WASHINGTON--The Medicare trust fund that pays for hospital care will be out of money in 2018, two years earlier than last year's estimate, according to a government report. And if Medicare's overall financial outlook does not improve by next year, another funding warning would prompt government action.

"The financial outlook for the Medicare program continues to raise serious concerns," according to the Social Security and Medicare Boards of Trustees, which released its 41st annual report last week.

In the report, the trustees issued their first ever determination of "excess general revenue Medicare funding." Required by the Medicare Modernization Act, the warning must be issued when the difference between total Medicare outlays and dedicated financing sources exceeds 45 percent of total outlays within the first seven years of the projection period. If a second warning is issued next year, the law requires President Bush to propose legislation to address the issue in the next budget and Congress to consider the proposal on an expedited basis.

"Consideration of such reforms should occur in the relatively near future," the trustees said. "The sooner the solutions are enacted, the more flexible and gradual they can be."

Funds being used for the separate supplementary medical insurance component of Medicare, comprised of Part B and Part D, also are on the rise; however, both are projected to remain adequately financed into the "indefinite future," the trustees said.

Part B benefit payments have increased by an average of 10.6 percent annually over the last six years. The new Medicare prescription drug coverage benefits under Part D are projected to increase the total cost of Medicare by more than 15 percent in 2006, and are projected to grow at an average annual rate of about 11.5 percent through 2015.

To view the report, click here.