Forecast sees worsening fiscal health for Medicare
Trust fund to benefit elderly will run out of money in 2018

Washington -- The Medicare system's financial troubles have deepened during the past year, according to a government forecast that says the federal fund that pays for hospital care for older Americans will become unable to cover all its bills a dozen years from now.

The annual report, issued Monday by the trustees who monitor the fiscal health of the Medicare and Social Security programs, said the trust fund for the health insurance system for the elderly will run out of money in 2018 -- two years sooner than predicted a year ago and 12 years sooner than had been anticipated when President Bush first took office.

The problem, the report says, has accelerated largely because hospital costs last year were greater than expected.

The forecast also said Social Security's financial condition has weakened, although its problems are not as large or urgent. It said the retirement system will have enough cash to pay the benefits it owes retirees, disabled workers and workers' survivors until 2040 -- one year less than expected in the 2005 forecast.

In releasing the report, the trustees -- including three of Bush's Cabinet secretaries -- slightly altered the message accompanying the forecast the past few years, when the administration sought to use the predictions as leverage to persuade a reluctant Congress to embrace the president's goal of letting Americans divert some of their payroll taxes into individual retirement accounts. That emphasis prompted Democrats and other critics to chastise the administration for dwelling on Social Security while Medicare's problems were more acute.

Monday, the president's aides -- and Bush -- drew attention equally to the frailty of the two largest benefits programs that form the twin pillars of the government's assistance to the elderly. The solution, they said, was for Congress to approve changes Bush already has proposed.

Treasury Secretary John Snow, one of the trustees, said the programs "form the basis of a looming fiscal crisis for our nation as the Baby Boom generation moves into retirement."

"The systems are going broke," Bush said in a health care speech earlier in the day. "And now is the time to do something about it."

But Democrats said the administration was using the report to try to create an air of crisis to make radical changes to the two benefit programs.

"There is no crisis," Rep. Pete Stark, D-Fremont, 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."

Administration officials portrayed the report as containing some bright news, because spending on the new Medicare prescription drug benefits -- paid for from general revenue, not the same trust fund as hospital bills -- appear less than once thought. Several of Bush's aides said costs will be lower because drug companies are charging less than predicted for medicine. However, two independent trustees had a different explanation: Fewer Medicare patients are signing up for the drug benefits than anticipated last year.

On Monday, administration officials did not emphasize the idea of private retirement accounts, which is relatively inert on Capitol Hill. Instead, they focused on proposals Bush made early this year -- to create a federal commission on the plight of entitlement programs and to slow Medicare spending by $36 billion during the next five years. Neither has drawn much enthusiasm among lawmakers.

Chronicle news services contributed to this report.

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