EDITORIAL: As baby boomers retire en masse

May 04-- May 4--The challenges facing the Social Security and Medicare Hospital Insurance trust funds are largely demographic, in the shape of an aging population. Consider that the share of Americans age 65 or older is projected to grow more than one-third by 2040 as baby boomers move deeper into retirement. So this isn't a surprise. This increase in the number of people accessing the programs has been evident for years, along with the heavier strain on their finances.

Toward the end of April, the Social Security and Medicare trustees reported again on where the programs stand. They forecast the Social Security trust fund would be empty by 2035, and the Medicare fund by 2026. That doesn't mean the programs would cease. Social Security still would cover 77 percent of benefits through revenue generated by the payroll tax, and Medicare would pay 89 percent of hospital care.

That isn't acceptable, obviously. Yet, if anything, those percentages offer a reminder that the challenges can be addressed through relatively modest measures, though Social Security more easily than Medicare. In addition, the burden promises to be less the sooner the country takes action, not that Congress and the White House will comply, even with the Congressional Budget Office projecting the country will add $11.6 trillion in debt the next decade.

What can be done to bolster Social Security? It helps to start by adding another bit of perspective. The Center on Budget and Policy Priorities noted recently that the surge of baby boomers would raise Social Security spending from 5 percent of the overall economy to 6 percent, where the share would remain for 75 years.

So, at an additional 1 percentage point, the increased cost is affordable. Arguably, there would be room to enhance benefits for those at lower-income levels, as a response to persistent income inequality and an average benefit today of about $17,600 a year.

It has been nearly four decades since an independent commission improved the financial position of Social Security. That involved a higher payroll tax and savings through a gradual increase in the retirement age. Some similar combination would work today, though it seems fair to start with those beneficiaries in a better position to absorb the change, or further tapping mechanisms for means-testing.

In that way, it is reasonable to look at applying the payroll tax to income above the current limit of $132,900 a year. Those at $50,000 a year see every dollar subject to the payroll tax, while others at $250,000, $500,000 or higher experience a fraction of their earnings affected.

The Medicare trust fund long has been projected for insolvency. At various turns, presidents and lawmakers have acted, including increases in the payroll tax. What is distinctive about this trust fund is the link to the overall health care system and its rising costs. Curb those expenses, as the country must, and Medicare improves its financial position.

The Center on Budget and Policy Priorities points out that the Affordable Care Act has been good for Medicare finances, the trust fund projected to remain solvent for eight years longer since enactment. The outlook would be better if the White House and Congress of late had not retreated, for instance, ending the Independent Payment Advisory Board, a panel of experts with the task of slowing the climb in Medicare costs.

The bottom line is that neither Social Security nor Medicare is in immediate crisis. Each will require adjustments in navigating the arrival of more baby boomers. That's something presidents and lawmakers are almost certain to achieve given the stakes for their constituents and their own political fortunes. The test will be how they do it and when.

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