May 31,2013

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Hatch on Medicare, Social Security Trustees’ Reports

Utah Senator Says, “These Reports Shouldn’t Give Anyone Any Comfort. As Our Economy Improves, There Will Be A Greater Deterioration In The Health Of The Medicare Program For Our Seniors.”

SALT LAKE CITY – After the Medicare and Social Security Trustees’ reports were released today, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, said that the Medicare program’s slower growth doesn’t capture the real challenges facing Medicare, since the report largely reflects the nation’s slow economic growth.  He noted that longer-term projections, including the demographic reality of more and more Americans joining Medicare, demonstrate the urgent need for structural reforms to the nation’s largest entitlement program.  Hatch also noted the need for reforms to Social Security, and especially the Social Security Disability Insurance (SSDI) program, which will be unable to pay full benefits in a couple of years.  

“These reports shouldn’t give anyone any comfort.  The snap shot of the Medicare program is largely a reflection of America’s weak economic performance, but with 10,000 Americans joining Medicare every day, the demographic reality is that Medicare is on a collision course with bankruptcy.  Slower economic growth means that fewer Americans are purchasing health care. As our economy improves, there will be a greater deterioration in the health of the Medicare program for our seniors,” said Hatch.   “The bottom line is that Medicare will be bankrupt in 13 years, with Social Security not far behind.  The combined Old-Age, Survivors, and Disability Insurance Trust Funds will be exhausted in 2033.  Worse yet, the Social Security Disability Insurance program will be exhausted in 2016, subjecting disabled American workers with benefit cuts of 20 percent absent structural changes.  Reforming Medicare and Social Security is a national imperative that policymakers on both sides of the aisle and at the White House must embrace if we are going to protect those programs for our seniors and for future generations, while simultaneously bringing down our sky-high debt.”

Hatch has put forward five common-sense, bipartisan Medicare reforms as means of both shoring up Medicare for seniors and for bringing down the nation’s debt, which is nearing $17 trillion.

Below are key portions of the report released today:

Social Security:

  • The combined Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2033.
    • Absent structural changes to the programs, Social Security beneficiaries face benefit cuts of 23% in 2033.
  • The Disability Insurance (DI) Trust Fund by itself will be exhausted in 2016.
    • Absent structural changes to the DI program, disabled American workers face benefit cuts of 20% in 2016.
  • The 75-year unfunded liabilities in Social Security total $9.6 trillion, $1.0 trillion more than reported in last year’s Trustees report; unfunded liabilities over the infinite horizon in Social Security total $23.1 trillion, $2.6 trillion more than reported in last year’s Trustees report.
    • Trillions of additional unfunded liabilities, which will have to be covered by younger workers and future generations, accumulate with each additional year of inaction over structural reforms to the Social Security system.


Non-Stop Deficits:

  • Medicare’s Hospital Insurance (HI) Trust Fund continues to run annual cash flow deficits.  In 2012, the deficit was $23.8 billion, thus the HI Trust Fund is already redeeming securities to pay benefits.
  • The HI Trust Fund will be officially bankrupt in 2026, at which time it will no longer be able to pay full benefits for seniors.  

Unrealistic Assumptions:

  • The non-partisan Acting Chief Actuary of the Centers for Medicare and Medicaid Services (CMS), Paul Spitalnic, in the illustrative alternative projections, as well as his statement of actuarial opinion at end of the report warns:
    • “the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable).
    • “…it is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report, possibly by substantial amounts.'
    • Using more realistic assumptions, based on the history of Congressional actions, the actuaries estimation of costs per beneficiary increase from $12,135 in 2013 to $17,322 in 2022—a 43% increase.

Massive Unfunded Obligations:

  • Assuming current law remains unchanged, Medicare’s total unfunded obligation over 75 years is $4.6 trillion.

A Report Full of Warnings:

  • The Trustees project Medicare will cover more than 45 percent of its expenses out of Treasury’s general fund beginning in 2013.  As a consequence, for the eighth year in a row (2006 through 2013), the Trustees made an “excess general revenue Medicare funding” determination. Two consecutive “excess general revenue Medicare funding” determinations trigger a “Medicare funding warning,” which requires the President to submit (within 15 days of his next budget) a legislative proposal to address the crisis.
  • The Trustees issued a Medicare funding warning for the eighth consecutive time this year (2007 through 2013). Former President Bush responded to the Medicare funding warning issued in 2007 (in his 2008 budget), but President Obama has failed to submit a single proposal to Congress to shore up Medicare’s shaky finances.