One major component of fiscal cliff (sequester spending cuts plus coming tax increases) negotiations is how to handle entitlements. What exactly are lawmakers talking about when they use that term?

1. What Are Entitlements? Entitlement programs are programs over which Congress does not have control of annual spending. Spending for some federal programs – education, defense, transportation – are set by Congress each year in appropriations bills. Entitlement spending increases according to the number of beneficiaries that use each program. Sometimes spending for these programs is called mandatory spending. The main entitlement programs are Social Security, Medicare, and Medicaid. (See the links for complete descriptions of these programs – “5 Things” will also be exploring them more in depth in the coming weeks.) Together, in FY 2011 these programs took up about 41 percent of the federal budget, up from 31 percent in 1990 and just 16 percent in 1967. Other entitlement programs include food stamps, housing assistance, veterans’ benefits, and unemployment insurance. In all, these programs comprise more than 60 percent of the federal budget.
2. How Do The Sequester Spending Cuts Affect Entitlement Spending? While many federal spending programs would be affected by the sequester, most entitlements would not. According to the White House, Medicare spending would fall two percent and spending for other mandatory domestic programs would decline 7.6 percent, but Social Security, Medicaid, the Children’s Health Insurance Program, food stamps, Temporary Assistance for Needy Families, and Supplemental Security Income would not be affected. 
3. In What Kind Of Financial Shape Are These Programs? In short: the major ones are going broke and will eventually consume more and more to the federal budget. Social Security will exhaust its funds within 21 years and Medicare Part A, which pays in-patient hospital benefits, will run out of money in 12 years. Such a failure will mean disruptions to the benefits Americans’ receive or that the federal government will have to take from other spending programs, education or defense, perhaps, to pay for them. In other words, doing nothing now guarantees failure later. The Washington Post put it best: “Since 60 percent of the federal budget goes to entitlement programs … there’s no way to achieve balance without slowing the rate of increase of those programs.”
4. What Are Some Options For Strengthening These Programs? One proposal to reform Medicare would, in 2023, allow beneficiaries to choose whether to stay in the current Medicare program or take a lump-sum payment and use it to choose their own health insurance. One proposal for Social Security reform would allow Americans to invest a portion of their payroll taxes in the private investment market.
5. Would Those Reforms Affect Current Recipients Or Retirees? Most major reform proposals would not affect current retirees. It is a common misperception that they would, but, generally, reform proposals would not affect any American “at or near retirement.”