FROM THE OFFICE OF PUBLIC AFFAIRS
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March 23, 2004JS-1251
The Social Security and Medicare Board of Trustees met earlier today to complete the annual financial review of the trust funds and to transmit the Trustees’ Reports to Congress. I will make a brief opening statement to be followed by Secretary Thompson. After our comments, we look forward to your questions.
Let me start first with the 2004 Social Security Trustees’ Report. This year’s report is little changed from last year’s report. It shows that the Social Security program is seriously under funded and financially unsustainable in the long run. The unfunded obligation is $3.7 trillion on a present value basis over the next 75 years. Cash flows for the trust fund will turn negative in 14 years, in 2018, while the trust fund will be exhausted in 38 years, 2042. Neither date has changed since last year’s report.
The fundamental math of Social Security is inescapable as the large baby boom generation reaches retirement age and the number of workers paying into the system declines significantly relative to the number of retirees. While we have some time to fix the problem, inaction is not a responsible option. The President has called for bipartisan efforts to create a permanently sustainable system and he has been right to do so - and the sooner action is taken, the better for all concerned. Each year that passes without needed changes to the program makes the ultimate resolution more difficult.
To provide some perspective on what this means – today, the cost of paying Social Security benefits absorbs 4.3 percent of the nation’s GDP. According to the Social Security actuaries, the cost will rise to 6.6 percent by 2078. This would mean that the share of the economy required to fund Social Security benefits would be more than 50 percent higher than it is today – and even that would continue to increase, the further out one looks.
Personal accounts are an important part of the solution to strengthen Social Security as they will enable younger workers to accumulate a nest egg towards their retirement needs, creating funding within the system. Now is the time to take the steps to preserve and protect Social Security so that commitments to our seniors are kept and the needs of our children and grandchildren are met.
Let me now offer a few words on the 2004 Medicare Trustees’ Report. It reveals even greater challenges than those confronting Social Security. While Medicare faces the same shifting demographics as Social Security, it is additionally burdened by sharp increases in underlying health care costs. From 1998 to 2002, health care costs rose 35 percent. Health care spending is growing as a percentage of GDP; its share was nearly 15 percent of our nation’s GDP in 2002 and is surely even larger now. Employer-sponsored health insurance premiums rose 14 percent last year alone. The negative impact of rising costs is evident in terms of the economy, jobs, and federal programs such as Medicare.
Cash flow for the Hospital Insurance (HI) Trust Fund income is projected to turn negative this year, compared to 2013 in last year’s report. Taking interest into account, total trust fund income exceeds expenditures through 2009. While this decline in cash flow is a substantial change from the last few reports, we saw similar negative cash flows for much of the 1990s. In another major finding from the report, the Hospital Insurance Trust Fund is projected to become insolvent in 2019, seven years earlier than projected in last year’s report. For the first time in five years the HI Trust Fund fails the short run test for financial adequacy as the ratio of assets to annual outlays falls below 100 within the next ten years. Again, the principal culprit here is the rising cost of health care, and we need to turn our attention to this underlying fundamental issue. It is important to note that the change in HI’s financial condition was not caused in any way by the creation of the Medicare prescription drug program, which is separately financed.
The Supplementary Medical Insurance (SMI) Trust Fund does not face insolvency per se, because its financing is derived in large part directly from federal general revenues. However, it does pose serious issues for the
It is important to note that the forecasts we are dealing with in Medicare are based on assumptions whose validity cannot be known with any high degree of certainty. Although uncertainty in these numbers is inescapable, we must make public policy judgments given the importance of these programs to current and future beneficiaries and the fiscal condition of the country.
Rapidly rising health care costs place a great burden on the Medicare program, which is already under stress from the underlying shift in the age distribution of our nation’s population. Controlling health care costs is the real key to the long run fiscal sustainability of both Medicare and the federal budget. Indeed, according to this year’s Trustees’ Report, reducing the projected growth in per beneficiary health care costs to one percentage point lower than the intermediate assumption would reduce the 75-year actuarial imbalance for the HI program from negative 3.12 percent of taxable payroll to negative 1.05 percent. Similarly, lower growth in health care costs would accrue to the federal budget through reductions in projected costs in the SMI program, Medicaid, and other government health care programs. According to the CBO, federal spending on Medicare and Medicaid will rise to 11.5 percent of GDP in 2050, up from 3.9 percent in 2003. If, instead of increasing at the rate of growth of per capita GDP plus 1 percent as assumed, per beneficiary spending were to grow at the rate of per capita GDP itself over the same time period, federal spending on Medicare and Medicaid will rise to only 6.4 percent of GDP in 2050, thus freeing roughly 5 percent of GDP for other activities. Achieving a 1 percentage point reduction in the rate of increase in health care costs should be doable, but it will require the very best efforts of all of us concerned with the issue. Most importantly, I believe this slowdown in cost increases could be accomplished without sacrificing the quality and access to health care that our senior citizens deserve and have come to expect.
Clearly steps must be taken to address growing costs while maintaining high quality care for our senior citizens and, indeed, all citizens. The President has shown real leadership in seeking to reduce health care costs without diminishing quality or access to care. This Administration is committed to helping Americans obtain improved and more affordable health care coverage. First, medical liability reform is critical to improve health care quality and reduce costs. Second, health savings accounts will help millions of Americans with medical expenses and encourage saving while putting individuals in charge of their own health care choices. Third, we need to help stop harmful costly medical errors and provide liability protection for doctors and nurses who report mistakes in good faith. Fourth, we need to give consumers better information to make informed decisions when choosing health care providers. The private sector Leap Frog Group is a leader in this area, as is CMS, by encouraging health care providers to report data on quality, making it widely available to the public. Fifth, we need to employ more fully the efficiencies of information technology in the health care sector, such as physician order entry and electronic medical records. Sixth, the President has proposed refundable tax credits to help low-income workers purchase health insurance coverage, and proposed allowing small businesses to band together through association health plans, helping America’s working families to have greater access to affordable health insurance. We urge Congress to act on these important measures.
And let’s not forget, with passage of the Medicare legislation last year, for the first time all seniors will be guaranteed access to affordable prescription drug coverage under Medicare. Beginning in June of 2004, beneficiaries will have access to Medicare-approved prescription drug discount cards, which will save them 10 to 25 percent off the retail price of most prescription drugs. Low-income beneficiaries also will receive $600 per year to help them purchase their medication. And all seniors will have more choices and better benefits under a strengthened and improved Medicare program.
Reforms in last year’s legislation include provisions to promote competition and choice, encourage savings for medical expenses, bring generic drugs to market sooner, improve preventive care coverage, lower the costs of chronic illnesses through disease management and reduce costs and medical errors through e-prescription services. Reductions in fraud and abuse are expected to save $35 billion.
The weighty concerns raised by the Trustees’ Reports demand the attention of
This Administration will continue its open and honest discussion of the issues facing Social Security and Medicare and remains dedicated to working with Members of Congress to take the steps needed to secure the long-term strength of these vital programs.
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