WASHINGTON--Medicare and Social Security trustees reported last week that Medicare's financial outlook is "much worse than Social Security's."

In their annual report, released March 23, the trustees predicted that Social Security will be depleted by 2041. The Medicare hospital trust fund, they said, will be insolvent by 2020.

The trustees warned that the impending retirement of the baby boomers and further increases in life expectancy will cause program costs to grow faster than the economy. Today, there are about four workers for every Medicare beneficiary. By 2079, there will be only about two workers for every beneficiary.

The trust--which covers Part A funding--will be insolvent slightly later than last year's estimate due to higher income and lower costs, including slower growth in inpatient hospital benefits, in 2004. However, "Medicare's financial outlook has deteriorated dramatically over the past five years," the trustees noted, adding that the fund had negative cash flow for the first time last year.

Monies funding Part B and the new drug benefit are projected to remain financed into the "indefinite future," the report said, because the law sets financing each year to meet the next year's expected costs. But trustees warned that rapid cost increases will result in substantial increases in beneficiary premiums. Part B spending growth has averaged almost 11 percent annually in recent years, they explained, and costs are expected to nearly double within the next decade.

"We are looking closely at the reasons for the Part B cost increases," said CMS Administrator Mark McClellan, "and we will work with physicians and other health professionals to make sure we are getting the most for rising Medicare spending."

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