Medicare 7 years from bankruptcy, Social Security 18 years, trustees say


WASHINGTON -- Warning again of looming financial problems in the federal retirement and health programs for the elderly, their trustees said yesterday that Medicare, which pays medical bills for 36 million Americans, will go bankrupt within seven years unless Congress acts to control costs.

The trustees also said that the larger Social Security retirement and disability program is in better shape, but warned that it will become a huge drain on the federal treasury in 18 years unless changes are made.

The annual report of the six trustees, written in the language of accountants and actuaries, repeated alarms that they have been sounding for several years. The report, in fact, showed marginal improvement since the 1994 report, but the basic conclusions remain unchanged: Both programs face trouble, Medicare sooner than Social Security.

Congress has done little in recent years to deal with the problems. It is not expected to tackle the retirement fund before next year's election, particularly as Democrats and Republicans have scrambled since the 1994 election to assure retirees that they wouldn't touch Social Security.

But Medicare is a much more urgent problem.

"The Medicare program is clearly unsustainable in its present form," said two of the trustees, Stanford G. Ross, a Washington lawyer who once headed the Social Security Administration, and David M. Walker, a partner in the accounting firm of Arthur Andersen & Co., in a statement appended to the report.

Mr. Ross and Mr. Walker dissented from the other four trustees, all Clinton administration officials, who said Medicare changes HTC should be part of comprehensive health care reform.

"It is now clear that Medicare reform needs to be addressed urgently as a distinct legislative initiative," said Mr. Ross and Mr. Walker, recalling the failure of the Clinton health care plan last year.

The Republican majority on Capitol Hill is preparing to write a spending plan next month that would lead to a balanced budget in 2002 -- coincidentally, the year that the trustees say Medicare is likely to go belly up. And reining in the growth of Medicare is on their agenda.

A Senate Republican task force laid out a series of budget-balancing options last month that included trimming Medicare growth by up to $120 billion over the next five years. Other GOP leaders have said they hope to save $150 billion or more by trimming back the program.

"This report should sound alarm bells across Washington and throughout the nation," said Rep. Bill Thomas, a California Republican who chairs the House Ways and Means health subcommittee.

Medicare is expected to pay about $180 billion in hospital and doctor bills this year. After Social Security retirement, Medicare is the second-largest federal entitlement -- a program that pays benefits to anyone who qualifies.

Cutting as much as $50 billion a year would be difficult without major changes in the program, said Richard S. Foster, the chief actuary for the Health Care Financing Administration, which runs Medicare.

But Rep. John R. Kasich, an Ohio Republican who chairs the House Budget Committee, said last week, "We have no choice because Medicare is going bankrupt."

Medicare is divided into two parts. Part A, which pays hospital bills, is financed mainly through a 2.9 percent tax -- split evenly between workers and their employers -- on the wages of 141 million Americans. Part B, which pays doctors' bills, is financed from the annual federal budget and premiums paid by 35 million people covered by the program.

Social Security, which pays some $320 billion in retirement and disability benefits to nearly 50 million Americans, is financed by a 12.4 percent payroll tax -- also evenly divided between workers and employers. Payroll tax revenues now exceed benefits by close to $30 billion a year and the excess is lent to the government, which writes IOUs for the money.

The excess revenues are expected to increase for the next 10 years before beginning to decline. Around 2013, say the trustees, payroll tax income will no longer exceed benefit payments. At that point, the accumulating IOUs will have to be cashed and the government will either have to raise taxes or borrow money to repay the funds.

All of the IOUs will be exhausted by 2030, at which point the trust fund will be unable to meet its obligations unless changes are made.

"This report reinforces the message that we must address the long-range issues facing Social Security," said Shirley S. Chater, the Social Security commissioner, in a prepared statement. "But we are not on the eve of a crisis."

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