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Entitlement Spending: Non-Partisan CBO Advises Excluding Social Security / Medicare Trust Funds’ Balances + Interest Income in Fiscal Analysis

Trust funds can be useful mechanisms for monitoring the balance between earmarked receipts and a program's spending, but they are basically an accounting device, and their balances, even if "invested" in Treasury securities, provide no resources to the government for meeting future funding commitments. When those payments come due, the government must finance them in the same way that it finances other commitments -- through taxes or borrowing from the public. Thus, assessing the state of the federal government's future finances requires measuring such commitments independently of their trust fund status or the balance recorded in the funds.

-- Congressional Budget Office (CBO)
"Measures of the U.S. Government’s Fiscal Position Under Current Law," 8/04

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Entitlement Spending: Funding Patterns of Some Entitlement Programs Work Better than Others

Have Worked Relatively Well Financially:
• Social Security – Has operated at close to break-even - so far - thanks to sufficient payroll tax income from a relatively large working-age population. In fact, Social Security has worked so well, that its surplus net income has been used to finance other government activities such as Medicaid.
• Unemployment Insurance – Has operated at close to break-even thanks to accumulated net incomes during 'good years' (though expenses spiked to $123 billion / $160 billion in 2009 / 2010 from $45 billion in 2008 owing to recession).

Have Worked Relatively Poorly Financially:
• Medicaid – Has operated at an average annual loss of $160 billion with, in effect, an average net margin of -100% over past 15 years; the annual dollar loss has risen from $108 billion to $273 billion because of rising healthcare costs and expanded enrollment.
• Medicare – Has operated at an average annual loss of $123 billion with, in effect, an average net margin of -83% over past 15 years; the margin has fallen from -66% to -154% (or -$64 billion in annual loss to -$272 billion) because of rising healthcare costs + expanding coverage (added Part D prescription drug benefits through legislation in 2003, rolled out in 2006).

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Source: White House Office of Management and Budget.
USA Inc. | Income Statement Drilldown 78
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