Cecily O'Connor
RedwoodAge.com

The gloomy fiscal prognosis for Medicare and Social Security has renewed debate on how best to repair the benefit systems as 78 million boomers who paid into the programs start collecting their benefits.

A number of proposals are now swirling - including the resurrection of a Social Security lockbox and limits on drug costs. 

The need for action was heightened when Medicare and Social Security trustees issued their annual report on the state of the programs. They warned that resources in the Social Security trust fund will be depleted by 2041, while reserves in the Medicare trust fund that pays hospital benefits are projected to be used up by 2019- just 11 years away.

The growing financial strain will be felt even sooner when the programs pay out more benefits than they collect in payroll taxes. Medicare is expected to be in that situation this year, while Social Security will reach the threshold nine years from now.

Clearly neither system has to go broke. For example, a modest increase in the payroll deduction tax could provide Social Security relief. 

Regardless of the solution, some proposals now on the table stress the urgency to act sooner rather than later. Here's a look at what is being discussed:

Lockbox
After virtually no action in recent years, the 110th Congress is reconsidering lockbox legislation, with 20 members already announcing their support and dozens more expected, according to The Senior Citizens League, a nonpartisan group that's supporting three lockbox bills that mirror a proposal made famous by Al Gore in 2000.

A Social Security lockbox would require the government to use surpluses exclusively to pay future beneficiaries. Currently, all surpluses exist as IOU's on paper, while the actual money is received by the treasury and spent on everything from war to Hurricane Katrina relief. Yet, if the budget continues to operate in deficit, lawmakers may have to reduce benefits, raise the retirement age, and/or raise taxes to pay back those IOU's,  the League cautioned.

"The Social Security lockbox has been almost completely absent from conversation on Capitol Hill in recent years, but this session's Congress is showing new excitement around this issue," said David Funderburk, legislative consultant for The Senior Citizens League. "We expect dozens of co-sponsors for lockbox legislation in this 110th Session of Congress, a positive sign that they're taking the needs of seniors more seriously."

Medicare Reform
Earlier this year, Republican House Leader John Boehner (Ohio) and Democrat Steny Hoyer (Md.) introduced a conservative-backed proposal to fix Medicare.

The proposal (H.R. 5480) includes proposed limits on the nation's medical liability laws. It also calls for the Medicare prescription drug program to be focused on low-income recipients by limiting the amount of taxpayer funded benefits for seniors with incomes of more than $80,000, saving Medicare an estimated $3 billion over five years.

Lastly, the bill would allow the Department of Health and Human Services to introduce value-driven competition into Medicare and create incentives for low-cost health care options.

Obama's Take
No matter the Medicare solution, the next president will have his or her hands full.

After the trustees' report, Presidential candidate Barack Obama issued a statement urging reform that will expand coverage and lower costs, although the details were somewhat vague. What he did say was that he intends to make changes that will lower the price of prescription drugs, end subsidies for private insurers in the Medicare Advantage program and focus resources on prevention and effective chronic disease management.