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 it Monday urged “prompt and sufficiently
decisive” action by Congress.

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

They show the worst single-year worsening 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 in last
year’s estimation.

Medicare 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.”

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
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 that Medicare’s future is actually worse than
officially projected because of “the near-certainty that lawmakers will
override the nearly 31 percent 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 than 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 Medicare
is a long-term adjustment in revenue, not a short-term fix.

Sebelius, answering another question, said she assumes that
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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