March 23 (Bloomberg) -- Hospital payments for the elderly under the U.S. Medicare program will exceed income for the first time this year, nine years earlier than anticipated, and the federal program's assets will dry up in 2019, seven years sooner than expected, trustees for the program said.

Cash flow will ``turn negative'' this year, Treasury Secretary John Snow, a member of the Social Security and Medicare board of trustees, said in a statement. ``The principal culprit is the rising cost of health care.''

Taking interest into account, Snow said, total Medicare trust fund income would exceed expenditures through 2009, he said. Outpatient and doctor care payments are separate from the hospital trust fund and may increase budget deficits, Snow said.

The Social Security program of retirement benefits will start running out of money in 2018 and funds will be exhausted by 2042, in line with forecasts made last year, the trustees said.

``The fundamentals of the financial status of Social Security and Medicare remain problematic under the intermediate economic and demographic assumptions,'' the trustees said in their annual report on the programs' solvency.

The report spotlights election-year pressures as the White House anticipates a record budget shortfall of $521 billion this year and President George W. Bush and Democratic presidential contender John Kerry spar over who would be most likely to rein in the deficit. Both have vowed to cut the deficit in half over the next five years.

`Out of Balance'

``This system is out of balance and it's out of balance by a significant amount,'' Sylvester Schieber, a former member of President Bill Clinton's Social Security advisory council, said. ``The public's going to become more aware of the under-funding and possibly will become more shocked.''

Enrollment in Medicare will almost double between 2000 and 2030 as the ``baby boom'' generation born between 1946 and 1964 reaches the entry age of 65, according to government estimates. In 2000, Medicare covered almost 40 million Americans. By 2030, the program will include 79 million patients, according to trustees' estimates.

Medicare's total liabilities are ``costs that can never, ever be paid,'' Thomas Saving, one of the six Social Security and Medicare trustees who issued the report, said in an interview yesterday. ``If you're going to commit yourself to these expenditures in the future, the public at least ought to know what the commitment is.''

Hospital, hospice care and other services commonly referred to as Medicare Part A are funded by payroll taxes from workers and employers. Physician, outpatient hospital and other services called Medicare Part B are funded primarily through transfers from the general fund of the U.S. Treasury.

Social Security Shortfalls

About 46 million people receive Social Security benefits, according to the Congressional Budget Office.

Spending on the program has fluctuated between 4.0 and 4.5 percent of gross domestic product, the non-partisan research group said. As baby boomers retire, spending for the program will rise to 4.9 percent of GDP in 2020, 5.9 percent in 2030 and 6.2 percent in 2050.

Last month Federal Reserve Chairman Alan Greenspan told Congress that changing the inflation and life-expectancy gauges for Social Security -- in what amounts to benefit cuts -- may be needed to curb a growing federal budget deficit. The federal shortfall is projected to grow to $521 billion this year.

Deficit Concerns

Bush's advisers say they're counting on an expanding economy and spending cuts to help pare the deficit to $237 billion by 2009. The deficit reached a record $374 billion in fiscal 2003, the second consecutive year of shortfall after four years of surpluses between 1998 and 2001.

Bush supports allowing younger workers to invest a portion of their Social Security payroll taxes in stocks and bonds to reduce the government's future Social Security obligations.

``Personal accounts are an important part of the solution to strengthen Social Security,'' Snow said in his statement.

The government would need to fund current retirees and those near retirement who depend on the same taxpayer dollars Bush wants younger workers to invest.

The price tag would be about $10 trillion, said Peter Orszag, an economist at the Brookings Institution. Orszag supports a combination of tax increases and across-the-board benefit cuts, with the burden falling on the wealthy.

For someone age 35 today that would mean a 4.5 percent benefit reduction under the current formula, he said. ``Almost every personal retirement account system we've seen makes Social Security's finances worse, not better,'' he said.

The six trustees of the Social Security and Medicare programs report annually on the financial outlook for the next 75 years. Four of the trustees are Cabinet officials, including the secretaries of Treasury and Health and Human Services. The two other members are appointed by the president and confirmed by the Senate.

Last Updated: March 23, 2004 12:56 EST