 | Statement by Secretary Henry M. Paulson, Jr. on the 2008 Social Security and Medicare Trust Fund Reports. FULL STREAMING VIDEO. Reports from the Board of Trustees - Status of the Social Security and Medicare Program. also available in Adobe PDF FORMAT |
For decades, Social Security and Medicare have provided vital support for millions of Americans. As the baby boom generation moves into retirement, these programs face progressively larger financial challenges. If we do not take action soon to reform Social Security and Medicare, the coming demographic bulge will jeopardize the ability of these programs to support people who depend on them. Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues, and threaten America's future prosperity. Our Nation needs a bipartisan effort to strengthen both programs for future retirees.
This year's Social Security Report again demonstrates that the Social Security program is financially unsustainable and requires reform. In fewer than 10 years, cash flows are projected to turn negative--meaning that we will draw upon general revenues to support withdrawals from the Trust Funds in order to pay current benefits. The Trust Funds are projected to be exhausted in 2041, the same as projected in last year's Report. Reform is needed and time is of the essence. The longer we delay, the larger the required adjustments will be and the more heavily the burden of those adjustments will fall on future generations.
Social Security's unfunded obligation--the difference between the present values of Social Security inflows and outflows less the existing Trust Fund--equals $4.3 trillion over the next 75 years and $13.6 trillion on a permanent basis. To make the system whole on a permanent basis, the combined payroll tax rate would have to be raised immediately by 26 percent (from 12.4 percent to about 15.6 percent), or benefits reduced immediately by 20 percent.
This Report confirms the need for action; the sooner we take action to strengthen Social Security's financial footing, the less drastic the needed reforms will be, and the fairer reforms will be to future generations. President Bush has called for bipartisan solutions that generate a permanently sustainable Social Security system. The President has put forward a number of well-considered ideas. We now need serious and thoughtful engagement from all sides to make sure Social Security is strengthened and sustained for future generations.
The 2008 Medicare Trustees Report shows that the Medicare program poses a far greater financial challenge than Social Security. Medicare faces the same demographic trends as Social Security, and, in addition, the system must cope with expected large increases in health care costs. Medicare's annual costs were 3.2 percent of GDP in 2007, or nearly three-quarters of Social Security's, but are projected to surpass Social Security expenditures in 2028 and reach nearly 11 percent of GDP in 2082, compared to 5.8 percent for Social Security.
Cash flow for the Hospital Insurance (HI) Trust Fund is projected to be negative this year and for all subsequent years. The HI Trust Fund is projected to become insolvent in 2019, the same as projected in last year's Report.
The Supplementary Medical Insurance (SMI) Trust Fund, which includes Part B for outpatient services and the new Part D prescription drug benefit, is financed in large part by general revenues as well as beneficiary premiums. SMI expenditures are projected to increase rapidly, resulting in growing pressures on future federal budgets and, in turn, the U.S. economy. General revenue financing for SMI is expected to increase from about 1.3 percent of GDP in 2007 to over 4 percent in 2082, with continued increases beyond 75 years.
Today, seniors all over America have guaranteed access to affordable prescription drug coverage. The market-based structure of the new prescription drug benefit appears to be working. Average premiums for Part D have come down again this year.
The facts are clear: the sooner Social Security and Medicare are reformed, the fairer reforms will be to future generations. The serious concerns raised by the Trustees Reports demand the attention of America's policymakers and the public. Americans who will depend on Social Security and Medicare expect us to address the long-term funding issues. Successful long-term reform of these programs is a shared responsibility and we all have to rise to the challenge. -30-
REPORTS:Tags: Medicare Trust Fund Reports and Social Security or Henry M. Paulson, Jr. and Department of The Treasury
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