Medicare's outlook improves as health spending slows

The long-term prognosis for Medicare has improved thanks to slower health spending, while the outlook for Social Security remains unchanged.

That's according to the annual report from the trustees of both entitlement programs released on Monday. Within 20 years, spending on each will start to exceed the money coming in.

On Medicare, the trustees now project that the trust fund for Part A, which covers hospital costs for seniors, will run dry by 2030. Thereafter, it would only be able to pay out 85% of projected benefits -- a figure that would fall to 75% by 2050.

That's an improvement of four years over last year's projection.

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What's more, the tax hike needed to fix the program's long-term deficit would be a little less painful than the trustees estimated a year ago: They now say the 2.9% Medicare payroll tax would have to go to 3.77% if Congress wanted to close the 75-year shortfall.

The Medicare payroll tax applies to all wages and some investment income.

In terms of Social Security, the trustees project the program's trust fund will run dry by 2033, the same as last year.

After that point, barring any changes, the program will be taking in enough dedicated payroll tax to pay out 77% of promised benefits through 2088.

But the Social Security Disability program is facing an imminent shortfall. By late 2016, unless changes are made, the program will only be able to pay out 80% of scheduled benefits, the trustees said.

One near-term option to patch disability is to divert payroll taxes away from the retiree benefit portion of Social Security. Of the 12.4% workers and employers pay into Social Security, 1.8% is earmarked for disability. Lawmakers could, for instance, increase the share going toward disability payments for a few years and then slowly cut it back to 1.8%.

Or Congress could choose to raise the disability tax rate on its own to keep the disability fund solvent for the next 75 years. Lawmakers could also curb disability payments.

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