4 Trust Funds, 3 Problems: Why is the Other one so “Healthy”?

By Stephanie Kelton

Every year, the Trustees of Social Security and Medicare issue an annual report that examines the financial status of the various “trust funds” that purportedly sustain these vital programs. Social Security’s (OASI) and (DI) Trust Funds, as well as Medicare’s (HI) Trust Fund all face chronic problems, some in the not-too-distant future.  In contrast, Medicare’s (SMI) Trust Fund always receives a clean bill of health. Why is that?

The answer is so simple it apparently escapes notice, but here it is, straight from the annual report:

The Hospital Insurance (HI) Trust Fund is expected to remain solvent until 2029. The Disability Insurance (DI) fund is projected to become exhausted in 2018. And the Old-Age and Survivors Insurance (OASI) Trust Fund is considered adequately financed until 2040.  In contrast:

Part B of Supplemental Medical Insurance (SMI), which pays for doctors’ bills and other outpatient expenses, and Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.

In other words, it is sustainable — INDEFINITELY — because the government is committed to making the payments. Indefinitely.

And, as we have argued many times on this site (and elsewhere), the same commitment can easily be made to sustain Social Security (OASI and DI) and Medicare (HI) in their current form.  There is no economic justification for cuts to either program.  The decision is entirely political.

The American people must realize this before it is too late.

8 responses to “4 Trust Funds, 3 Problems: Why is the Other one so “Healthy”?

  1. So are you saying that the sole difference between the projected insolvency of OASI and DI and HI's "adequate financing into the indefinite future" is the wording in the law?

  2. Rufus,I'm just repeating it. The Trustees are saying it! Seriously, yes, that is correct. The SOLE reason for the clean bill of health in the SMI Trust fund is the existence of a law that establishes that the government will always cover any shortfall. If you look at the report, you will find projected income and outgo (based on a host of assumptions about a host of variables) for OASI, DI and HI. Look at the graphs. When does outgo overtake income? How much longer can the Trust Funds be relied upon to sustain promosed benefits thereafter? These are questions that are relevant ONLY to OASI, DI and HI. There are no such projections for SMI. No graphs. No shortfalls. No entitlement problems. No cry for reform. Just solvency in perpetuity. Because the law says the government will always pay.

  3. @ SKMedicare is the benchmark for setting prices in health care delivery. So I suppose Big Pharma (Medicare part D) and the AMA/Providers (Part B) Lobby heavily to keep B & D cash cows with no cost controls. I see your point. But it is frustrating to see how Americans pay double for less favorable outcomes (Longer life expectancy & lower infant mortality) compared to Canada.Wall street is lobbying heavily to dismantle medicaid = taxpayer subsidies for private insurance & Social Security retirment = steering into stock market (another ponzi scheme to enrich insiders)

  4. You forget that the first ones are a ponzi-schemes – insurance fraud. We are supposed to pay "premiums" and get "benefits". Tell Granny she is on welfare like the single mother next door, and she will say "I paid into it all my life…". I would love to drop that fiction even more than you would.That said, you are basically correct, but there is also the problem of reality. Politicians can "make commitments" to spend 250% of the GDP each year, but they cannot keep them in real terms. The number isn't that bad yet but it appears the USA and several other nations are about to conduct the experiment.And to note an existing detail, politicians have apparently "made commitments" to redeem the treasury securities in the "trust fund". We will see if even that is kept since the money that came in was already spent.And with double book entry keeping, weimar-zimbabwe monetary policy they can make good on it, but they will be doing so by paying the 250% in nominal terms, not real terms. If this month's social security check is for a million dollars, but that only pays for a small Pepsi because of COLA lag, is that really a gain?You can't tax at that level – how do you tax over 100%? – and few would lend to someone spending 250% of their annual income each year.Nor can you do ledgerdemain to fill silos with grain or tanks with fuel. Those have to be grown or mined. Or even manufactured things.Meanwhile, what no one will ask is "What is the Carbon Footprint of our worldwide Military empire? All the tanks, planes, and ships". It's expensive, and burns precious fuel. If there were a carbon tax, can we afford that? Or even afford the direct costs.

  5. Pingback: One Simple Measure That Would Save Social Security and More | | New Economic PerspectivesNew Economic Perspectives

  6. Though this is an old post, it is rightly often enough referred to, so tz’s common misconceptions deserve a reply.

    TZ:You forget that the first ones are a ponzi-schemes – insurance fraud. We are supposed to pay “premiums” and get “benefits”.

    SS etc are no more ponzi schemes or insurance fraud than any other sort of money or debt or financing, or monetary economy, or life is. People do not pay SS premiums, but SS taxes. And the creators of SS & FDR understood perfectly well that the SS taxes had nothing to do with paying the benefits. They were political protection for the program. That’s all. And since SS was run as pay-as-you-go until the insane, destructive, 1982 changes, it was basically neutral macro-wise. Unfortunately it did not contribute to any beneficial deficits, but at least it did not contribute to destructive surpluses, as it did after 1982.

    Nor is SS welfare. Granny paid into SS all her life (incidental) because she (important) worked all her life & helped create the productive economy that supported her, her children & grandchildren, and which she absolutely deserves to reciprocally have support her now that she no longer can, or just wants to enjoy a well-earned pleasant retirement. Were the first beneficiaries of SS in the 30s, some who lived decades longer, welfare recipients? Basic metaprinciple of economics, or any intellectual discipline – if there is a lot of talk & obsessive focus on it – it isn’t very important & this COWDUNG of the herd of independent minds is usually wrong.

    there is also the problem of reality. Politicians can “make commitments” to spend 250% of the GDP each year, but they cannot keep them in real terms. The number isn’t that bad yet but it appears the USA and several other nations are about to conduct the experiment.

    This has absolutely nothing to do with reality. Politicians are trying to reduce meager spending commitments to people who richly deserve them. The USA & other nations are conducting the opposite experiments – dishonestly miserly spending, so meager that the economy is starved for money & squanders colossal real resources.

    politicians have apparently “made commitments” to redeem the treasury securities in the “trust fund”. We will see if even that is kept since the money that came in was already spent. Backwards. The money could not have “come in” – been leaked by SS taxes – if it hadn’t already been spent. It would have been catastrophic if it hadn’t been spent, as enormous quantities of net dollars would have been sucked out of the economy, leading to unemployment & depression.

    The numbers are crazily wrong, as apparently applied to SS or anything else, really. Regarding SS – all it is is a program for young workers to provide for the old, as the old had formerly provided for the young. People have been doing this for many, many millennia. The idea that wealthy modern societies, facing no real world catastrophe (like a giant asteroid collision) have a particular, novel problem in doing something which was no problem for cavemen & cavewomen is a Lie which can only succeed because it is so enormously, so spectacularly Big.

  7. Pingback: How Republicans, If They Gain Control, Will ‘Solve’ the Medicare ‘Crisis’ (and Why Dems Are Suckers) | Mike the Mad Biologist

  8. Pingback: Let's Defend Social Security and Other Entitlements With the Second Bill Of Rights - New Economic Perspectives