Social Security to pay out more in 2010 than it takes in

Social Security intake from tax revenue will fall below program costs this year. In annual reports on the fiscal health of Social Security and Medicare, Obama administration cites 'work left to do.'

The Obama administration accentuated some positive news in its annual status report on Medicare and Social Security, but acknowledged that tough work remains to put both programs on sound financial footing.

The upbeat news: The sweeping health-care reform law enacted earlier this year is expected to improve the financial outlook for Medicare, extending the program's solvency by about 12 years, said the Medicare trustees.

"These are very, very substantial improvements," said Treasury Secretary Tim Geithner, who spoke with other Obama Cabinet officials and co-trustees in releasing the reports Thursday.

Yet the long-term challenges facing Medicare and Social Security remain in place, the reports found.

Key conclusions from the trustees:

• Social Security's combined trust funds (for old-age and disability benefits) will be exhausted in 2037, an estimate that's the same as in last year’s report. At that time, tax revenue coming in would be able to pay about 78 percent of benefits.

• Social Security tax revenues will "slightly" fall below program costs in 2010. Tax revenues are projected to exceed program costs in 2012 through 2014, and then permanently fall below program costs in 2015 – one year sooner than the estimate in last year’s report. The poorer outlook stems mainly from the recession's impact on the economy.

• Medicare’s Hospital Insurance Trust Fund (also known as Medicare Part A) is now expected to remain solvent until 2029, 12 years longer than was projected last year, due to the health-care reforms. But the report notes that law means that "the projections are much more uncertain than normal, especially in the longer-range future."

• Costs for Medicare Part B (for services including physician bills) and Part D (prescription-drug coverage) are forecast to rise substantially faster than the growth of the US economy or taxpayer incomes. The drug costs are projected to grow 9.4 percent a year, versus projected US economic growth of 5.1 percent a year through 2019 (before accounting for inflation). Part B costs could grow at a pace similar to their 8.3 percent annual growth over the past five years, the report says.

"We have a lot of work left to do," Health and Human Services Secretary Kathleen Sebelius said at the news conference. Even to reap the extra 12 years of solvency for Medicare Part A, she said, will require effective implementation of the Obama health reforms.

The reports were delayed this year so that the impacts of the new health law could be factored into the forecast.

But the Affordable Care Act, which President Obama signed in March, has many provisions whose impact is hard to predict.

Under the reforms, large Medicare savings are expected as a result of hospitals becoming more efficient and, thus, having smaller growth in costs. If those productivity savings aren't big enough to match the law's pricing constraints on hospitals, health-care providers could start dropping out of the Medicare program. "They would eventually become unwilling or unable to treat Medicare beneficiaries," the report says.

Conversely, the law could result in positive surprises on the cost front. Secretary Sebelius said that if a stepped-up focus on disease prevention bears fruit, it would bring projected Medicare costs down.

One major uncertainty revolves around a so-called "doc fix," an allowance for rising doctor fees that Congress has been approving annually. Key numbers in the report assume that the growth in doctor payments is constrained in the future. Thus, "the actual future costs for Medicare are likely to exceed those shown," the report says.

That issue, coupled with the possibility that Medicare has limited success in holding down payments to hospitals, could push Medicare spending to roughly 11 percent of the nation's gross domestic product (GDP) by 2084, up from 3.5 percent last year.

Such growth in Medicare costs would be similar to what was projected under the pre-Obama law last year. "Growth [in costs] of this magnitude, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal Budget," the new report says.

Similarly, the Social Security program will require new steps to ensure its solvency, budget experts say.

Among the ideas that some budget experts have raised: boosting the age for people to qualify for benefits, and removing a cap on Social Security taxes for high-income Americans.

Obama has created a bipartisan fiscal commission charged with coming up with proposals to tame federal deficits and debt. Proposals to fix Social Security could be among its recommendations, alongside things like tax reform and triggers designed to curb federal spending overall. Not since 1983 has revenue from Social Security taxes fallen short of outlays to seniors.

The new numbers on Social Security and Medicare arrive as Republicans are mounting a midterm election challenge to Democrats' control of Congress. Arguments that Obama health reforms are misguided have become a central theme for Republicans.