Entitlement Crisis Imminent in America

America’s public health support and pension programs will run out of money much sooner than previously anticipated.

America’s looming entitlement disaster is far more imminent than previous anticipated. While the Congressional Budget Office warned earlier this year that public health support and pension programs were likely to grow at an unsustainable pace in years to come, the trustees of these decade-old safety nets delivered a series of dire warnings last week which makes the case for reform all the more pressing.

Medicare, which finances health care for the elderly, is expected to run out of money in 2024, five years earlier than projected last year. Once the main trust fund is depleted, revenues from Medicare taxes will initially be enough to cover 90 percent of expenses but that share will decline to 75 percent by midcentury, then rise to 88 percent by 2085.

As a result of the adjusted projections, Medicare’s trustees estimate a total worth of unfunded obligations of $24.6 trillion over the next 75 years; an increase of $2 trillion compared to last year’s estimate.

In reality the program, unless reformed, will be far more indebted as the official projections assume $575 billion in savings included in President Barack Obama’s health reform law and a 29 percent reduction in physician reimbursements in 2012. That is unlikely to happen. Time and again, Congress has overwritten payment reductions and it’s almost certain to do so again, especially during an election year.

Medicaid spending, which subsidizes health care for the poor, has exploded over the past two decades, from nearly $74 billion in 1990 to more than $427 billion last year. Because Medicaid is paid for by the states, its rising costs increasingly crowd out investment in other areas, including education and infrastructure. Yet under the president’s health reform law, some twenty million additional Americans would be eligible for coverage.

The Social Security trust fund is now projected to last until 2036 but once it is depleted, the annual payroll taxes that pay for the program will only be sufficient to cover 75 percent of the retirement benefits it is required to pay seniors.

In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, that deficit will be approximately $46 billion. Between now and 2085, the pension program’s trustees estimate a $9.1 trillion deficit.

Republican lawmakers have offered a long-term solution for at least one of the three entitlement crises. Their budget proposal for fiscal year 2012 includes a gradual privatization of Medicare that excludes citizens in or near retirement from any changes but provides “premium support” for future generations of retirees. While thus retaining a subsidy, opponents have lambasted the conservative plan as “extreme”, claiming that it threatens the “dignity” of American seniors.

Both Democrats and a number of prominent Republicans have been skeptical and unwilling to reform entitlement programs that are popular with their millions of beneficiaries. Former House speaker Nancy Pelosi professed last year that reform should do “what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare.” Senate Majority Leader Harry Reid in January described Republicans’ efforts to repeal the president’s health reform law as “a gesture in futility” and said that Social Security was not in a crisis. “This is something that’s perpetuated by people who don’t like government,” he opined. Potential Republican presidential contender Newt Gingrich this weekend characterized his own party’s Medicare reform effort as “radical.”