by David Westphal
January 01, 2005
But Bush could have picked an even more difficult challenge. He could have taken on Medicare.
Experts say Social Security will be a relatively easy problem to solve stacked up against the financial difficulties already beginning to plague the Medicare system, which provides health coverage for 40 million elderly and disabled.
"Medicare's financial difficulties come sooner - and are much more severe - than those confronting Social Security," the trustees of both programs warned in their latest report.
But as Congress arrives the first week of January to begin its new term, it's Social Security that is at the top of the agenda, with Bush suggesting a crisis scenario for the program that pays out more than $470 billion annually to retirees and other beneficiaries.
With general tax revenue projected to begin subsidizing Social Security benefit checks by 2018, the president says now is the time to take action.
"When it comes to a modernization of Social Security ... the longer we wait, the more expensive the solution becomes," Bush said at a December conference on the economy. "The crisis is now."
Along with seeking a long-range solution to Social Security's financial woes, Bush wants to use this moment to create private accounts that would allow workers to invest some of their payroll taxes.
In targeting Social Security, though, the president is downplaying the dominant role that experts say Medicare will play in the nation's finances for decades to come.
In an assessment of Medicare's bleak future, two Texas A&M economists, Andrew J. Rettenmaier and Thomas R. Saving, concluded that even as policymakers focus on the future of Social Security, "the financial problem in Medicare is five times as great."
Trustees of the two programs projected that Medicare would run out of money in 2019 - 23 years before Social Security's reserves are spent. Furthermore, the 2018 date that Bush warned about - when general tax revenues will begin paying a portion of Social Security benefits - has already arrived for Medicare's hospital fund.
For the first time, income taxes were used in 2004 to subsidize Medicare's hospital benefit, which normally relies only on payroll taxes for financing.
Unless action is taken, trustees warn, Medicare will surpass Social Security spending by the mid 2020s, and by 2030 will consume roughly 40 percent of all federal income tax revenue.
Richard Johnson and Rudolph Penner, scholars at Washington's Urban Institute, say some sort of reform or crisis is likely before then because health costs would be hitting household budgets as well as the government's. For older married couples, they concluded in a new analysis of health-care finances, medical spending as a share of after-tax income would otherwise double, to 35 percent, by 2030.
The bleak financial future facing both programs has the same basic cause - the approaching retirement of 76 million baby boomers, the oldest of whom will reach age 62 in just 3 years. The sudden surge in retirees is expected to put extreme pressure on the government's two big support networks for seniors.
For many years, Social Security was thought to constitute the larger long-term fiscal challenge. But the relentless surge in health-care costs has changed that calculus, and experts now say financing seniors' medical needs has emerged as the greater test.
In a pre-Christmas press conference, Bush disputed the notion that he is giving short shrift to Medicare's looming problems.
Pointing to the Medicare reform act passed by Congress in 2003, the president said, "We did take on Medicare. And it was the Medicare reform bill that really began to change Medicare as we knew it... It introduced market forces for the first time; it provided a prescription drug coverage for our seniors, which I believe will be cost effective."
Bush chided actuaries for not accepting his argument that the legislation would hold down costs with provisions giving the private sector a larger role in providing medical services.
The actuaries aren't buying. They overwhelming agree that the Medicare legislation - primarily by offering a prescription drug benefit - has significantly worsened the program's outlook.
At least part of the Bush administration agrees. Treasury Secretary John Snow and two other cabinet members, Elaine Chao and Tommy Thompson, signed the 2004 trustees report that concluded Medicare's long-term liabilities had jumped by more than a third, or $17 trillion, in a single year.
Although they do not propose a frontal assault on Medicare's financial woes, administration officials say they are aiming at root causes of health-care's spiraling costs with a long 2005 agenda: medical malpractice reform, limits on class-action lawsuits, expansion of health savings accounts and quicker approval of generic drugs.
While Bush's fight to create private Social Security accounts could well be his last big attempt to reshape the nation's entitlement programs, Medicare conceivably could come back into the picture late in his presidency.
A provision inserted into the prescription drug legislation requires that the Medicare trustees raise a red flag when projections show that, within 6 years, general tax revenue will make up 45 percent of Medicare spending. If that occurs two years in a row, the president is obligated to issue, within 15 days, recommendations for reducing that obligation.
According to the Center on Budget and Policy Priorities, that trigger could occur in 2007, meaning Bush might be pushing one last reform measure in the waning months of his second term.
But at least one watchdog group that monitors deficit spending, the nonpartisan Concord Coalition, is pessimistic about Bush's second-term prospects for dealing with Medicare.
"Throughout his presidency," the group asserted in a pre-election analysis, "George W. Bush has refused to calibrate his drive for lower taxes with his support for expensive initiatives such as the global war on terrorism and a major expansion of Medicare. There is no reason to expect anything different in a second term."