10 Truths About America's Entitlement Programs

Monday, September 2, 2013 - 11:00am

Truth No. 1 Entitlement programs are huge, expensive, and reach into every corner of American life.

  • Social Security, Medicare, and Medicaid already cost $1.6 trillion per year.
  • In 2010, an estimated 49% of households received benefits from these three entitlement programs or other federal and state government assistance.

Truth No. 2 Entitlement programs are not self-funding and are a main driver of deficits.

  • Medicare’s annual cash shortfall in 2011 was $288 billion. The program is responsible for more than 25% of all federal debt since 2000.
  • Social Security had a cash flow deficit of $58 billion in 2012.
  • Without reform, the typical 3rd grader will receive only about 75% of the benefits provided to today’s seniors.

Truth No. 3 Entitlement costs are growing at an alarming rate.

  • In 10 years’ time, the total price for these programs will soar to an astounding $3 trillion a year.

Truth No. 4 Longer life expectancies, changing demographics, and soaring costs explain why entitlements as we know them today are unsustainable.

  • It won’t be long before one-third of Americans will be retired and will spend one-third of their lives in retirement.
  • During the next 17 years, 77 million workers will retire—that’s 10,000 people a day. Thirty-six million Americans are already retired.
  • Social Security and Medicare as currently structured and financed can’t come close to meeting the demand.

Truth No. 5 Not a single major entitlement program is projected to be financially solvent 20 years from now.

  • The trust fund for the Social Security Disability Insurance program will be exhausted in just three years.
  • The trust fund for Medicare Part A, which pays for hospital services, will go bankrupt in 13 years.
  • Social Security will be unable to pay full benefits beginning in 2033, at which time recipients will see a 23% cut in benefits.

Truth No. 6 The cost to make these programs financially solvent for the next 75 years is almost $40 trillion.

  • Paying such a price would bankrupt the country, cripple our economy, and rob new generations of young people of the promise of the American Dream.
  • Absent reform, the situation will soon require either economy-crushing new taxes or painful benefit cuts in the programs—or both.

Truth No. 7 Mandatory spending—entitlement programs and interest on the debt—are already squeezing out important investments in other essential programs.

  • Mandatory spending already exceeds all federal income tax revenues collected. We have to borrow money and increase debt to pay for everything else.
  • Robbing from other parts of the budget to fill the hole is hurting other priorities. It leaves little left over to provide for defense, infrastructure, education, science and research, and other investments needed for the future prosperity of our country.

Truth No. 8 We have nothing to fear from carefully crafted, phased-in adjustments to our entitlement programs.

  • Strengthening and improving entitlements in the face of compelling financial and demographic realities are reasonable and achievable. We’ve done it before.

Truth No. 9 We can reform entitlements without baseline cuts and without breaking our commitment to the nation’s seniors, people with disabilities, and poor.

  • No one in our mainstream political system today is talking about actually cutting the amount of money spent on entitlement programs. What’s being discussed are ways to restrain the increases and make the programs sustainable.
  • The good news is that there are many reform options available for consideration—relatively small adjustments in payments, benefits, eligibility, administration and overhead, coverage options, and program efficiencies.

Truth No. 10 The biggest threat imaginable to Medicare and Social Security as we know them will be if we do nothing at all.

  • To do nothing will set into motion the most harsh, extreme, and burdensome entitlement changes of them all—the massive benefit cuts and tax hikes that would have to be imposed when the programs’ funding just flat runs out.
  • The challenge for political leaders, stakeholders, and citizens is to settle on the right menu of options and to find the right mix of adjustments on payouts and pay-ins.