FROM THE OFFICE OF PUBLIC AFFAIRS

Today, the boards of Trustees of the Medicare and Social Security Trust Funds met to complete our annual review of the financial status of the trust funds and to forward the reports to Congress.

While the short-term financial status of each program has improved some since last year's report, substantial challenges remain which need to be addressed at the earliest opportunity.

Let me first talk about Medicare. The Medicare program as a whole presents financial challenges that will require integrated and comprehensive solutions. Costs for the two Medicare program components -- HI and SMI combined -- will grow from 2.2 percent of GDP today to 8.5 percent in 2075. By comparison, HI tax income and SMI premium revenues will only grow from 1.8 percent of GDP today to 2.5 percent in 2075. Medicare spending is ultimately projected to exceed even the costs of Social Security. The financing gap for HI alone is larger than the gap for Social Security, and the HI Trust Fund will become insolvent 9 years sooner than the OASDI Trust Funds. HI tax income will fall short of outlays beginning in 2016.

It might be tempting to ignore Medicare's problems by pointing to the improved short-term solvency of the HI fund and the fact that on an actuarial basis the Supplementary Medical Insurance (SMI) Trust Fund is projected to remain adequately financed into the indefinite future. Neither of these factors should be used as an excuse for complacency. First, because a panel of experts recommended changes in health cost assumptions to improve the accuracy of the Trustees' projections, the long-term cost estimates for both HI and SMI are raised substantially, thus worsening the long-term actuarial deficit in the Medicare HI Trust fund. Second, the SMI trust fund automatically relies on general revenues to make up the difference between its premium revenues and costs. This method hides the fact that the SMI trust fund will consume a rapidly growing share of general revenues over time and beneficiary premiums will be increased substantially.

Because I think it is so important to this discussion, I also want to take a minute to elaborate on what I see as the tremendous potential for improvements in the health care sector. The main reason I bring up this issue, is out of concern for the health of the American public, and particularly for the elderly and disabled who depend on Medicare. The recent reports of the prestigious Institute of Medicine on medical errors and quality of care are quite sobering. In 1999, the IOM reported uncovering a stunningly high rate of medical error - errors that resulted in death, premature disability, and unnecessary suffering. Earlier this month, the Institute released a follow-up report on the overall quality of health care in America, concluding that reforms could close the enormous chasm between the current level of health care quality and the potential we know exists.

I know that Secretary Thompson shares my concerns and that his Department has just launched a campaign to improve the quality of health care, promote healthy lifestyles, and reduce health care costs dramatically. I look forward to working with him as the Administration tackles this vital issue - because when it comes to America's health, we all need to be "in search of excellence."

Turning to the Social Security Trust Fund, annual outlays will begin to exceed annual tax income in 2016. The fund continues to be in long-term deficit and these deficits are expected to persist and rise to more than 6 percent of taxable payroll by 2075. The primary cause of the deficit is the aging of the population and increasing longevity. It is clear that action needs to be taken to address the projected financial shortfall now, as the sooner adjustments are made, the smaller and less abrupt they will need to be.

This spring President Bush will form a commission to reform Social Security. The commission is expected to make its recommendations by next fall. The President's goal is clear: Social Security must be safe and secure for this generation and for future generations. We must work now to preserve and protect Social Security, so we keep our commitment to current seniors, and meet the needs of our children and grandchildren.

Today is the first opportunity for each of us to comment publicly as Trustees on the status of the Medicare and Social Security trust funds. In recent years, efforts to achieve bipartisan reform have not succeeded, and the Trustees have come to this podium to announce that minor reforms and "improved economic projections" have given us a few additional years of short-term solvency-- while serious long-term structural imbalances remain. Our report today is similar to previous recent reports. It is the hope of each of us that this Administration and the Congress will find the necessary confluence of opinion, wisdom and courage to restore long-term health to these programs.