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Unformatted text preview: Trustees of Social Security and Medicare Report 23:30 Financial condition of the Social Security and Medicare programs remains problematic: Long term program costs not sustainable Current annual suprluses of tax income over expenditiures will begin to decline in 2011, turn into rapidly growing deficits as baby boomers age Medicare o Financial status is even worse o Hospitial Insurance HI--expected to pay out more in hospital benefits and other expenditures than it receives in taxes and other dedicated revenues Difference will be made up from general revenues which pay for interest credits to the Trust Fund Trust fund pays for physician services and the prescription drug benefit Medicare Supplementary Medical Insurance (SMI) that pays for physician services and the prescription drug benefit will continue to require general revenue financing and charges on beneficiaries that grow substiantially faster than the economy Drawdown of SS and HI Trust Fund reserves and revenue transfers from SMI result in mounting pressure on federal budget For the second consecutive year a Medicare Funding Warning is being triggered--signifying that nondedicated sources of revenue will account for 45% of Medcare's outlays Medicare Medicare's financial difficulties come sooner and are more severe than confronting social security Underlying health care costs per enrollee are projected to rise faster than the wages per worker on which payroll taxes Second consecutive year that Medicare Report triggers Medicare funding warning Medicare Prescription Drug, Improvement, and Modernization Act of 2003-- o The medicare report must include a determination of whether the difference between total Medicare outlays and dedicated financing exceeds 45% of the total outlays within the first 7 years of the projection period o Provides that an affirmative determination in two consecutive reports be treated as a "funding warning" for medicare, and prompting a Presidential proposal to respond to the warning and expidedted Congressional consideration of such a proposal 2008 report projects difference will surpass 45% triggers the second consecutive Medicare funding warning HI Defecit o Down slightly o Were it not for new methods for projecting immigration that were implemented in this year, HI deficit would have increased rather than decreased Solutions: Program could be brought into actuarial balance by a 122% increase in the payroll tax An immediate 51% reduction in program outlays or some combination Larger changes would be necessary if changes are delayed or phased in gradually Solutions to Social Security Could be brought into actuarial balance over the next 75 years if: o Immediate increase of 14% in payroll tax revenues o Ammediate reduction in benefits of 12% or some combination of the two o Aging population and increasing longevity cause the projected currentlaw OASDI cashflow deficits to be substantially larger after the 75year projection period than they are on average during the perdio The sooner these problems are addressed, the more varied and less disruptive their solutions can be Social Security Trust Funds-- Established by Congress in the U.S. Treasury to account for all program income and disbursements Treasury invests program revenues not needed in the current year to pay benefits and administrative costs Four separate trust funds: o Social Security: OldAge and Survivors Insurance (OASI) pays retirement and survivor's benefits o Disability Insurance (DI) pays disability benefits o The two funds are often considered combined, and are thus denoted OASDI Financed for the majority by payroll taxes Selfemployed are charged the equivalent of the combined employer and employee tax rates Medicare: o Hospital Insurance (HI) pays for inpatient hospital and related care Financed by payroll taxes HI taxes are pained on total earnings o Supplemental Medical Insurance is comprised of Part B (physician and outpatient services) and Part D (prescription drug benefits) 75% paid from Federal general rund revenues most of remaining costs covered by monthly premiums charged to enrollees brought into balance annually through premium increases and general revenue transfers Changing Sources of Medicare Financing As Medicare costs grow, general revenues and beneficiary premiums play larger role in financing the program Revenue from taxes will fall substantially as a share of noninterest Medicare income Difference between outgo and dedicated payroll tax and premium income will grow rapidly in the 201030 period as the babyboom generation reaches retirement age 23:30 23:30 ...
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This note was uploaded on 09/22/2009 for the course PAM 2300 taught by Professor Avery,r. during the Fall '06 term at Cornell.
- Fall '06