Trustees see decline in health of Social Security and Medicare

WASHINGTON -- Social Security and Medicare trustees say the financial condition of the government's two biggest benefit programs deteriorated slightly over the past year.

That assessment on Monday prompted Democrats and Republicans to hurl familiar charges at each other in a repeat of last year's pitched battle over what to do about Social Security.

Democrats accused the Bush administration of overstating the problems in the two programs as a way of getting Congress to enact draconian benefit cuts, while Republicans said Democrats were refusing to face serious funding shortfalls.

Given the tough talk on both sides, there was little likelihood that Congress will make significant changes in either program before the November elections. Some analysts said they don't expect major changes before the election of President Bush's successor.

The annual trustees' report moved up the date that the Social Security trust fund will be depleted by one year to 2040 and moved up the date that the Medicare hospital insurance trust fund will be depleted by two years to 2018.

The problems in Medicare were depicted as far more serious because of the skyrocketing costs of health care, but the trustees presented a somber assessment of both programs facing the looming retirement of 78 million baby boomers.

The trustees, who include the head of the Social Security Administration and three members of the Cabinet, said long-term growth rates for both programs were not "sustainable under current financing arrangements."

Treasury Secretary John Snow, chairman of the trustees group, said without action "the coming demographic bulge will drive federal spending to unprecedented levels."

Bush tried last year to revamp Social Security by suggesting private investment accounts for younger workers, but the idea stalled in Congress, with Democrats blasting the proposal as a hidden attempt to cut future benefits.

Critics on Monday said Snow was overstating the size of the problem and suggested that the problem could be addressed by refusing to go along with Bush's call to make his first-term tax cuts permanent.

"Instead of renewing his calls for private accounts and making his irresponsible tax cuts permanent, the president should be focusing on erasing the deficit and reining in health care costs," said Sen. Jack Reed, D-R.I.

Reed was also critical of a finding by the trustees that the amount of general revenue needed to finance Medicare will hit 45 percent in 2012, up from 35 percent currently. If two consecutive annual trustees reports reach a similar conclusion, the president is required to submit legislation to Congress to trim Medicare costs and Congress has to consider the legislation on an expedited basis.

Reed called this provision, which Congress put into law when it passed the Medicare prescription drug benefit, a "misleading sideshow" which he said would "force deep cuts in Medicare, which will hurt seniors."

The trustees found that the drug benefit, that took effect this year, will be less costly over the next decade than they had estimated last year. They put the cost at $788 billion over 10 years, down about 22 percent from last year's estimate of $997 billion.

Some Democrats pointed to the trustees' estimate that the monthly Part B premium that Medicare beneficiaries pay to cover insurance for doctors' visits will rise by around 11 percent next year to $98.20 a month and said they would introduce legislation to cap the annual rise to the rate of overall inflation, which last year was up 3.4 percent.

In this year's State of the Union address, Bush asked Congress to create a bipartisan commission to study entitlement reform, but the idea has so far attracted little interest in Congress.

Democrats charged that the administration was using the trustees' reports to try to create an air of crisis to make radical changes in the two benefit programs.

The Concord Coalition, a budget watchdog group, however said the trustees were highlighting serious problems that needed to be addressed.

Social Security is currently running a surplus, with more money coming in from taxes than is being paid out in benefits, but this will change once the post-World War II baby boom generation begins retiring in coming years.

Since the government spends the surplus on other federal programs, the Social Security and Medicare trust funds essentially are government IOUs. To redeem those IOUs to pay benefits, the government must do some combination of increasing borrowing, cutting spending in other areas or raising taxes.

That means that the pinch will occur long before the trust funds are depleted when the cost of the programs exceeds the amount they collect in taxes and premiums each year.

For the Medicare hospital insurance trust fund, that crossover point was projected to occur permanently in 2006. For Social Security, the date that taxes will not cover all benefits will occur in 2017, the trustees said, the same date as last year.