US Social Security and Medicare are insolvent in the long term

The annual report of the Trustees of the Social Security and Medicare trust funds was just released the report provides plenty of food for thought, and some fear.

The Social Security trust funds for Old Age and Survivors Insurance (OASI) plus Disability Insurance (DI) continues to fail the long-range [7 yrs] test of close actuarial balance, it does satisfy the conditions for short-range financial adequacy.

The trust fund for the Disability Insurance program alone is expected to be exhausted by Y 2018. For OASI the picture is similarly grim.

After 2022, [OASI+DI] trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.

Medicare posts equally sobering numbers. The Health Insurance (HI) portion of Medicare is being hit by the slow US economic recovery and by higher costs for medical care. The Trustees project that the HI trust fund will be exhausted in Y 2024:

Over 75 years, HI's actuarial imbalance is estimated to be equivalent to 21 percent of tax receipts or 17% of program outlays.

Medicare parts B and D (supplemental insurance and prescription drugs) are projected to be adequately financed indefinitely, but that's due to a guaranteed Congressional allocation that currently amounts to 1.9% of GDP in Y 2010 and will reach 4.1% of GDP by Y 2085.

Obamacare lowers projected Medicare costs by 25% over the 75-year term. Most of the savings are related to reducing annual payment increases to providers, of which the Trustees note, the long-term viability of this provision is debatable.

The summary concludes:

Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided.

The financial challenges facing Social Security and Medicare should be addressed soon. If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected can adequately prepare.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.