WASHINGTON -- President Barack Obama's administration said Wednesday that the financial outlook for Medicare's hospital insurance trust fund has deteriorated slightly in the past year and that Social Security still faces serious long-term financial problems.
Still, millions of Social Security beneficiaries will get a tiny increase in monthly payments next year -- less than $2.50 each.
But with no changes to existing law, a trustees report said Wednesday, Medicare's hospital trust fund will be depleted in 12 years -- 2028 -- two years earlier than projected in last year's report.
In addition, they said, the Social Security trust funds for old-age benefits and disability insurance, taken together, could be depleted in 2034, the same year projected in last year's report.
Tax collections would then be sufficient to pay about three-fourths of promised benefits through 2090, they said.
The annual report included a warning that Washington needs to act sooner rather than later to shore up finances and avoid upending the lives of millions of retirees and their families.
If Congress allows either fund to run dry, millions of Americans living on fixed incomes would face steep cuts in benefits.
"Lawmakers should address these financial challenges as soon as possible," said the trustees' report. "Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare."
Social Security and Medicare account for about 40 percent of all federal spending. Medicare spent $632 billion on health care in 2015, according to the Kaiser Family Foundation, making it the single biggest purchaser of health services in the United States.
Obama administration officials have said the Patient Protection and Affordable Care Act has slowed the growth of health spending, compared with estimates made just before the law was adopted in 2010.
But the trustees said Wednesday that the short-term financial outlook for Medicare has worsened in the past year because of changes in their assumptions and expectations.
Medicare actuaries now expect higher use of inpatient hospital services, as well as lower projected improvements in workers' productivity and lower payroll tax revenue, as a result of slower growth in wages in the next few years.
In their report, the trustees -- Treasury Secretary Jacob Lew, Health and Human Services Secretary Sylvia Burwell, Labor Secretary Thomas Perez and acting Social Security Commissioner Carolyn Colvin -- said the costs of Medicare and Social Security would grow faster than the economy through the mid-2030s because of the aging of the baby boomer generation. As for Medicare, they said, "growth in expenditures per beneficiary exceeds growth in per capita gross domestic product over this time period."
Medicare spending
The projected growth in Medicare spending will not immediately set off automatic cuts in the program under a provision of the Affordable Care Act that generally requires such cuts when spending is expected to exceed certain benchmarks.
Medicare provides health insurance for more than 55 million people, including senior citizens and disabled people. After its inpatient care trust fund runs dry in 2028, Medicare's "Part A" monthly premiums would be able to pay only 87 percent of projected costs using tax collections.
Under current projections, they said, automatic cuts would take effect for the first time in 2019.
Medicare now spends an average of nearly $13,000 per beneficiary, and this figure is expected to exceed $16,000 in five years, the report said.
"High-cost drugs are a major driver of Medicare spending growth," said Andrew Slavitt, acting administrator of the federal Centers for Medicare and Medicaid Services.
The trustees also said that some Medicare beneficiaries may face sharply higher "Part B" monthly premiums for outpatient care next year. By law, increases in premiums for most Medicare recipients cannot exceed their increase in Social Security payments. So about 70 percent are "held harmless."
However, about 30 percent of beneficiaries are not covered by that safeguard.
Those who would feel the effect include new beneficiaries and people with higher incomes. The trustees project that the base monthly premium for this group will increase by about $27, to $149. Upper-income beneficiaries would pay considerably more.
Officials cautioned that projections for next year's premiums are uncertain. The final numbers will be released this fall.
The report carried an appendix amounting to a disclaimer about Medicare estimates: "The actual future costs for Medicare may exceed the projections shown in this report, possibly by substantial amounts," it said.
Social Security payments
Next year's projected 0.2 percent increase in Social Security payments will come a year after beneficiaries received no increase. By law, increases are based on a government measure of inflation, which has been low. The official 2017 cost-of-living adjustment won't be determined until the fall.
Advocates complained that the government's measure of inflation -- the Consumer Price Index for Urban Wage Earners and Clerical Workers -- doesn't adequately reflect the prices that older Americans pay.
"Seniors continue to see their modest Social Security benefits eaten away by growing health care costs," said Max Richtman, who heads the National Committee to Protect Social Security and Medicare.
More than 60 million retirees, disabled workers, spouses and surviving children receive Social Security benefits. The average monthly payment is about $1,232.
After Social Security's trust funds are depleted, the program would collect enough in payroll taxes to pay only 79 percent of benefits.
Such projections in years past have prompted leaders in both parties to at least broach the idea of benefit cuts or tax increases for entitlement programs.
By contrast, earlier this month, Obama told an audience in Elkhart, Ind., that Social Security should be made "more generous" and that "we could start paying for it by asking the wealthiest Americans to contribute a little bit more."
Lew, the treasury secretary, said Wednesday that he saw no contradiction there. The two objectives -- ensuring the solvency of Social Security and increasing benefits -- are "not at all inconsistent" if they are discussed in the context of "a broader conversation" about taxes and benefits, he said.
Congress took action last year to shore up Social Security's disability insurance trust fund, but the report says the legislation was just a short-term fix. The law postponed the projected depletion of the disability trust fund by seven years, to 2023, Lew said Wednesday.
Like other Democrats, Lew said the report showed the "positive impact" of the Affordable Care Act. Since the health care law was signed, he said, "increases in health care costs have slowed substantially."
Colvin said Americans should begin a serious discussion of how to close the "future financing gap" in Social Security. Sixty million people now receive Social Security benefits totaling more than $74 billion each month. The number of Social Security beneficiaries is expected to reach 76 million by 2025.
The report also said that a cost-cutting mechanism created under the Affordable Care Act, known as the Independent Payment Advisory Board, is projected to be triggered in 2017, the same timeline as predicted in last year's report.
Investors had been watching nervously for news of the advisory board determination, fearing that it could have been triggered this year.
The advisory board is a 15-member panel that would be appointed by the president and has broad authority to propose cuts to payments made through Medicare. Congress, which has typically controlled many aspects of Medicare's payments through legislation, has limited oversight of the advisory board, which was set up specifically to make reductions to U.S. health spending, at a distance from lawmakers and lobbyists.
Once appointed, the board proposes cuts to Medicare payments to get the program back under target levels that are based on rates of consumer inflation and U.S. gross domestic product. Those cuts are then sent to the president and Congress for fast-track consideration.
Investors will have to wait until next year to see whether the panel is triggered.
Information for this article was contributed by Robert Pear of The New York Times; by Ricardo Alonso-Zaldivar and Stephen Ohlemacher of The Associated Press; and by Anna Edney and Zachary Tracer of Bloomberg News.
A Section on 06/23/2016