The financial health of the Social Security system has eroded more sharply in the past year than at any time since the mid-1990s, according to a government forecast that ratchets up pressure on the Obama administration and Congress to stabilize the retirement system that keeps many older Americans out of poverty.
The report, issued yesterday by the trustees who monitor the government's two main forms of help for the elderly, shows that Medicare has become more fragile as well and is at greater risk than Social Security of imminent fiscal collapse. Starting eight years from now, the report says, the health insurance program will be unable to pay all its hospital bills.
The findings put a stark new face on the toll the recession has taken on the two enormous entitlement programs. They also intensify a political debate, gathering strength among Democrats and Republicans, over how quickly President Obama should tackle Social Security when health-care reform is his administration's most urgent domestic priority.
In announcing the results of the trustees' annual forecast with other Cabinet members, Treasury Secretary Timothy F. Geithner said, "The president explicitly rejects the notion that Social Security is untouchable politically." Still, he reiterated that the administration intends to "work to build a bipartisan consensus to ensure the long-term solvency of Social Security" only after it collaborates with Congress to slow health-care spending and enable more Americans to obtain medical insurance.
Congressional Republicans and some Democrats seized upon the findings to argue that the administration should work rapidly to ward off the looming insolvency of Social Security and Medicare. Sen. Judd Gregg (R-N.H.), who withdrew from nomination as Obama's commerce secretary, said yesterday's report shows that the recession is "accelerating the arrival of a massive, trillion-dollar entitlement crisis on our doorstep." He added: "Trying to kick the can down the road will not make it go away. We need to take meaningful action now."
Specifically, the trustees' report predicts that the trust fund from which Social Security payments are made will be unable to pay retirees full benefits by 2037, four years earlier than forecast a year ago. In particular, the trustees single out the financial weakness of the part of the program that subsidizes disabled Americans, saying that fund will run out of money in 2020.
Only three times in the past 15 years have the trustees predicted that Social Security would run out of money sooner than previously expected. Last year, they forecast no change from the 2007 prediction, and in 2007, they predicted that the fund would last a year longer than they had previously thought.
Yesterday's report also said the Social Security trust fund will begin to spend more money than it takes in through tax revenue in 2016, one year sooner than predicted a year ago.
Administration officials said that if Congress were to act immediately, the impending gap could be filled three ways: by raising workers' Social Security payroll taxes by 2 percentage points, from 12.4 percent to 14.4 percent; by reducing benefits by 13 percent; or a combination of the two approaches. The officials briefed reporters on the condition of anonymity on the technical aspects of the trustees' findings.
Medicare's financial health, the report shows, deteriorated less sharply in the past year than Social Security's, but it remains the more urgent problem. The trust fund that pays for hospital care under Medicare is now predicted to run out of money in 2017, two years earlier than forecast a year ago. That fund does not involve the parts of Medicare that cover doctor's visits or coverage for prescription drugs.
The nation's economic downturn has added to the fragility of Medicare and Social Security because worsening unemployment means that fewer workers are contributing to the two trust funds through payroll taxes. Since the recession began in December 2007, the country has lost 5.7 million jobs.
But even if the economy were stronger, the programs would be facing pressure in coming years as the large baby-boom generation reaches old age and people tend to live longer, leaving comparatively fewer workers to pay benefits for a large cadre of retirees.
Health and Human Services Secretary Kathleen Sebelius sought to use the report to build momentum for health-care reform, reiterating the administration's contention that the best way to strengthen Medicare's finances is to, as she put it, "fix what's broken in the rest of the health-care system." If Americans have health insurance and receive adequate medical care when they are younger, she said, they will be healthier and less expensive patients when they become old enough to join Medicare, usually at age 65.
Some key lawmakers in both parties have said they want to devise a plan to keep the retirement program solvent by increasing the retirement age, slowing the growth in the size of retirement checks to wealthy Americans and bringing in new revenue.
Several Democrats and Republicans would prefer to create an independent commission to propose Social Security reforms, but congressional leaders, particularly in the House, have balked, saying the matter should be handled by Congress's regular committees.
Last week, House Majority Leader Steny H. Hoyer (D-Md.) said Congress could start work on the retirement program this fall if it passes health-care legislation by late summer -- a timetable that others called unrealistic. Yesterday, Hoyer said he was encouraged that Geithner, the Treasury secretary, "stated the administration's support for moving forward with Social Security reform after health-care reform has passed."