actuaryreports.jpgThe Annual Trustees Report is out today, telling us something akin to what we already knew: Medicare and Social Security are in bad shape, and getting worse. The headlines will emphasize the dates of insolvency. Medicare runs out of money in 2017, two years earlier than anticipated by last year's report. Social Security falls in 2037, four years earlier than predicted in last year's report. But as the WaPo graph to your right shows, these estimates change year-to-year. The exact year might make the headlines, but it's the least reliable piece of the report.

But even so, both programs face challenges. What probably won't make it into many stories, however, is the relative severity of the problems. The crude fix for Social Security actually sounds quite manageable: "Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16 percent increase in the payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate reduction in benefits of 13 percent or some combination of the two."

Conversely, the crude fix for Medicare -- and this is only the hospital insurance side of Medicare -- is more brutal. "The Medicare Report shows that the HI Trust Fund could be brought into actuarial balance over the next 75 years by changes equivalent to an immediate 134 percent increase in the payroll tax (from a rate of 2.9 percent to 6.78 percent), or an immediate 53 percent reduction in program outlays, or some combination of the two." To put it simply, imagine how much health care your grandparents can access. Now cut it by a bit more than half. They're not allowed to be in the hospitals on every odd day, or on holidays. There you go.

The relative urgency of Medicare's problem is pretty simple to explain. As the Trustees Report says, "While both programs face demographic challenges, rapidly growing health care costs also affect Medicare." In other words, Social Security is only affected by demographics. Medicare is also being buffeted by rising health care prices. If we can't get those under control, we can't fix Medicare. And if we can't fix Medicare, then it's not just the Medicare program that will be insolvent. It's the federal government.

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