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Avalanche Coming

Endgame For Entitlements — Barron’s

   (FROM BARRON'S 6/27/16) 
   By Thomas G. Donlan 
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The trustees of the Social Security and Medicare trust funds reported last week that their funds are going to hell in a handcart, but not right away. That’s what they have always said, even while the trust-fund programs have grown to represent an unfunded liability of the federal government over the next 75 years of $11.7 trillion, up $700 billion from the last annual report.

Publication of the trustees’ reports is an annual event that never gets the attention it deserves — especially in a presidential election year, and more especially in the week of the market earthquake caused by the British vote to leave the European Union.

Here are highlights of the 2016 report:

The trust fund for the big Social Security retirement program is projected to run dry in 2034. The program paid $706.8 billion in benefits to 48.1 million people in 2014.

The tax revenue that supports Social Security retirement income hasn’t fully covered benefits since 2010, so the program is already on the way to being pay as you go. Benefits will be reduced by about 25% in 2034 unless Congress changes the program.

Under pressure from the left wing of his party, President Barack Obama recently proposed a change for the worse: making the benefits more generous while uncapping the 12.4% Social Security tax so that it applies to workers’ wages and salaries exceeding $118,500 a year.

The Social Security Disability Insurance trust fund, the smallest and most troubled of the three, could have run dry this year. But Congress gave it seven more years of life with an accounting gimmick, transferring $117 billion from the less-unhealthy retirement program to the critically-ill disability program. It had 10.9 million beneficiaries in 2014 who received $141.7 billion.

The Medicare Hospital Insurance trust fund (Part A) is projected for depletion in 2028, two years earlier than previously estimated. By then, the payroll tax will cover only 86% of the cost. This Medicare insurance covered 53.8 million people in 2014 and paid benefits of $264.9 billion.

More importantly, the Medicare programs for doctors’ bills (Part B), Medicare Advantage plans using private insurance (Part C), and prescription-drug coverage (Part D) are growing rapidly and have no trust funds behind them. For better or worse, Congress long ago created legal mandates to pay all costs from general revenues and borrowing, plus premiums paid by beneficiaries. Total Medicare spending was $618.7 billion in 2014. As the program grows, it bankrupts the entire government, not just a trust fund.

A fourth program also should be considered part of the federal retirement system. Medicare doesn’t pay for the chronic illnesses that put people in nursing homes for an extended period toward the end of their lives. Once they run out of personal resources, Medicaid, a welfare program, is their ultimate resource.

Medicaid pays for health care and long-term care for low-income people — no more than 133% of the poverty level in 28 states and lower thresholds in others. It has no trust fund; costs are shared between states and the federal government.

Medicaid covered more than 70 million people in 2014, of whom about 850,000 were nursing-home residents. Federal spending for Medicaid was $305 billion, and states spent $190 billion, with more than 40% spent on those 850,000 people.

It doesn’t really matter whether you trust the numbers or not, as long as politicians like Hillary Clinton and Donald Trump are getting your votes by promising never to cut Social Security and other programs for senior citizens.

No government and no candidate is going to tell Americans what will be done in the next two decades to sustain federal support of their retirement — especially if it involves tax increases and benefit cuts. They will never mention your responsibility to take care of yourself in old age because you don’t want to hear it.

You will be told again and again that there’s nothing to worry about because it hasn’t happened yet. But advancing life expectancies and declining savings rates are likely to force a growing segment of the elderly population to outlive their resources available for health care.

Separately or together, with or without trust funds, the four major entitlements are “unsustainable,” a much-too-polite word for going bankrupt and taking the country with them.