Seeing Red

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• GWEN IFILL:

  Today's annual report on the long-term outlook for Medicare and Social Security painted a bleak picture. The report by the program's trustees says that Medicare faces the more immediate problem: insolvency by the year 2019. That's seven years sooner than was projected just last year. Earlier today, Treasury Secretary John Snow laid out some of his concerns.

• JOHN SNOW:

  Serious as the issues are facing Social Security, the Medicare trustees report reveals that the problems confronting the Medicare system are even greater — the challenges there much more significant in terms of their impact on general revenues and the deficit and the economy as a whole. While Medicare faces the same shifting demographics as Social Security, it's additionally burdened by the sharp and continuing increase in health care costs.

  From 1998 to 2002 health care costs rose by 35 percent; health care spending has grown continuously as a percentage of GDP. Its share of GDP is now some 15 percent as of 2002, the last time we had good numbers on it. But it's surely higher than that today.

• GWEN IFILL:

  Social Security is projected to become insolvent in 2042 — no change from last year. But in looking beyond the traditional timeframe of 75 years, the trustees discovered even more disturbing news. Combined, Medicare — with a new drug benefit — and Social Security will have a shortfall of $72 trillion. But how much of this is cause for immediate alarm?

  For that, we turn to Dan Crippen, the former head of the Congressional Budget Office; and Marilyn Moon, a former Medicare and Social Security trustee, who is now a vice president at the American Institutes for Research. Help to put some of these numbers in context for us, Dan Crippen. Seventy-three trillion dollars sounds like a lot of money. Is it?

• DAN CRIPPEN:

  It can be, but in this case I would say it's probably out of context. The number's that large over an infinite time horizon. What's most important and most immediate is that when my generations retires, which will start occurring very soon and will be accomplished by 2030, we will more than double the number of retirees and disabled on these federal programs. That's much more important and much more immediate than some longer-term prospects here.

• GWEN IFILL:

  Put the numbers in context from your point of view, Marilyn Moon.

• MARILYN MOON:

  Well, I think it's very difficult to think into infinity unless you're a real theorist. As a consequence I think the 75-year projections are reasonable ones to look at. Even by that time, what these projections say is that health care will be so expensive in the United States that as much as half of GDP would be going to health care, if you put that in the context of the share that would go to Medicare. So something is going to happen before we get to that point obviously.

• GWEN IFILL:

  Is what's going to happen going to be a gradual lack of strength, a draining of strength, or is it going to be a train wreck?

• DAN CRIPPEN:

  Well, it's going to be neither, probably. I say that because we think of a train wreck as an immediate happening. That's not going to be the case. As I said over the next 25 years when my generation retires, we'll not only double the number of recipients but we'll go — in the context of the economy and the federal budget — about 7 percent of GDP today — to a 14 plus the drug benefit — to 17 percent of GDP. That's what we spend on the entire federal budget today. That's going to happen over a 25-year time frame. So there's no precipitating event that's going to happen to us tomorrow but it's going to happen obviously within my lifetime.

• GWEN IFILL:

  Without guessing your age, I guess it's fair to say that anybody who is around the area of 50 years old should be thinking about this.

• DAN CRIPPEN:

  Absolutely.

• GWEN IFILL:

  And trying to figure out what it means.

• DAN CRIPPEN:

  As well as what it means for our kids, because they're going to be paying the bills.

• GWEN IFILL:

  What do you think about that, a train wreck or a gradual weakening?

• MARILYN MOON:

  I think a gradual issue that needs to be addressed sooner rather than later. One of the things that's important to also remember is that baby boomers are headed towards retirement, but they are in their earnings years right now. If we're going to ask for greater contributions, for example, now is the time to begin thinking about that as well.

• GWEN IFILL:

  We've been hearing for years about this. We've been hearing these kinds of predictions of sooner or later, shortfall, sooner or later weakness in both Social Security and Medicare. What's fueling these shortfalls?

• MARILYN MOON:

  Well, this time around there are a number of things that have changed. We've been close to insolvency in the Part A trust fund a number of times. In fact, we're within four years of it just in 1996.

• GWEN IFILL:

  Remind people what Part A is.

• MARILYN MOON:

  I should do that. Part A is the hospital insurance portion that's funded by payroll taxes. That insolvency date four years was put off substantially to 28 years by the changes that were enacted in 1997. So it has always been possible to kind of pull us back from the brink with changes.

  But this year, two things have happened. One is we're a little closer to the baby boomers retiring, which causes a problem. And secondly, the new changes that were made at the end of last year in the Medicare prescription drug bill not only changed and added prescription drugs but increased spending in a number of other areas as well.

• GWEN IFILL:

  There's been a lot of political discussion especially in the past week about the amount that the prescription drug benefit will cost. How big a factor do you think, Dan Crippen, it is in what we're seeing in this Medicare report today?

• DAN CRIPPEN:

  Well, the drug benefit itself is not much of a factor. As Marilyn said, what does count is some of the other pieces of the bill which added to hospital spending, not drug spending.

