May 12, 2009

By MARTIN CRUTSINGER
AP Economics Writer

The financial health of the government's two biggest benefit programs may have slipped over the past year, reflecting the deep recession that has already bitten into other areas of the budget.

The trustees for Social Security and Medicare are scheduled to provide their annual report on the finances of both programs on Tuesday. In advance of the release, many private analysts said they expected both programs could run out of cash sooner than last predicted.

A year ago, the trustees projected that the Social Security trust fund would start paying out more in benefits than it collects in taxes in 2017 and that the trust fund would be depleted in 2041.

For the Medicare trust fund, which pays for hospital care, the situation was more urgent. It was projected to start paying more in benefits than it collects in taxes within a year, and the trustees forecast that it would be depleted by 2019.

But many analysts said the worst recession in decades will produce a bleaker forecast for both Social Security and Medicare in the new trustees' report. The downturn has resulted in a loss of 5.7 million payroll jobs since it began in December 2007 and an unemployment rate that hit a 25-year high of 8.9 percent in April.

Fewer people working means less being paid into the trust funds for Social Security and Medicare.

The Congressional Budget Office recently projected that Social Security will collect just $3 billion more in 2010 than it will pay out in benefits. A year ago, the CBO had projected that Social Security would have a much higher $86 billion cash surplus for the 2010 budget year, which begins Oct. 1. The difference in the two estimates is the result of the recession.

While the smaller surplus will not have any impact on Social Security benefit payments, the government will need to borrow more at a time when the federal deficit is already exploding because of the recession and the billions of dollars being spent to prop up a shaky banking system.

For years, the Social Security trust fund has taken in more than it spent on benefits, resulting in a cushion of billions of dollars that the government could spend on other programs while giving the trust fund an IOU.

Even with the big drop in the Social Security surplus, Medicare's condition is more precarious, reflecting the pressures from soaring health care costs as well as the drop in tax collections.

For that reason, President Barack Obama is expected to focus on Medicare before he addresses Social Security.

Obama on Monday praised a pledge by the health care industry to achieve $2 trillion in savings on health care costs over the next decade, but it was unclear how much help those pledges would be in achieving Obama's goal of extending coverage to some 50 million uninsured Americans. The administration is pushing Congress to pass legislation in this area this year, preferring to tackle health care before Social Security.

The trustees report is still expected to set off a heated debate over the government's two large benefit programs, with critics saying it will highlight the failure of the Obama administration to take on the most serious problems in the budget — soaring entitlement spending, before the retirement of 78 million baby boomers makes the problems even worse.

The administration on Monday revised its deficit forecasts upward to project an imbalance this year of $1.84 trillion, four times last year's record deficit, and said the deficits will remain above $500 billion every year over the next decade.