Medicare costs have been rising much faster than predicted earlier this year, and the Social Security system as a whole is thus in considerably worse financial condition than previously believed, according to a report from the system's actuaries.
The report is certain to reopen and intensify last summer's fight over cutting Social Security benefits. President Reagan proposed large long-term cuts, then withdrew them under fire, particularly from congressional Democrats.
To tide the system over, Congress is moving to adopt a proposal for so-called interfund borrowing. The Social Security trust fund in most trouble is the largest of the three, the one that pays old-age benefits. It would be allowed to borrow from the other two, for disability and Medicare, which were thought to be in better shape.
But if the new estimates are true, the Medicare fund will not be able to help, and Congress will again have to consider alternatives.
Sponsors had hoped that interfund borrowing could support the system at least through 1988. The new report, however, says that even under reasonably good economic conditions, the combined trust funds will fall below safe levels late in 1984 or 1985.
The new report, dated Oct. 20 and outlined at an unpublicized meeting of House Ways and Means Committee leaders earlier this week, says that Medicare is now laying out at least $1 billion a year more than was projected as recently as last week when the Senate passed the interfund borrowing bill.
Senate Finance Committee Chairman Robert J. Dole (R-Kan.) said the new report "puts the pressure on Congress to move" with a longer-term strengthening of the fund than merely the interfund borrowing approved in the Senate bill that Dole pushed through by a 95-to-0 vote last week.
Sen. Daniel Patrick Moynihan (N.Y.), senior Democrat on the Social Security subcommittee, said he has not yet seen the report but "if this is so we'll have to deal with it." Moynihan had been a leading advocate of the theory that interfund borrowing and reallocation would get the system through the rest of the decade.
When President Reagan withdrew his request for large cuts last month and proposed instead creation of a new study commission, congressional leaders thought they could approve interfund borrowing and have most of the decade left to figure out what to do with Social Security. Now they will have much less time, especially if the economy performs more poorly than is assumed in the latest estimate.
Until recently the Department of Health and Human Services has been using Medicare outlay estimates made earlier this year for the annual report of the Social Security trustees. But congressional sources said the Medicare actuaries have recently updated their estimates based on the actual spending experience since last spring. The main new factor is that daily hospital costs are rising at an annual rate of about 15 percent instead of the 13 percent used for the spring estimates.
The report to the Ways and Means Committee thus states that Medicare outlays will be $30.6 billion in 1981 instead of $29.5 billion. By 1985 the initial estimate of $52.7 billion becomes $54.9 billion.
As a result the combined reserve of the three trust funds will drop to 12 percent of a year's benefits at the start of 1985, the lowest figure that experts say is sufficient to assure timely payment of benefits. It will then drop below the 12 percent figure to 11 percent at the start of 1986 and keep going down until it reaches zero at the start of 1990.
Under the old figures which were used in Senate debate only last week, the combined trust fund reserves were not expected to drop below 12 percent until 1989.