• GWEN IFILL:

  What do you think is fueling the report today, all the shortfalls?

• DAN CRIPPEN:

  The report today was fueled about half of it was due to the economy. The economy is weaker than expected. There's less employment and therefore less payroll taxes — as Marilyn said, more expenditures due to the bill plus more expenditures over their projections.

• GWEN IFILL:

  Tax cuts?

• DAN CRIPPEN:

  Well, the tax cuts don't have a direct impact because they're not — they don't really affect the money that comes in to the Medicare program. But the tax cuts are important in the context of, in a world of scarce resources we're going to have to decide do we want to spend money on these kinds of programs? Do we want to give dollars back to taxpayers? There's going to be a real conflict over time over this issue.

• GWEN IFILL:

  What are the solutions that public policy experts and hopefully elected officials should be trying to wrestle with in a realistic way given that it's an election year, but given this is a problem that's not going away, Dan Crippen —

• DAN CRIPPEN:

  One, I think that is very promising, Gwen, is just as in lots of other cases it's a relative handful of the sickest elderly that expend most of the resources. For example, in this case 25 percent of the elderly use about 90 percent of the Medicare dollars every year. Those folks have several conditions, multiple conditions. They get hospitalized frequently. They have many doctors and many prescriptions. If we did a much better job of managing their care not only would they have better health and health care but we would save a lot of money.

• GWEN IFILL:

  Marilyn —

• MARILYN MOON:

  I agree largely with what Dan is saying. In the past we've put our emphasis on saying formal managed care programs might solve the problem. But they've not been very innovative in Medicare. They haven't saved costs in Medicare.

  What we need to do is take a much more active look, I think, at finding ways to coordinate care for these people, to have good information on what works and what doesn't work and emphasize what works for people.

• GWEN IFILL:

  In Medicare, should raising the eligibility age be on the table?

• MARILYN MOON:

  It doesn't really save you very much money because those are the healthiest people. The people that are 65 and 66, for example, if you took them off the rolls, except for the folks who are disabled, you'd save about 2 percent of all of Medicare spending, so it really doesn't do very much for you and it puts those people into a broken health care system if they had to go out and buy individual health insurance. We're not really prepared to do that very well. I think there are a lot of other things we should look at before we do that.

• GWEN IFILL:

  Social Security. The news was not as dire today as it was for Medicare. What is your sense of where Social Security trust fund stands?

• DAN CRIPPEN:

  The trust fund itself is, as they said, solvent to 2042. But trust funds are being accounting mechanisms. Again, you need to look at the real consequences from my point of view on the economy and the budget. In that case, the year 2013 is the important one for Social Security, which is the year that payroll taxes aren't enough to pay Social Security benefits at which point the rest of the government will have to start funding those benefits with increased taxes or more borrowing or cuts in other spending.

• GWEN IFILL:

  Or cuts in benefits?

• DAN CRIPPEN:

  Or cuts in benefits.

• GWEN IFILL:

  Marilyn.

• MARILYN MOON:

  Social Security is a much easier problem because you can make modest changes in both the benefits and perhaps on the tax side as well without really disrupting people's planning for retirement, solve that problem. It's not the case with Medicare. It's in much more serious issue.

• GWEN IFILL:

  What about raising the retirement age?

• MARILYN MOON:

  We are moving to raise the retirement age in Social Security. There I think it makes good sense. It works out well. It gives people incentives to stay in the labor force longer which is going to be important in the future. That could be speeded up a little bit. The age of retirement is going to rise and then it takes a hiatus and then it starts to rise again. You could eliminate that hiatus period, for example, and achieve a substantial amount of savings for the program.

• GWEN IFILL:

  You both understand the way things work in Washington, especially in very complicated, very expensive programs like this. The choices in the end boil down to cutting retirement, I mean cutting benefits or raising taxes or revenue in some way. If it were a perfect world, in your opinion, what is it that they should be doing first?

• DAN CRIPPEN:

  I think as always — and this is the Washington answer often — but it's going to be some of both. I think my children can't afford the programs the way they're structured now assuming we keep government as we know it intact. At the same time there are going to be more revenues that are going to be dedicated to these programs ultimately.

• GWEN IFILL:

  What do you think is most politically palatable or do you not want to go there?

• DAN CRIPPEN:

  I think both are going to be palatable when the time comes if not before. When my generation begins retiring in earnest we're talking about 40 million more people and very few more workers. So my kids are going to rebel at some point if we don't take the problem now.

• GWEN IFILL:

  What would you say?

• MARILYN MOON:

  I would say one of the things we could do now is use more resources to prepare our children for being more productive in the future, improve the infrastructure that we have, highways, bridges, all of those kinds of things are investments that we could take off their plate later on. That's one thing we could do now that would help people in the future.

  The other is, I think we have to have a more realistic debate. People have always been seeking the magic bullet. What will save Medicare from having to face these terrible choices? The issue is, we're going to have to face those choices and we're going to have to find a fair way to share.

• GWEN IFILL:

  Marilyn Moon and Dan Crippen, thank you both very much.

• MARILYN MOON:

  Thank you.