Correction to This Article
Earlier versions of this story inaccurately said that 7 percent of federal tax revenue was used to finance Social Security and Medicare benefits. Instead, it is 7 percent of federal income tax revenue that is used. This version has been corrected.

Social Security, Medicare Panel Adjusts Forecast

By Christopher Lee
Washington Post Staff Writer
Tuesday, April 24, 2007; 12:58 PM

The trustees who oversee Social Security and Medicare issued new warnings yesterday that the two programs are becoming unaffordable but pushed back slightly their predictions of when the crunch will hit.

By 2017, Social Security will pay out more in benefits than it collects in taxes, the trustees said in their annual report. The program's trust fund is projected to be exhausted by 2041, one year later than estimated last year.

Medicare, which serves more than 43 million elderly and disabled people, is in worse shape, with its hospital insurance trust fund projected to be insolvent by 2019, trustees said. But that also was one year later than last year's forecast.

In both cases, the programs' finances will strain under the weight of serving 78 million baby boomers who will begin retiring in the next few years.

"Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues, and threaten America's future prosperity," said Treasury Secretary Henry M. Paulson, who serves on the six-member panel of trustees.

Social Security expenditures are expected to reach $594 billion this year. For Medicare, the figure is $438 billion.

Over time, the programs are expected to consume a growing share of the federal budget. This year, about 7 percent of federal income tax revenue goes toward paying Social Security and Medicare benefits. The figure is projected to climb to more than 10 percent by 2012, and 26 percent by 2020, said economist Thomas R. Saving, a trustee.

To keep the programs going, Congress and the president will have to increase taxes, reduce benefits or do both, the trustees said. "Without significant reform, these programs are not sustainable in the long run," Saving said.

Trustees warned for the first time that money from general revenue will exceed 45 percent of projected Medicare expenditures in two consecutive years, 2012 and 2013. Currently 42 percent of Medicare outlays are from general revenue. The warning, mandated by a 2003 law, requires President Bush to propose ways to handle the growing costs next year and Congress to consider those proposals.

The trustees said Medicare's financial problems, fueled in part by rising health-care costs, have also been exacerbated by the new prescription drug benefit, which cost the government about $30 billion last year.

Democrats on Capitol Hill said the trustees' report shows that Medicare is a more pressing problem than Social Security and warned against making cuts that would hurt seniors.

"Any presidential proposal resulting from this warning should address the fundamental issues plaguing the system as a whole: health coverage and health care costs," Senate Finance Committee Chairman Max Baucus (D-Mont.) said in a statement. "The Medicare program is too vital to millions of Americans to be subjected to arbitrary targets and funding cuts."

© 2007 The Washington Post Company