Annual SocSec Trustees Report Released - Health Reform Implicated

The Social Security Board of Trustees released their annual report on Thursday, August 5, 2010 and the financial outlook for Social Security remains substantially unchanged. Highlights include the following:

• The trust fund is estimated to exhaust in 2037, at which time the tax revenues being collected are expected to fund 78% of benefits.
• The disability trust fund is expected to exhaust in 2018, which will require a re-allocation of funds to support continued benefits payouts.
  
• In 2015 and thereafter, tax revenues will fall below program costs. This estimate now is one year sooner than described in last year's report.
• During 2009 Social Security paid benefits of $675 billion dollars to 53 million beneficiaries.
• The cost to administer Social Security ($6.2 billion dollars) was only 0.9% of total expenditures.

This forth bullet point is somewhat significant in the sense that, when viewed without scrutiny, it conveys a level of efficiency that most people do not experience in dealing with Social Security. In fact, I would submit to my readership that this number will continue to drop in the years to come, and not due to increase efficiency (though certainly hope springs eternal). This is an exercise in using statistics to tell a certain story.

Any mathematical percentage contains by necessity a numerator (in this case administrative expenditures) and a denominator (in this case total expenditures). One can lower the ratio by either decreasing the numerator, which in this case would indicate cutbacks in overhead, or one can lower the ratio by increasing the denominator (in this case total benefit payouts). Since we are still very much on the front edge of the baby boomer retirement cycle, benefit payout amounts will rise at increasing rates for the foreseeable future, meaning that administrative expenses, which operate as a lagging indicator, will probably fall. For this reason, it is important that we, as concerned citizens, ensure that we understand movement on both sides of this ratio.

Proponents of the recently passed Healthcare Reform bill are citing the savings that the bill is projected to create (via efficiency measures and IT improvements) should change the somewhat disheartening profile of Social Security funding for the positive. The true impact of the reform bill will not likely be felt in the near future due to the extensive changes that it will require, and the litigation that is likely to happen concurrently with its implementation.

• For more information about Social Security, contact Thomas O'Brien or visit http://www.feilerandassociates.com.