Medicare's troubles increase

Trustees report Social Security to go dry by 2040, Medicare by 2018


WASHINGTON -- The financial condition of Medicare is growing worse and its problems will eventually eclipse those of Social Security, the trustees of the government's two biggest social programs reported yesterday.

But the warning appeared unlikely to spur action on a sensitive issue in an election year. Far from cutting back, Congress and President Bush have expanded Medicare with the creation of a prescription drug benefit.

"There is no crisis," Rep. Pete Stark of California, the senior Democrat on the House health subcommittee, said in response to the report. "Much as President Bush manipulated intelligence to justify an unnecessary war in Iraq, his administration is using these projections to rationalize dismantling Medicare."

The trustees' report provides an annual accounting of the two programs' long-term financial health. By law, four of the six trustees are officials of the administration in office and two are independent experts representing the public.

Compared with Medicare, Social Security faces a rosy future.

This year's report projects that the Social Security trust fund will be able to pay full retirement and disability benefits for 34 more years. That will change in 2040. Unless benefits are reduced, taxes are increased or additional funds allocated from another source, Social Security will run out of reserves and will be able to cover only 74 percent of promised benefits. The 2040 date is one year closer than the trustees had projected in 2005.

If Congress chose to plug the gap by raising more revenue, it would have to jack up Social Security's share of the payroll tax - now 12.4 percent, shared equally by employers and workers - by an immediate 2.02 percentage points. If it chose to close the gap by cutting benefits, it would have to slash them by 13.3 percent below current levels.

Medicare faces a more serious problem. Its "financial difficulties come sooner - and are much more severe - than those confronting Social Security," the report said.

The Medicare trust fund that pays for inpatient care will be able to cover only 80 percent of estimated billings in 2018, and its condition will deteriorate after that. The 2018 date is two years closer than the trustees had projected in 2005.

Medicare has been in dire straits before. As recently as 1997, the Medicare fund that covers hospital bills had only four years of solvency left. But this time the financial challenge is made much greater by the approaching retirement of 78 million baby boomers.

"The message of this report is urgency," said Health and Human Services Secretary Michael O. Leavitt. "I do not want to stand here another year with just another bad report and another year of inaction. It's time to act."

Leavitt and Treasury Secretary John W. Snow urged Congress to adopt Bush's proposals for $36 billion in Medicare cuts over the next five years, along with automatic spending reductions of 0.4 percent a year if the program's costs exceed specified levels.

Bush has also called for the creation of a bipartisan commission on entitlement programs to study the pension and health care burdens of an aging society and make recommendations.

While Congress might go along with the idea of a commission, there is little enthusiasm among lawmakers for more cuts.

"At some point, Congress is going to have to get down to the difficult business of restraining the cost growth of these programs," said Sen. Charles E. Grassley, an Iowa Republican who chairs the Finance Committee, which oversees Social Security and Medicare. But he stopped short of promising action any time soon.

Medicare's funding is extraordinarily complex, cobbled together from payroll taxes, from premiums and cost-sharing paid by beneficiaries, and from the government's general fund. The various funding streams serve different purposes.

In 2003, Congress approved a requirement that could start the discussion over Medicare's future. It provided that the president must propose changes - and Congress consider them - if two consecutive trustees' reports project that Medicare would draw 45 percent or more of its financing from the general fund in the near term. The first such warning - for 2012 - was issued in this year's report.

Ricardo Alonso-Zaldivar and Joel Havemann write for the Los Angeles Times.

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