President George W. Bush speaks about the Medicare Prescription Drug Benefit in Sun City Center, Florida May 9, 2006 Medicare spending is increasing at such a fast pace that the president will be required to propose new benefit cuts or higher taxes, trustees for the U.S. senior citizen health care program said on Tuesday. REUTERS/Jason Reed  Medicare hospital insurance spending is forecast to exceed  tax revenues for 2008 and all future years and the fund will be  exhausted in 2019, the Medicare trustees said in their annual  report. Last year’s report also predicted the fund would run out of  money in 2019, but the trustees now expect the depletion to  occur somewhat earlier in that year. Trustees for the Social Security retirement benefits system  said their trust fund would be depleted by 2041, unchanged from  a year ago, as lower economic growth projections were offset by  higher assumed rates of immigration. Sounding a familiar refrain, U.S. Treasury Secretary Henry  Paulson said the “coming demographic bulge” of the  soon-to-retire baby boom generation jeopardizes both programs’  ability to support older Americans. “Reform is needed and time is of the essence,” Paulson said  in a statement. “The longer we delay, the larger the required  adjustments will be and the more heavily the burden of those  adjustments will fall on future generations.”    The Medicare trustees’ report triggered a “funding warning”  for the second consecutive year because the rate of projected  growth by 2014 will exceed a legal limit. The White House responded to last year’s funding warning in  its fiscal 2009 budget plan by proposing to reduce Medicare  spending by $12.8 billion over five years, drawing sharp  criticism from Democrats in Congress. The latest warning on funding would require the president  to make new proposals for cuts in funding or benefits next year  for the fiscal 2010 budget plan. The report said Medicare could be brought back into  actuarial balance by an immediate 122 percent increase in the  payroll tax or by an immediate 51 percent cut in benefits, or a  combination of the two. Democrats called for efforts to stem the growth of health  care costs through reforms that would lower the price of  prescription drugs and improve preventive    care. Sen. Max Baucus, a Montana Democrat who chairs the Senate  Finance Committee, pledged to “improve Social Security solvency  first without cutting benefits or raising taxes.”    He said this should include closing a $50 billion “gap”  between payroll taxes legally owed and those actually paid. Social Security will start spending more than it takes in  2017, a date unchanged from the last year’s report. The trust  fund’s depletion date is being maintained in the face of a  slowing economy partly due to the impact of higher assumed  immigration, according to the report. For 2009, the Social Security report projects 800,000 to  1.2 million legal immigrants into the United States, compared  with last year’s projections of 675,000 to 1.06 million  immigrants for 2009. The report contains forecasts of real gross domestic  product growth of 2.3 percent for 2008 and 2.8 percent in 2009. This compares with the most recent Bush administration  forecasts of 2.7 percent growth for 2008 and 3.1 percent for  2009. A Treasury official said the trustees use different  forecasts than those used by the White House budget office in  making its semiannual economic growth projections that form the  basis of its federal budget proposal. The report said Social Security could be brought into  actuarial balance over the next 75 years by raising payroll  taxes by 14 percent or reducing benefits by 12 percent, or  combining the two. Paulson failed to gain much traction in discussions with  Congress over the past year for Social Security reforms that  would have included the establishment of private investment  accounts. He called for “bipartisan solutions that will  generate a permanently sustainable Social Security system.”
Medicare spending triggers new funding proposal.