Entitlement Programs Worse Off Than Feared

The two biggest U.S. entitlement programs -- Medicare and Social Security -- are in worse shape than initially anticipated, according to a new report released Friday.

The Medicare Trust Fund will be exhausted by 2024 -- five years earlier than estimated in 2010.  A weakening economy is the main culprit for the sudden weakness, according to the Annual Reports on the Social Security Trust Fund and the Medicare Trust Fund.

“Projected long-run program costs for both Medicare and Social Security are not sustainable … and will require legislative corrections if disruptive consequences for beneficiaries and taxpayers are to be avoided,” said the Social Security and Medicare Trustees.

Indeed, deficits will become permanent if legislative reform is not reached, the group said in a press briefing.

The Social Security Trust Fund will dry up by 2036, a year earlier than previously expected, as social security benefits continue to exceed payroll tax revenues. Benefit payments are expected to surpass taxes by $46 billion in 2011. This would mark the second consecutive year of deficit-funding for the fund and marks the first deficit since 1983.

When the trust fund runs a deficit, the Social Security Administration [SSA] redeems U.S. Treasury Bonds.  While the SSA can theoretically redeem such bonds indefinitely, it adds to the already enormous U.S. debt burden and can even potentially have serious inflationary consequences down the line, economists say.