Social Security and Medicare Solvency

May 14, 2009

The latest report on the solvency of the Social Security and Medicare trust funds reveals that these entitlement programs will likely run out of money sooner than expected. Senior Fellow Henry Aaron assesses the future of these two programs.


“I think the Social Security trust funds report should be interpreted as worse news than last year, but actually better than the news that has been on the average for about the last 15 years. The Actuary’s projections have been pretty much constant over that period. The system has enough money until sometime late in the 2030s or early 2040s. It does face a long term deficit, and the sooner we deal with that problem the better, but there is really no cause for hand ringing that the sky is falling. There is a steady warning that it is time for Congress to face this problem and deal with it. Furthermore it’s a relatively easy problem to deal with. Small adjustments in revenues or in benefits would be sufficient to put the system on a steady financial course for the indefinite future.”

“…In the case of Medicare the prospects as indicated by the trust funds reports this week are far more serious than in the case of Social Security. There are smaller reserves for hospital insurance, so the system is projected to exhaust those reserves much sooner. Furthermore, costs are projected to increase not only because the baby boomers are going to retire, which also affects Social Security, but in addition because the per capita costs of health care spending are growing faster than incomes, and that means you got a double whammy. Big changes are going to be necessary, probably mostly on the revenue side, but some in the form of economies and expenditures, in order to assure that the Medicare system is in balance. The key point here is that in order to do those things with in Medicare the changes almost certainly will have to be and should be embedded in overall health system reform. That is the reason my view why President Obama and leading administration spokespersons have been emphasizing that health reform is budget reform for the federal government.”