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America's Entitlement Crisis Just Keeps Growing

June 13, 2018 in Economics

By Michael D. Tanner

Michael D. Tanner

One problem with living in times as interesting as these is that
important news often gets lost amid the swirl of rapidly changing
events. If you blinked last week, you may have missed the latest
report from the trustees of the Social Security and Medicare
systems. But for the sake of our children and grandchildren, not to
mention the country’s economic future, America’s
looming entitlements crisis is worth paying attention to.

Start with Social Security. This year, the system’s
trustees pegged its official “insolvency” date at 2034,
the same as in last year’s report. Unfortunately for those
under age 51, of course, we are now a year closer to that date than
we were a year ago. And unless something changes dramatically
between now and then, current law will require benefits to be
slashed by 21 percent at that point.

But focusing on that top-line number badly understates Social
Security’s real problems. Since 2009, Social Security has
taken in less in taxes than it pays out in benefits. It has been
using “attributed” interest to maintain a positive
balance. But this year, benefits exceeded both taxes and interest,
meaning that Social Security had to dip into the principal of the
Social Security Trust Fund for the first time.

A new government report
suggests that Social Security and Medicare are in even worse shape
than you thought.

Of course, all of this is merely a bookkeeping fiction. The
Social Security Trust Fund is not — and never has been
— an asset that can be used to pay benefits. Instead, it is
an accounting measure of how much money Social Security can draw
from general revenues. Since the government doesn’t have any
extra cash socked away — you may have noticed that we are
running a $21 trillion debt — any Social Security shortfall
only adds to the growing tide of red ink.

Overall, the trustees report that Social Security’s total
unfunded liabilities now exceed $37 trillion, on a
discounted-present-value basis over the infinite horizon.

And that’s the good news. Medicare is in even
worse shape. This year’s trustees’ report estimates
that the health-care program for seniors will hit technical
insolvency by 2026, three years sooner than last year’s
estimate. The program’s worsening financial condition is
traced to “higher-than-anticipated spending in 2017,
legislation that increases hospital spending,” and higher
payments to private Medicare Advantage plans. Congress also
repealed the Independent Payment Advisory Board (IPAB), an
Obamacare provision that would have limited provider
reimbursements.

Again, as with Social Security, focus on technical insolvency
understates Medicare’s negative impact on the federal budget
because of its reliance on Trust Fund accounting. In actuality,
Medicare has been running …read more

Source: OP-EDS

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