March 25 (Bloomberg) -- Spending on Medicare, the U.S. health-care program for the elderly, will reach a legal limit by 2014, requiring the next president to propose changes.

The report issued today is the second consecutive year that Medicare's trustees have pulled the so-called trigger, a law mandating that the president introduce legislation the following year to protect the program's financing.

President George W. Bush proposed in February that wealthier seniors pay higher premiums for Medicare's prescription drug benefit to increase revenue. Bush's plan, which Democrats in Congress dismissed as insufficient, was required by the trustees' report of 2007. Because of the new report, Bush's successor will have to offer proposals next year. The trustees also urged action to shore up Social Security, the government's retirement program.

``As the baby boom generation moves into retirement, these programs face progressively larger financial challenges,'' said Treasury Secretary Henry Paulson, one of the trustees, in a news conference. ``The Medicare program poses a far greater financial challenge than Social Security.''

The trustees, all members of the Bush administration, offered projections for Medicare and Social Security similar to those in last year's report. They again estimated that Medicare's hospital fund will be exhausted by 2019, although earlier in that year than previously predicted, and that Social Security will run out of assets by 2041.

`Overpayments'

Medicare's Part A benefit, which includes payments for hospitals and is covered by the trust fund, constituted almost half the program's spending in 2006.

Medicare's financing is made more precarious because of ``overpayments'' to private insurers that provide benefits, Representative Pete Stark, a California Democrat, said in an e- mailed statement. Insurance companies, including UnitedHealth Group Inc., are paid on average 13 percent more through the Medicare Advantage program than it costs Medicare to provide the same benefits directly.

Congressional Democrats last year failed to get Republican backing to equalize payments and use the savings for other Medicare benefits and to expand a children's health insurance program.

``Today's report reaffirms the need to move beyond partisan politics to address the longer term reforms of our health care system and the financial challenges in retirement,'' said David Sloane, senior vice president of AARP, the lobbying group for older Americans, in an e-mailed statement.

Weak Economy

Bush's chief health official, Michael Leavitt, said the president's proposed fiscal 2009 budget would help extend Medicare's financing.

``Our children and our children's children can't afford another year on auto-pilot,'' Leavitt said at the news conference.

Bush proposed holding the annual growth in Medicare spending to 5 percent, down from 7.2 percent, largely by reducing payments to medical providers. Democrats have already dismissed the budget's health cuts as counterproductive, especially during a time of economic weakness.

Medicare, started in 1965 to guarantee medical coverage to elderly and disabled people, currently covers 44 million Americans. The program, which spent about $440 billion last year, is financed through payroll taxes, general tax revenue and beneficiary premiums.

Medicare's share of the U.S. economy is expected to grow to 10.8 percent by 2082, the end of the 75-year projection period, from 3.2 percent in 2007, according to the report.

Baby Boomers Qualify

When general tax revenue is projected to reach 45 percent of Medicare funding, the president is required under a 2003 law to propose legislative changes to reduce the share. The law was passed by Congress to keep spending on Medicare within bounds as the baby boom generation born from 1946 to 1964 qualifies for coverage and health-care costs grow faster than the economy.

Democratic presidential candidates Hillary Clinton and Barack Obama have said they plan to curb rising health-care spending through more cost-effective treatments, better preventive care and wider use of electronic records.

``By investing in proven measures to improve the health of all Americans and reduce health care cost across the economy, we can ensure that the Medicare program remains strong for future generations,'' Obama said today in a statement distributed by Business Wire.

John McCain, the presumptive Republican nominee, has suggested similar measures, while proposing that Medicare reduce spending by paying a single fee for treatment of a disease rather than reimbursing providers for individual procedures.

To contact the reporter on this story: Aliza Marcus in Washington at amarcus8@bloomberg.net

Last Updated: March 25, 2008 17:57 EDT