from phasing out the coverage gap, the so-called “doughnut hole,” as mandated by the Affordable Care Act.

Another Affordable Care Act provision calls for cuts in payments to the private insurers in the Medicare Advantage program. That should help overall Medicare program solvency, Geithner said.

Still another act provision will increase contributions to the Medicare fund by single taxpayers who earn $200,000 or more and couples that earn $250,000 or more. That change also will help Medicare’s financial outlook, Geithner said.

Social Security program trustees warn in their annual report that, if current projections are correct, income will exceed expenditures in 2012 through 2014, but expenditures will exceed income in 2015 and remain higher for years to come.

The program still should be able to pay full benefits until 2037, the trustees said.

The SSDI trust fund may run dry in 2018, and action must be taken soon to prevent that from happening, the trustees said.

Some payroll tax revenue could be shifted to the SSDI fund from Social Security, as was done in 1994, the trustees said.

Geithner cited the recession for worsening “somewhat” Social Security’s very near term outlook.

He added that, despite the projection that Social Security can continue to pay full benefits for nearly 30 years, “the sooner action is taken the more options for reform will be available and the fairer reforms will be to our children and grandchildren.”

“Now that we have taken meaningful steps to put Medicare on a sustainable path and moved quickly and aggressively to rescue our economy and put us a path to continued future growth, we must work to address the other intermediate- and long-term fiscal imbalances that the federal government faces as well,” Geithner said.

Also today, the Senate Finance Committee today approved the nominations of Charles P. Blahous III and Robert D. Reischauer as public trustees of the Social Security and Medicare Trust Funds.

The nominations now go to the full Senate for confirmation.


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