Editors at National Review Online assess new reports about the federal government’s long-term spending obligations.
The Medicare and Social Security trustees’ reports illustrate the same thing they do every year: These programs are not financially sustainable and will require reforms if they are to continue to exist.
The insolvency date for Medicare was extended to 2036, rather than 2031 from last year’s report, leading some to conclude that the program has fundamentally improved. This conclusion is wrongheaded for two reasons.
First, the insolvency date is only for Part A of Medicare, the hospital-insurance trust fund. The bulk of Medicare spending increases in the foreseeable future are in Part B, outpatient physician services. The fact that the slower-growing portion of Medicare will nonetheless be insolvent by 2036 should still be alarming.
Second, Medicare is the second-fastest-growing category of federal expenditures, behind only interest on the debt. And rising Medicare costs mean more borrowing and therefore more interest on the debt. Medicare will continue to crowd out other categories of federal spending. It is already larger than national-security spending. And we can’t grow our way out of the problem, as this would lead to even higher levels of spending.
Social Security’s insolvency date is the same as in last year’s report, 2033. Current law would require a 21 percent benefits cut in 2033 if nothing changes between now and then. The likelier outcome, which the Congressional Budget Office assumes would happen, is that Congress would borrow more to keep benefits funded.
That might sound like an okay outcome, except that the borrowing from Medicare and everything else will still be ongoing, and upward pressure on interest rates will continue to increase. How long will investors continue to lend trillions of dollars to the Treasury, largely to fund entitlement programs, on favorable terms?
