Every year or two I download and review the annual reports from the Boards of Trustees for the Social Security and Medicare programs.  It's partially job-related work.  But yeah, I confess I find it morbidly fascinating and do it partially for fun.

I figured I would pass along the most brief and summarized info to anyone who is interested.  Seriously, everyone in the U.S. *should* be interested.  I know the reality of it is most people aren't.  That just is what it is.  /shrug

Here goes...    :-)
(this is my own personal analysis summary)

MEDICARE:
"Medicare" encompasses the Hospital Insurance (HI), Medicaid and the newer senior perscription drug plans (SMI).

As of 2007, Medicare is cash-flow negative.  That means it is paying out more in benefits than it receives in payroll taxes.  The actuarial projections show this becoming worse and worse all the way through the year 2080, which is as far out as the Board of Trustees run their numbers.

When you dig further into the report, you can see that they are using a government accounting trick to minimize how bad it really is.  Government accounting organizes their finances into different “funds.”  The Medicare Special Fund will receive 173 Billion in “revenue” in 2007 from the General Fund for their portion of the senior prescription drug plans.  The General Fund has been running deficits for decades (they spend more than they collect), so it is really just a numbers shuffle.  Medicare will probably cost $180 Billion dollars more than it earns this year.  By the year 2016, it looks to me like it will be running about $400+ Billion a year in the hole.  To give you an order of magnitude, the entire federal spending in a year is around $3 Trillion dollars.

Now you always hear politicians talk about the “assets” in these funds.  In the past, these programs took in more tax revenue than they spent in benefits each year.  So you would think they have a big pile of money saved somewhere right?  That’s what they show on the fund financial statements.  The Medicare Special Fund has about $330 Billion dollars of reserves in the form of Special Treasury Issues (bonds).  When the program needs money, they will redeem these bonds to pay benefits.  The Trustees project they can do this through the year 2019 when they will have used up all the reserves.

Here’s the problem and the crime.  Special Treasury Issues are a fancy word for an I.O.U. from the General Fund.  The Medicare program can not hold cash, so it gave the money to the General Fund (which can hold cash savings).  The General Fund runs a deficit every year, so they spent all their own money *PLUS* all they received from special funds like Medicare and Social Security.  The money is not there.  It’s gone!  They spent it.

Starting this year, the Medicare fund needs to start redeeming these IOU’s.  They need the money back from the General Fund to pay all the benefits to people.  Where does the General Fund get the money to pay it back?  They spent it already, AND they are running yearly deficits.  It’s an accounting trick gone bad and any private pension fund manager would go to jail if they did the same thing.  I’m not exaggerating.

Summary – The Medicare program is NOW upside down and their assets they claim to remain solvent for another 12 years are fake.

SOCIAL SECURITY:

Social Security is a program that encompasses the Old Age Survivors Insurance (OASI) and Disability Insurance (DI) programs.

This program is still cash-flow positive through the year 2017.  In 10 years, this trend will reverse and continue to require more and more money through 2080 (as far as they project).  They claim they will have enough reserves to keep the program running through 2041.  They hold about 4.3 TRILLION dollars in so-called “assets.”

$2 Trillion of the assets are Special Treasury Issues like I described above.  These are fake IOUs from the General Fund.  These bonds can not be sold or traded on the open bond markets.  It also holds $2.3 Trillion dollars in “bonds” that appear to be normal treasury bonds.  Those are still owed by the General Fund I think, but they could in theory be traded or sold to investors.

The money isn’t there.  The Social Security Fund goes bust in 2017.

COMBINED SUMMARY:

The tally for both programs is about $4.6 Trillion dollars that have been funneled out of  they system.  This money was spent on other things, so it is gone.  Very soon, the money is supposed to go back into these two social programs and it isn’t there.  Even for the federal government, that is a lot of money.  Projected out to 2080, the continuing cash shortfalls add up to over $40 Trillion dollars of  what they call “unfunded obligations.”  We’ve collected payroll taxes from people over the decades.  They are expecting to have these social insurance benefits available.  The money is not there.

We used to hear debates of the “Social Security Lock Box.”  It’s not really a popular topic anymore.  This is the problem they were talking about – the money flowing from the special funds to the general fund and being spent.  They wanted to take the excess cash and “lock” it up somewhere.  Honestly, it was already too late when they were talking about the idea.  It would have delayed the problem a little, but not fixed it.