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VOL. 129 | NO. 146 | Tuesday, July 29, 2014

Medicare Hospital Fund to Last Four Years Longer

STEPHEN OHLEMACHER and RICARDO ALONSO-ZALDIVAR | Associated Press

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WASHINGTON (AP) — Medicare's finances are looking brighter, the government said Monday. The program's giant hospital trust fund won't be exhausted until 2030 — four years later than last year's estimate.

Meanwhile, Social Security's massive retirement program will remain solvent until 2034, officials say, although disability benefits are in more immediate danger.

The disability trust fund now is projected to run dry in 2016, unless Congress acts. At that point, the program will collect enough payroll taxes to pay only 81 percent of benefits.

The trustees who oversee Social Security and Medicare issued their annual report Monday on the financial health of the government's two largest benefit programs.

The trustees project a 1.5 percent increase in monthly Social Security payments to beneficiaries for next year. That would be among the lowest since automatic adjustments were adopted in the 1970s. The increase is based on a government measure of inflation.

Medicare's Part B monthly premium for outpatient care is expected to remain unchanged for next year, at $104.90. Average premiums for prescription coverage are expected to increase by less than $2 a month.

Social Security's finances are relatively unchanged from a year ago. Medicare's improved finances are largely due to a continuing slowdown in health care spending, the report said.

"As today's reports make absolutely clear, Social Security and Medicare are fundamentally secure, and they will remain fundamentally secure in the years ahead," said Treasury Secretary Jacob Lew. "The reports also remind us of something we all understand: we must reform these programs if we want to keep them sound for future generations."

Experts debate whether the health-spending slowdown is the result of a sluggish economy or represents a dividend from President Barack Obama's health care law, and more recent Medicare cuts by Congress. Private insurers, including those in Medicare's managed care program, are also shifting more costs to patients, contributing to the slowdown.

"No one knows and there is an active debate going on," said Charles Blahous III, one of two public trustees. "That debate is certainly not one that the trustees are going to settle."

The trustees consist of the secretaries of the Treasury, Health and Human Services, and Labor Departments, as well as the Social Security commissioner and two public trustees — a Democrat and a Republican.

Medicare is adding 10,000 new beneficiaries a day as baby boomers reach age 65. But the report said that costs per beneficiary were essentially unchanged in 2013, for the second year in a row. That particular statistic is critical because per-person costs had surged for many years.

In the long run, both Social Security and Medicare are still in financial danger, the trustees said. Benefit cuts, tax increases or a combination of both will be needed to keep paying benefits at current levels.

Given the state of distrust in Washington, there is little appetite in Congress to tackle such big issues. However, Blahous said that the longer Congress waits to act, the more difficult it will become to avoid either large tax increases or significant benefit cuts.

"What is changing is that we are rapidly running out of time," Blahous said.

In 2030, when the hospital trust fund is expected to be depleted, Medicare will collect enough payroll taxes to pay 85 percent of benefits.

"Notwithstanding recent favorable developments, (Medicare) still faces a substantial financial shortfall that will need to be addressed with further legislation," the report said. "Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers and taxpayers."

Social Security's disability program could be shored up in the short run by shifting tax revenue from the much larger retirement program, as Congress has done in the past. However, that would slightly worsen the retirement program's long-term finances.

If the two trust funds were combined, they would have enough money to last until 2033, the report said. That's the same exhaustion date as in last year's report.

About 58 million people receive Social Security benefits, including 41 million retired workers and dependents, 11 million disabled workers and 6 million survivors of deceased workers.

Last year, Social Security paid $823 billion in benefits but collected only $747 billion in taxes. Social Security has been paying out more in benefits than it has collected in taxes since 2010, a trend that is expected to continue and accelerate.

The $2.8 trillion trust fund, which is made up of special Treasury bonds, has continued to grow because it is earning interest. However, the balance will start to go down in 2020, the report said.

More than 50 million retirees and disabled people get Medicare. The hospital trust fund is only part of the program. Coverage for outpatient care and prescription drugs is covered by premiums and other government spending.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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