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Medicare Solvency Projected Until 2029

According to an annual analysis conducted for the trustees of the Social Security Trust Fund, changes to the delivery of health care in the United States are expected to extend the solvency of the Medicare program until at least 2029, an eleven-year extension from 2009’s prediction of insolvency in 2017. The future of Social Security is somewhat less clear, however.

While Medicare – which had largely been considered the more vulnerable of the two entitlement programs – is seemingly on a more stable path, the outlook for Social Security has not brightened much, if at all. The trustees for the Social Security Trust Fund once again predicted insolvency in 2037 just as they did in 2009. In this case, insolvency assumes that no changes are made to shore up the trust fund, delay benefits or reduce program expenses.

The trustees predict that unabated rising health care costs will place the Medicare program under extreme financial pressure and will likely force cuts in services as the program tries to balance the cost of care with the available resources. Without Congressional intervention this year, Medicare providers are looking at a potential cut of 30% in reimbursements beginning in December 2010. Providers say that reimbursements already fail to keep up with the rising cost of providing services, and a 30% cut, if enacted, will force many Medicare providers out of the Medicare program altogether.

For Social Security recipients, the trustees say that a cost-of-living increase for 2011 is unlikely, largely due to low inflation. Recipients did not see an increase in their benefits for 2010, for the same reason.

While the Medicare program is a winner under new health care reform, the Social Security program doesn’t go away empty-handed. Beginning in 2019, the law requires an additional tax to be levied on so-called “Cadillac” health care plans. At that time, employers are expected to begin reducing health care coverage to avoid triggering the tax. At the same time, compensation for certain employees will rise to offset the loss in benefits. Cash compensation is taxable to a point, and the Social Security administration is likely to see at least some additional revenue from increased wage-based compensation levels.

A bi-partisan committee is examining the Social Security program and is expected to make recommendations to the President no later than December 1. Recommended changes to the Social Security and Medicare programs could include delaying access to full benefits, increasing in tax revenues, and decreasing benefits to eligible recipients.

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