The finances of the funds that back Medicare programs look even worse this year than they did in 2008, the Medicare trustees report.

The Medicare trust funds could be empty as early as 2017, or 2 years earlier than the trustees predicted in 2008, the trustees warn.

The finances of the Social Security program trust funds also deteriorated, but those trust funds could last until 2037, according to the Social Security program trustees. Those trustees are predicting a depletion date that will arive 4 years earlier than the depletion date predicted a year ago.

One of the major Medicare trust funds,
the hospital insurance trust fund, “is not adequately financed over the next 10 years,” the Medicare trustees write. “At the beginning of 2009 the assets of the HI trust fund were $321 billion and are projected to be exhausted during 2017…. The HI trust fund does not meet the short-range test of financial adequacy. Although the short-range financial status of the HI trust fund has not been considered satisfactory since 2003, the outlook has further deteriorated as a result of the current economic recession.”

The recession has hurt the Medicare trust funds by depressing payroll tax revenue, the trustees write.

Medicare tax revenue now amounts to about 88% of program costs, but projections suggest that it would cover just 81% of program costs in 2017, and just 29% of program costs in 2083, the trustees warn.

Another Medicare trust fund, the fund that supports Medicare Part B outpatient and physician services benefits, is adequately capitalized, the trustees write.

“However, further congressional overrides of scheduled physician fee reductions, together with an existing ‘hold harmless’ provision restricting premium increases for most beneficiaries, could jeopardize Part B solvency and require unusual measures to avoid asset depletion,” the trustees write.

Part B costs have been increasing 7.8 % per year over the last 5 years, and are likely to continue doing so, but Congress has been assuming that the costs will grow 5.5% per year over the next 5 years.

“This rate is unrealistically constrained due to multiple years of physician fee reductions that would occur under current law, including a scheduled reduction of 21.5% for 2010,” the trustees write. “If Congress continues to override these reductions, as they have for 2003 through 2009, the Part B growth rate would instead average roughly 8.5% to 9.0%. For Part D, the average annual increase in expenditures is estimated to be 11.1% through 2018.”

One of the Social Security program trust funds, the fund that backs Social Security Disability Income benefits, will have less than 100% of what it needs to sustain the program in early 2014, but the combined program trust funds should hold some assets for 23 more years, the program trustees write.

“Even if a trust fund’s assets are exhausted, however, tax income will continue to flow into the fund,” the trustees write. “Present tax rates are projected to be sufficient to pay 76% of scheduled benefits after trust fund exhaustion in 2037 and 74% of scheduled benefits in 2083.”