WASHINGTON >>The bad economy has shortened the life of the trust funds that support Social Security and Medicare, the nation’s two biggest benefit programs, the government reported Friday.
The annual checkup said the Medicare hospital insurance fund will now be exhausted in 2024, five years earlier than last year’s estimate. The Social Security trust fund is expected to be exhausted in 2036, one year earlier than before.
The trustees who oversee the two programs said the worsening financial picture emphasizes the need for Congress to make changes soon. The longer lawmakers wait, the more likely they will be forced to impose steep tax increases, deep benefit cuts, or both, to save the programs.
By acting sooner, the trustees said, Congress can impose gradual changes that don’t hurt current beneficiaries and give future retirees time to prepare.
"Larger, more difficult adjustments will be necessary if we delay reform," said Treasury Secretary Timothy Geithner, chairman of the trustee panel. "And making reforms soon that are phased in over time would help reduce uncertainty about future retirement benefits."
The trustees said that they moved the expected date for the Medicare hospital trust fund to be exhausted from 2029 to 2024 because of a weaker economy, which means fewer people working and paying payroll taxes into the fund, and continued increases in health care costs.
Last year’s report had extended the life of the Medicare fund by 12 years to reflect the savings that were included in the massive overhaul of health care that President Barack Obama pushed Congress to pass in 2010. Without the changes in health care law, the administration said, the Medicare trust fund would be exhausted in 2016.
The savings in the health care legislation are still included in the trustees’ projections but have been updated to reflect data on the economy and health care costs over the past year. Many experts believe that the outlook for Medicare is actually worse because the trustees’ projections assume deep cuts in payments to doctors that Congress has routinely waived, and because other cost savings from Obama’s health care law will be difficult to realize.
The Social Security trust fund was projected to be exhausted one year earlier than the previous projection of 2037.
The trustees said in 2036 the government will be taking in enough in Social Security payroll taxes to pay only about three-fourths of existing benefits.
The new report projected that the millions of Social Security recipients would receive a small — 0.7 percent — cost of living increase in their benefit checks in 2012. In 2010 and 2011, there were no cost of living increases in the checks because inflation was low.
A 0.7 percent increase would not be seen by many beneficiaries because the extra money would be eaten up by higher insurance premium payments for Medicare. The actual benefit increase will be determined based on the performance of the government’s Consumer Price Index. That figure will be released in October.
Democrats and Republicans agree that Medicare must be addressed soon, but the consensus ends there, even as a bipartisan group of lawmakers headed by Vice President Joe Biden is holding talks on ways to tackle the nation’s mounting debt.
Most Republicans and some Democrats in Congress have said they won’t vote to increase the government’s ability to borrow without significant spending cuts. The government is expected to reach its borrowing limit of $14.3 trillion soon.
Geithner said Friday that Congress should "move as quickly as possible" to raise the borrowing limit. He has told lawmakers that he can take steps to delay until Aug. 2 what would be an unprecedented default on the debt.
Changes to Medicare, the government health insurance program for older Americans, could be part of an agreement to increase the debt ceiling. But Social Security appears to be off the table.
Many Democrats, including Senate Majority Leader Harry Reid, D-Nev., have been adamant that they will not support cuts in Social Security benefits, even if they target only future retirees. Senate Republican leader Mitch McConnell acknowledged on Thursday that changes to Social Security won’t be part of any agreement.
Democrats and Republicans are sparring over how to fix Medicare. House Republicans have passed a plan that would replace Medicare with a voucher-like payment system for future retirees, but GOP leaders in Congress have acknowledged that the plan is unlikely to pass the Democratic-led Senate.
Nearly 55 million retirees, disabled people and children who have lost parents receive Social Security benefits, which average $1,077 monthly. More than 46 million people are covered by Medicare.
Six trustees oversee Social Security and Medicare, including Geithner, Labor Secretary Hilda Solis, Health and Human Services Secretary Kathleen Sebelius and Social Security Commissioner Michael Astrue.
Associated Press reporters Martin Crutsinger and Ricardo Alonso-Zaldivar contributed to this report.