With President Bush traveling the country to promote his plan to allow individuals to direct some of their Social Security taxes into private accounts, some economists suggest the government is avoiding a bigger financial problem: health care.
In fact, the percentage of the nation's gross domestic product spent on health care has been increasing steadily.
According to the 2005 reports from Medicare and Social Security trustees, Social Security today accounts for 4.3% of GDP and Medicare accounts for 2.6%. In 2024, Medicare's share of the economy is forecast to overtake that of Social Security and continue growing. The trustees estimate that by 2079, Social Security will account for 6.4% of GDP, and Medicare will account for nearly 14%.
Social Security's beneficiaries will feel this growth as well. Currently, 6% of an individual's Social Security benefit goes to pay Medicare; by 2030, that will be up to 9.1%.
"The real issue facing the baby boomers is not the financing of retirement income, it is in fact the financing of health-care costs," said Stephen P. Utkus, a principal at the Vanguard Center for Retirement Research in Valley Forge, Pa.
On a present-value basis, health-care costs are four times Social Security, he said.
"The point I make, and one that is obvious, is that the bigger problem is Medicare," concurred Milton Ezrati, senior economic strategist at Lord, Abbett & Co. LLC, Jersey City, N.J. "When we talk about solving Social Security, especially when we talk about solving it within the existing system, we're looking for revenue sources.
"Our attitude has been that those revenue sources better be available for Medicare."
Beyond the funding problems of Medicare, many companies have also axed retiree health care. "Everybody needs to wake up and see the reality," said Sylvester J. Schieber, director of research at employee benefits consultant Watson Wyatt Worldwide, Washington. "We can't rely on organizations to provide unfunded benefits for people who no longer work for them."
He said many workers use health-care coverage as their retirement date gauge — if their company offers retiree health care, they are inclined to retire earlier; if not, they wait until Medicare kicks in.