Social Security and Medicare -- a Tale of Two Metrics

May 9, 2012

In last week’s post, we discussed using metrics to help understand past and forecast spending on Social Security (SS). These metrics are important because it’s hard for anyone to grasp raw numbers this large — annual SS benefits are expected to top $1 trillion (yes, trillion!) around 2018, for example. So metrics like spending as a percentage of GDP help to put raw numbers in some context.

In their 2012 OASDI Trustees Report, the trustees of the SS and Medicare Trust Funds did just that. (Click here to see the report and click here for just the summary.) They cite the change in a single metric — the “Year trust funds are exhausted” (let’s call it “D-Year”). While the Medicare trust funds’s D-Year is forecast to be 2024 — the same year they predicted last year — they now forecast the SS trust fund’s D-Year to be 2033, a three-year advance from last year’s 2036. (See “A Dry, Incredibly Important Story.”)

Obviously, the exact moment the trust funds run out of money is an important metric, but is the the most important one? I submit that it’s not. What’s even more important is what the drain on Uncle Sam’s wallet looks like after D-Year — is it accelerating or easing off? It turns out the drain is accelerating rapidly, especially for Medicare, and especially if some cost control measures nominally in the law right now don’t end up happening. It might be really helpful to give the public a sense of that impact on the post-D-Year drain on the national debt.

A clearer understanding of this outlook might motivate the public to be even more demandng that our leaders address the issue. While the information to estimate the total drain is in the Trustees Report, it’s hard to get at and it doesn’t get the same play that the “D-Year” concept gets. This is a complex issue, but it can be done — if the U.S. government had the same reporting requirements as a business or a municipality, it would have to report on its “unfunded pension liability,” and that would be a good place to start.

As with so many issues, clear quantation is at the heart of this issue. And good metrics lead to good decisions.

“Painting with Numbers” is my effort to get people talking about financial statements and other numbers in ways that we can all understand. I welcome your interest and your feedback.

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