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Latest Projections Show a Brief Reprieve for Social Security, Medicare

By Martha Angle, CQ Staff

April 23, 2007 – Trustees for Social Security and Medicare issued their annual report this afternoon, providing the latest assessment of the looming financial crunch for the two giant entitlement programs.

The new report shows both trust funds in slightly better shape than last year's projections, but the long-term picture remains gloomy. The White House and congressional Republicans jumped on the report to demand that the Democratic majority in Congress begin addressing the strain on the entitlement programs. Democrats remained mum in the immediate aftermath of the report.

Medicare's trust fund for hospital coverage now is likely to be exhausted by 2019, one year later than the estimate a year ago.

The trustees projected that Social Security's trust funds—from which retirement and disability benefits are distributed—will be exhausted in 2041, also a year later than projected in 2006.

For a second year in a row, the trustees said that Medicare is projected to draw more than 45 percent of its funding from the government's general revenues within a seven-year period covering 2007–13. (The rest of the program's funding comes from payroll taxes and monthly premiums paid by beneficiaries.)

Under a provision of the 2003 Medicare prescription drug law (PL 108-173), that warning from the trustees will trigger a cascade of legislation and debate. But it does not force Congress to act.

Within 15 days of the time President Bush submits his fiscal 2009 budget to Congress next February, he will be required to propose legislation to cut Medicare spending. Congressional leaders would have to introduce bills reflecting Bush's proposal, and to consider them on an expedited basis.
But Democratic leaders are unlikely to advance any measures that would drastically reduce Medicare's benefits, or its payments to health care providers.

Pressure for Action
In a message accompanying their new assessment, the six trustees, led by Treasury Secretary Henry M. Paulson Jr., said, "We are increasingly concerned about inaction on the financial challenges facing the Social Security and Medicare programs. The longer we wait to address these challenges, the more limited will be the options available, the greater will be the required adjustments, and the more severe the potential detrimental economic impact on our nation."

Rob Portman, director of the Office of Management and Budget, echoed that warning in a statement Monday afternoon.

"We know that sensible reforms now that slow the rate of growth even slightly will generate substantial future savings that can save these important programs," he said. "It is disappointing that the new congressional majority chose to completely ignore entitlements in their recently passed 2008 budget proposals."

Senate Minority Leader Mitch McConnell, R-Ky., also said the latest report pointed to the need for action to shore up the troubled retirement programs, though he struck a slightly less partisan tone.

"As I said on the first day of this Congress, divided government provides a unique opportunity to address big issues facing the nation," McConnell said. "The report released by the trustees on Social Security and Medicare only underscores the critical need for Congress to set aside poll-tested politicking and address big problems like the massive entitlement crisis that will fall on tomorrow's seniors, today's children, and all taxpayers."

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