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Looking at the Medicare trust funds in isolation, near-term solvency of the Hospital Insurance Trust Fund gained one year in today's estimate, from 2029 to 2030. But long-term trends continue to point to a dramatic revenue shortfall for the hospital fund, plus mounting costs in the Supplementary Medical Insurance Trust Fund that would mean steeply higher federal funding, beneficiary premiums and beneficiary co-pays.

The trustees called for changes "at the earliest possible opportunity" to address long-term problems facing Medicare as a whole. For the first time, they issued a combined report covering both parts of the program to present a more comprehensive picture of the financing challenges ahead.

"The comprehensive report we're issuing today on Medicare makes one thing very clear: the fiscal health of the Medicare system remains in serious condition," HHS Secretary Tommy G. Thompson said. "Medicare's benefits are simply not secure for nearly 80 million Americans who will be depending on its benefits by the year 2030. We must act to strengthen Medicare this year, and the President has put forward an effective framework for doing so."

The trustees estimate that the Hospital Insurance Trust Fund will remain solvent until the year 2030, based on the most probable economic and demographic assumptions. This projected depletion date represents a one-year gain for estimated Part A solvency, from the forecast of 2029 made by the trustees last year. The trustees credited this to a slight improvement in the longer-term outlook for the economy.

At the same time, the trustees reported that long-term projections of the fiscal health of the HI fund have worsened slightly. As in previous years, the shortfall occurs in part because of the growing number of Medicare beneficiaries. Today, there are about four workers for every Medicare beneficiary. By 2076, there will be only about two workers for every beneficiary.

As in previous years, the trustees find that the Supplementary Medical Insurance (SMI) Trust Fund (covering Part B of Medicare, which pays for physicians' services, outpatient care and other medical services) remains adequately financed into the future -- but only because of the substantial infusions of general revenues. This automatic financing mechanism provides guaranteed Part B funding. However, Part B spending is experiencing rapid growth -- 12 percent last year alone -- with costs expected to nearly double over the next 10 years as the first members of the baby boom generation enter the program.

Over time, SMI would require a rapidly growing share of general revenues and substantial increases in beneficiary premiums. SMI general revenues accounted for about 6 percent of total federal income taxes in 2001. If such taxes remained at their current level relative to the national economy, then SMI general revenues would account for about 23 percent of total income taxes by 2070.

Rising Part B costs also have direct impact on Medicare beneficiaries. In the next 20 years, a person who is 65 years old today would see the portion of their Social Security check that is withheld to pay the monthly Part B premium almost double, from 6.4 percent to 10.9 percent of their Social Security check. Their total out-of-pocket expenses for Part B services (premiums plus copayments) would increase from 14.2 percent to 20.1 percent of their Social Security check.

Taken together, Part A and Part B total costs are projected to more than triple over the next 75 years -- growing from 2.4 percent of gross domestic product (GDP) today, to 4.5 percent in 2030, and to 8.6 percent in 2076. At the same time, total trust fund revenues (excluding interest) will grow much more slowly -- from 2.6 percent of GDP today, to 3.7 percent in 2030, and to just 5.3 percent in 2076. In 2076, the gap between Medicare revenue and Medicare spending would be the equivalent of more than 3 percent of gross domestic product.

Without changes in the Medicare program, closing the projected HI gap between revenues and expenditures would require that benefits be reduced by 38 percent, or income from the payroll tax would need to be increased by 60 percent, the report said.

"For the longer term, the administration and the Congress should work together to develop legislative proposals to address the large increases in SMI costs associated with the baby boom attaining eligibility age at the same time that they address the HI cost increases caused by the aging of that generation," the report said.

The Medicare trustees are Treasury Secretary and Managing Trustee Paul O'Neill, Secretary of Health and Human Services Tommy G. Thompson, Labor Secretary Elaine Chao and Social Security Commissioner Jo Anne B. Barnhart. Two other members, the public trustees, are appointed by the President with Senate confirmation. The public trustees are John Palmer and Thomas Saving. They serve four-year terms and represent the general public. Tom Scully, administrator of the Centers for Medicare & Medicaid Services, serves as secretary to the board of trustees.

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