Trustees air concerns on entitlement funds’ wane

WASHINGTON — The financial outlook for Medicare’s Hospital Insurance Trust Fund deteriorated in the past year, and Social Security still faces serious longterm financial problems, President Donald Trump’s administration said Tuesday.

The projections are the first from the administration since Trump signed a $1.5 trillion tax cut into law in December. The forecasts show no sign that a burst of economic growth will dramatically improve the finances of the government’s largest entitlement programs.

The Medicare trust fund will be depleted in 2026, the administration said. By contrast, the government said last year that the trust fund would be exhausted in 2029.

In a companion report, federal officials 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. But the fund that helps tens of millions of retirees is expected to be depleted a year earlier than projected a year ago, while the outlook for the disability trust fund is more favorable.

Still, tax collections would be sufficient to pay about three-fourths of promised benefits for a half-century.

The report said the total annual cost of Social Security is projected to exceed total annual income in 2018 for the first time since Ronald Reagan’s presidency, meaning the program will have to tap into reserves.

More than 62 million retirees, disabled workers, spouses and surviving children receive Social Security benefits. The average monthly payment is $1,294 for all beneficiaries. Medicare provides health insurance for about 60 million people, most of whom are age 65 or older.

Together, the two programs have been credited with dramatically reducing poverty among older people and extending life expectancy for Americans. Financed with payroll taxes collected from workers and employers, Social Security and Medicare account for about 40 percent of government spending, excluding interest on the federal debt.

But Trump has declined to embrace a major restructuring of Social Security or Medicare, as some previous Republican presidents have. Nor has he endorsed higher taxes to finance the programs, as some Democrats have suggested.

Because of the deterioration in Medicare’s finances, officials said the Trump administration will be required by law to send Congress a plan next year to address the problems, after the president’s budget is submitted.

Trump administration officials instead are counting on a strong economy to improve the solvency of Social Security and Medicare.

“The administration’s economic agenda — tax cuts, regulatory reform and improved trade agreements — will generate

the long-term growth needed to help secure these programs,” Treasury Secretary Steven Mnuchin said Tuesday. Mnuchin is one of the trustees of Social Security and Medicare, a group that includes three Trump Cabinet officers and that released the annual report.

The report said the less favorable outlook for Medicare’s hospital trust fund resulted from “adverse changes” in program income and costs. Income to the Medicare fund is expected to be lower than estimated last year because of “lower payroll taxes attributable to lowered wages in 2017 and lower levels of projected gross domestic product,” the Treasury said in a “fact sheet” accompanying the report.

At the same time, it said, outlays from Medicare’s hospital trust fund “are expected to be higher than last year’s estimates due to higher-than-anticipated spending in 2017, legislation that increases hospital spending,” and higher payments to private Medicare Advantage plans.

“The current trajectories in health spending are both unsustainable and unmatched by increases in quality,” Alex Azar, the secretary of health and human services and a trustee of Medicare and Social Security, said Tuesday.

Mnuchin said in a statement that there’s time to fix the problems. “The programs remain secure,” he said. Medicare “is on track to meet its obligations to beneficiaries well into the next decade.”

“However, certain longterm issues persist,” the statement added. “Lack-luster economic growth in previous years, coupled with an aging population, has contributed to the projected shortages for both Social Security and Medicare.”

The Congressional Budget Office said in April that federal deficits and debt would soar in the coming decade, after passage of the tax overhaul and legislation to increase military and domestic spending.

Democrats have for months asserted that Republicans would use the deficit — swollen by tax cuts — as “an excuse to cut Social Security

and Medicare,” in the words of Sen. Charles Schumer of New York, the Democratic leader. Republicans say the programs must be revamped to ensure they will be solvent for baby boomers and their children.

A major reason for Social Security’s long-term financial problems is a decline in the number of workers for each beneficiary.

In 1960, there were about five workers for every Social Security beneficiary. The ratio of workers to beneficiaries fell to 3.3 in 2005 and then to 2.8 in 2016. It will decline further to about 2.2 by 2035, when most baby boomers will have retired, officials said.

The aging of the population is another factor in the growth of the two entitlement programs. The number of Medicare beneficiaries is expected to surge to 89 million in 2040 from 60 million today, according to Medicare actuaries. And the number of people on Social Security is expected to climb to 91 million, from 62 million, in the same period.

Social Security recipients are likely to see a cost-of-living increase of about 2.4 percent next year, said government number-crunchers who produced the report. That works out to about $31 a month.

At the same time, the monthly Medicare “Part B” premium for outpatient care paid by most beneficiaries is projected to rise by about $1.50, to $135.50.

Both the cost-of-living increase and the Medicare outpatient premium are not officially determined until later in the year, and the initial projections can change.

Information for this article was contributed by Robert Pear of The

New York Times, and by Ricardo Alonso-Zaldivar and Andrew Taylor of The Associated Press.