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The financial health of Social Security and
Medicare, the government's two biggest benefit programs, have
worsened because of the severe recession, and Medicare is now
paying out more than it receives.


      Trustees of the programs said Tuesday that Social Security will
start paying out more in benefits than it collects in taxes in
2016, one year sooner than projected last year, and the giant trust
fund will be depleted by 2037, four years sooner.


      Medicare is in even worse shape. The trustees said the program
for hospital expenses will pay out more in benefits than it
collects this year and will be insolvent by 2017, two years earlier
than the date projected in last year's report.


      The trust funds - which exist in paper form in a filing cabinet
in Parkersburg, W.Va. - are bonds that are backed by the
government's "full faith and credit" but not by any actual
assets. 

That money has been spent over the years to fund other
parts of government. To redeem the trust fund bonds, the government
would have to borrow in public debt markets or raise taxes.


      Treasury Secretary Timothy Geithner, the head of the trustees
group, said the new reports were a reminder that "the longer we
wait to address the long-term solvency of Medicare and Social
Security, the sooner those challenges will be upon us and the
harder the options will be."


      Geithner said that President Barack Obama was committed to
working with Congress to find ways to control runaway growth in
both public and private health care expenditures, noting the
promise Monday by major health care providers to trim costs by $2
trillion over the next decade.


      However, Republicans pointed to the newly dire assessments as
evidence the Obama administration has failed to come forward with
actual entitlement reform to close the funding gaps.


      "Instead of getting existing public programs in order right
now, some are saying we should create a new government-run health
insurance plan," Sen. Chuck Grassley, the top Republican on the
Finance Committee, said in a reference to the administration's
health care proposals. "When we can't afford the public health
plan we have already, does it make sense to add more?"


      House Republican leader John Boehner said the trustees report
"confirms what we already knew: Our nation cannot afford to
continue this reckless borrowing and spending spree."


      The findings in the trustees report, the annual checkup given
the two benefit programs, did not come as a surprise. Private
economists had been predicting that the dates the programs would
begin to pay out more than they take in and the dates the trust
funds would be insolvent would occur sooner given the economic
recession.


      The deep recession, the worst the country has endured in
decades, has resulted in a loss of 5.7 million jobs since it began
in December 2007. The unemployment rate hit a 25-year high of 8.9
percent in April.


      Fewer people working means less being paid into the trust funds
for Social Security and Medicare.


      The Congressional Budget Office recently projected that Social
Security will collect just $3 billion more in 2010 than it will pay
out in benefits.


 A year ago, the CBO had projected that Social
Security would have a much higher $86 billion cash surplus for the
2010 budget year, which begins Oct. 1.


      The trustees report projected that Social Security's annual
surpluses would "fall sharply this year," then remain at a
reduced level in 2010 and be lower in the following years than last
year's projections. 


The report said that the Social Security annual
surplus would be eliminated entirely in 2016, reflecting increased
demands from the wave of 78 million baby boomers retiring.


      That means Social Security will have to turn to its trust fund
to make up the difference between Social Security taxes and the
benefits being paid out beginning in 2016. 


The trustees projected
the trust fund would be depleted in 2037, four years earlier than
the 2041 date in last year's report.


      At that point, the annual Social Security taxes collected would
be enough to pay for three-fourths of current benefits through
2083. To tap the trust fund, the government would have to increase
borrowing or raise taxes because Social Security bonds exist only
as bookkeeping entries.


      While the government is obligated to redeem those bonds, it has
already spent the excess Social Security collections over the years
to fund general government operations, providing the trust funds
with IOUs.


      While the smaller surpluses that will begin this year will not
have any impact on Social Security benefit payments, the government
will need to borrow more at a time when the federal deficit is
already exploding because of the recession and the billions of
dollars being spent to prop up a shaky banking system.


      Medicare's condition is more precarious, reflecting the
pressures from soaring health care costs as well as the drop in tax
collections.


      Obama on Monday praised the pledge by the health care industry
to achieve $2 trillion in savings on health care costs over the
next decade, but it was unclear how much help those pledges would
be in achieving Obama's goal of extending coverage to some 50
million uninsured Americans. 


The administration is pushing Congress
to pass legislation in this area this year, preferring to tackle
health care before Social Security.

      The trustees report is likely to set off renewed debate over
Social Security and Medicare. Critics have charged that the Obama
administration has failed to tackle the most serious problems in
the budget - soaring entitlement spending.

      The administration on Monday revised its federal deficit
forecasts upward to project an imbalance this year of $1.84
trillion, four times last year's record, and said the deficits will
remain above $500 billion every year over the next decade.

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The financial health of Social Security and
Medicare, the government's two biggest benefit programs, have
worsened because of the severe recession, and Medicare is now
paying out more than it receives.


Social Security and Medicare finances worsen

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