Social security/Medicare Watch: 2008

Social Security and Medicare trustees' 2008 annual report was released recently. See here for news coverage of the report, and here for the full report.

There are no big surprises in the report, but I find it fascinating to read about the projections for Social security and Medicare for the future. It is true that both programs are in financial trouble, but the situation is not anywhere as bad as some people think. Especially among 20 and 30 somethings, it has become fashionable to dismiss these "government programs".

First, about the state of Social security:

  • For years, the Social Security program has been taking in more in payroll taxes from existing workers than it needed to fund benefits. The government borrowed that surplus and promised to pay it back with interest by issuing special issue bonds to the program.

  • The federal government will have to start paying back what it owes the Social Security trust fund in 2017 so the program can continue paying 100% of benefits.
  • The trust fund will run dry by 2041. Without that cushion, Social Security would only be able to pay out the money it collects in payroll taxes. If the system is left unchanged, in 2041 Social Security will only be able to pay out 78% of benefits promised to future retirees.

  • Currently, the first $102,000 of wages are subject to the 12.4% payroll tax that funds Social Security. Typically, only half of this is paid by workers, and the other half is paid by employers. To keep the system solvent over the next 75 years, the trustees estimated that the Social Security payroll tax rate would need to increase to 14.1%, up from the current 12.4%. Or lawmakers could bring it into balance by cutting benefits by 12%.

And about Medicare:

  • Medicare was designed to be funded by three sources: payroll taxes, Medicare premiums paid by beneficiaries, and general revenue or money from income taxes.
  • The Medicare program is already taking in less than it has committed to pay out, and the trustees forecast that the Medicare trust fund will be depleted by 2019, at which point Medicare would only be able to pay out 78% of costs.

  • The payroll tax portion of that funding comes from a 2.9% tax on all wages, half of which is paid by workers and half by their employers. To make Medicare solvent over the next 75 years, the trustees estimate that 6.44% of wages would need to be taxed.

Discussions about universal healthcare always include people making disparaging statements about "government-run healthcare." Some of them are not even aware that the US already provides universal healthcare for seniors, and that, all things considered, it works reasonably well.

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3 comments:

Sentient Money said...

"Discussions about universal healthcare always include people making disparaging statements about "government-run healthcare." Some of them are not even aware that the US already provides universal healthcare for seniors, and that, all things considered, it works reasonably well."

What are you basing this on? I personally know the CFO for a regional hospital and the government is their main problem. The CFO has stated countless times how much more it costs (more man hours) to deal with the government than insurance companies and the government under pays for services. Guess who makes up for that under payment? Yep, us, through higher insurance premiums.

On top of that I'm a government consultant, and I can assure you I don't want to really on a government worker to process my medical request.

Nigel said...

sm,
Thanks for the response. I assume that your objection is to my statement that Medicare works "reasonably well".
What other kind of coverage would you like to have when you are retired? Private insurance that may not accept you because you have pre-existing conditions? I did not claim that Medicare is perfect, just that most of America's seniors are happy with Medicare.

Child Trust Fund said...

I think that these sort of things are often exaggerated to make things sound as bad as possible.

There are some people out there who seems determined to always focus on the negatives.