Medicare and Social Security: No Change, No...

The good news from the Social Security and Medicare trustees is that things haven't gotten any worse. The bad news is that the situation was bad anyway.

The projections stayed the same: the Medicare trust fund will run dry in 2019, and Social Security's fund will run out in 2041. There are several good news stories on this today, from the Associated Press, the New York Times, and the Washington Post's Dana Milbank, who calls the annual report "a rite of spring" that everyone in Washington feels they can ignore.

"Dire warnings have become a seasonal occurrence," acknowledged [Health and Human Services Secretary Mike] Leavitt. "I noted today in Washington, D.C., that the cherry blossoms are out. They started to bloom today. It's part of nature's rhythm, and that's the way spring is in Washington. We see the cherry blossoms and hear Medicare warnings. The cherry blossoms go away, and nothing happens with Medicare."

But it's going to get much more difficult to ignore this problem. The most frightening part of the report is that Medicare will have to start digging into its trust fund this year, probably to the tune of $8 billion. (Social Security won't have to draw on its trust fund until 2017). That's not much, in terms of a $3 trillion federal budget. And after all, that's what the trust funds are for. But it's the start of a process that's going to put huge pressure on the federal government in the next few years.

The problem is that the government has long been borrowing from these funds to pay its other expenses, and giving them Treasury bonds in return (specifically, "intergovernmental bonds" used when the government owes money to itself). There's nothing secret or illegal about that, and there's nothing wrong with the bonds. But now Medicare is going to have to start redeeming these bonds, which means the government is going to have to start paying back the trust funds. And where's that money going to come from? From general revenue -- essentially, the rest of the federal budget. Again, $8 billion isn't huge in terms of the budget, but eventually this is going to mean taking money from other programs or raising revenue to cover it.

You're going to start to hear the beams creaking on the federal budget over the next few years as it starts to bear that additional weight. And something's going to have to give, whether anyone in Washington is willing to face it yet or not.