The 2004 Medicare and Social Security Trustees Reports
Friday, June 04, 2004
by Andrew J. Rettenmaier & Thomas R. Saving, Ph.D.
Table of Contents
The 2004 Medicare and Social Security Trustees Reports were released on March 23.1 The cost estimates for Medicare's new prescription drug benefit and the worsening financial position of Medicare generated much public interest. Other estimates of the new benefit's 10-year cost proved to be $150 billion higher than the Congressional Budget Office's initial calculations. However, the real problem is not the near term; rather, it is the benefit's long-run expense. The 2004 reports measure this cost, along with Medicare's other long-range unfunded liabilities, for the first time. When combined with the long-run measures for Social Security, which were first reported last year, they reveal a sizable burden for future taxpayers.
"Social Security and Medicare require $33 trillion in additional funds to meet deficits over the next 75 years."
The numbers are incredible in magnitude, regardless of the time period or group of individuals considered. The present value of Medicare and Social Security additional funding requirements over the next 75 years totals more than $33 trillion. Calculated indefinitely into the future, these funding requirements total almost $74 trillion. A number this large is hard to fathom, considering that $74 trillion is currently over six times the size of our economy and almost 18 times the size of the national debt.
There is a widely held belief that this funding issue is tomorrow's problem. While the burdens mount considerably in the future, more than half of Social Security's and Medicare's unfunded obligations are actually owed to people who are alive today. Therefore, it behooves all of us to address the issues today rather than tomorrow.
In this paper we focus on the highlights of the two Trustees reports. The summary that accompanies their release provides an excellent outline of the main points in the two reports.2 Specifically, we will concentrate on the programs' implicit debts, the growth of the cash flow deficits, and their implied effect on the rest of the federal budget.