Medicare fund to run dry by 2019: trustees

The fiscal outlook for the Medicare and Social Security programs showed little change Monday, with trustees predicting in their annual report that key trust funds will run dry a year later than previously projected.

The trustees now project that Medicare's hospital-insurance trust fund will run dry by 2019 without changes in the popular entitlement program. Preventing depletion of the fund would require either a sharp rise in payroll taxes, or a cut in benefits covered by the program including inpatient hospital care, care in skilled-nursing facilities, hospice care and some home health care.
The Social Security system is projected to exhaust its trust fund in 2041 without changes. At that point, existing law would require the entitlement program to slash benefits across the board.
The Medicare hospital-insurance trust fund is fed through a 2.9% payroll tax split between employers and employees. A 12.4% payroll tax on income up to $97,500 -- also split between employers and employees -- fills the Social Security trust fund.
The Social Security trust fund is projected to continue running annual surpluses through 2017, unchanged from last year's projections.
The report underscores long-running concerns about the fiscal obligations presented by the popular entitlement programs, given the impending retirement of the baby-boom generation and rising health-care costs.
"Reforms to both Medicare and Social Security are urgently needed. The serious concerns raised by the trustees reports demand the attention of America's policy-makers and the public," said Treasury Secretary Henry Paulson, who serves as managing trustee of the programs.
The report also triggered for the first time a "Medicare funding warning" that will require President Bush to submit a proposal next year to cut costs. Congress must consider the proposal, but isn't bound to pass a new law.
Administration officials said the warning underscored a previous call by Bush to automatically cut payments to Medicare providers if the threshold were crossed.
"If Congress were to embrace the president's budget, we could not only eliminate this funding warning, [but] we could also extend the life of the hospital-insurance trust fund four years," said Health and Human Services Secretary Michael Leavitt, who is also a trustee.
Democrats and some advocacy groups for the elderly have criticized the funding warning, which is required as part of the 2003 law that created the Medicare prescription-drug program.
The threshold "is nothing less than another way to choke off funds to seniors who need help," said Sen. Charles Schumer, D-N.Y. "If there has to be a choice between preserving unnecessary tax cuts for the super-rich or keeping good on our promise to 42 million Medicare beneficiaries, I'd choose the latter every time."
The report comes as prospects for a major overhaul of the Social Security program, which Bush had once marked as a top priority of his second term, appear dim.
The president, who had made the overhaul his top domestic priority in the wake of his 2004 re-election, had outlined a plan in 2005 that would let workers born after 1950 divert a chunk of their Social Security payroll taxes into private investment accounts, while cutting future guaranteed benefits for all but poor beneficiaries.
Congressional Democrats were virtually united in opposing the approach, while Republicans, who then controlled both chambers of Congress, showed little enthusiasm.
Paulson has engaged in talks with top lawmakers in the Democratic-controlled Congress, but the efforts have generated few signs of progress.
In a news conference, the Treasury secretary acknowledged that little progress has yet been made on the political front.
"I'm getting tired of playing solitaire," Paulson said.
Democrats say the administration has been too reluctant to give up its call for diverting payroll taxes into private accounts.