Medicare spending triggers new funding proposal

By David Lawder

WASHINGTON (Reuters) - Medicare spending is increasing so quickly that the president will be required to propose new benefit cuts or higher taxes, trustees for the U.S. senior citizen health care program said on Tuesday.

Medicare hospital insurance spending is forecast to exceed tax revenues for 2008 and all future years and the fund will be exhausted in 2019, the Medicare trustees said in their annual report.

Last year's report also predicted the fund would run out of money in 2019, but the trustees now expect the depletion to occur somewhat earlier in that year.

Trustees for the Social Security retirement benefits system said their trust fund would be depleted by 2041, unchanged from a year ago, as lower economic growth projections were offset by higher assumed rates of immigration.

Sounding a familiar refrain, U.S. Treasury Secretary Henry Paulson said the "coming demographic bulge" of the soon-to-retire baby boom generation jeopardizes both programs' ability to support older Americans.

"Reform is needed and time is of the essence," Paulson said in a statement. "The longer we delay, the larger the required adjustments will be and the more heavily the burden of those adjustments will fall on future generations."

The Medicare trustees' report triggered a "funding warning" for the second consecutive year because the rate of projected growth by 2014 will exceed a legal limit.

The White House responded to last year's funding warning in its fiscal 2009 budget plan by proposing to reduce Medicare spending by $12.8 billion over five years, drawing sharp criticism from Democrats in Congress.