–Updating 14:59 Story With Additional Detail, Geithner Quotes

By Denny Gulino

WASHINGTON (MNI) – Delivering expected bad news about a further
deterioration in the outlook for the Social Security trust funds, the
trustees who watch over them Monday urged “prompt and sufficiently
decisive” action by Congress.

“Pressures on these programs are mounting,” said U.S. Treasury
Secretary Tim Geithner — the chairman — as the Social Security and
Medicare annual reports were published.

They show the worst single-year deterioration in the outlook for
the Social Security Trust Funds since the last round of reform in 1994,
bringing the funds their closest to a benefit cut since 1983.

While acknowledging the projections fluctuate year-to-year, the
trustees reported that a 25% cut in Social Security benefits is
projected to be necessary in 2033, three years earlier than expected in
last year’s report.

Medicare also is in worse shape but the latest annual deterioration
was because of a different estimation methodology, not the economic and
budget considerations that hit the Social Security numbers.

“We do not regard the updated projection (for Medicare) as a
qualitatively significant further deterioration,” their report said.
Medicare is helped somewhat by an additional tax to take effect next
year under the new health care law. As it is Medicare benefit cuts would
have to begin in 2024 if nothing is done.

The latest projection sees overall Medicare costs in 2035 being
5.7% of GDP, a tenth more than seen last year.

The financial outlooks for both Social Security and Medicare
“depend critically on a number of demographic and economic assumptions,”
the report of the six trustees said. “Nevertheless, the projected
actuarial deficit in each of these programs is large enough that
continued solvency under current-law financing is extremely unlikely.”

The trustees said an even more immediate issue for future projected
benefit cuts “is the growing burden that the programs will place on the
federal budget” as they “exert rapidly rising pressure” in future years.

Right now there is a $165 billion difference between Social
Security’s dedicated tax income and its expenditures. When it comes time
to redeem the trust fund bonds, “interest paid on those bonds and
transfers from the general funds provide no new net income to the
Treasury” and so must come up with the money through “increased
taxation, reductions in other government spending, or additional
borrowing.”

The result, the trustees warn, is “vastly increased pressure on the
federal budget” if there were no new taxes, “with such financing
requirements equaling 4.8% of GDP by 2040.”

Social Security advocates have warned that the longer Congress puts
off a structural fix, the less likely one can be engineered, increasing
the threat of eventual severe cuts in the program.

Most of the money being taken away from the Social Security trust
funds by the two-year payroll tax cut is being replaced from the
government’s general fund and is not having a permanent effect. But the
trustees warned that using general fund revenues could turn out to
“threaten to undermine long-standing public perceptions of the program
as an earned benefit financed by workers according to contributory
social insurance principles.”

Geithner used the opportunity to promote what he said is President
Barack Obama’s “detailed plan to further reform and strengthen
Medicare,” which involves the Republican-opposed higher tax rates on the
wealthiest.

Another trustee, Health and Human Services Secretary Kathleen
Sebelius, said she is confident the new health care law will do more to
reinforce Medicare than the projections currently reflect.

The trustees said Medicare’s future is actually worse than
officially projected because of “the near-certainty that lawmakers will
override the nearly 31% cut in physician fee-schedule payments” called
for in current law.

As was well known prior to the latest report, the Disability
Insurance fund is in the worst condition, with projected benefit cuts as
soon as four years from now.

The Disability Insurance program “faces the most immediate
financing shortfall of any of the separate trust funds,” the trustees’
report said. “Lawmakers need to act soon to avoid reduced payments to DI
benficiaries.”

Social Security projections tend to be more stable than Medicare
projections, which depend largely on the vagaries of health care costs.
The measures necessary to cure Social Security’s shortfalls are
considered to be much easier to accomplish than Medicare’s, again
because health care cost escalation has proven to be much harder to
control.

The trustees warn that although Social Security and Medicare
benefits cuts are projected to be decades away, to change the picture
requires action on Capitol Hill relatively soon. With efforts to repeal
much if not all of the new health care law, prospects are for a
worsening of its projections sooner than Congress is able to achieve
agreement on its reform.

Answering questions, Geithner said the best solution for the
Disability Insurance Trust Fund is a long-term adjustment in revenue,
not a short-term fix, despite the near-term possibility of benefit cuts.

“Congress faced this problem back in 1994 with less time to act and
they acted then with a temporary solution but I think in our judgment
the best thing to do is to do a long-term solution and we’re going to be
working toward that with the Congress,” he said.

Sebelius, answering another question, said she assumes health-care
costs will ultimately be lower under the new health care law, and so
Medicare will benefit to some extent.

She defended the Medicare Advantage demonstration program that
involves private firms offering care, getting bonuses for cost savings.
The GAO criticized the program saying the bonuses are excessive, given
the performance, a took the unusual step of recommending the entire
pilot project be cancelled.

** MNI Washington Bureau: 202-371-2121 **

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