CBO issues Medicare warning

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The rising costs of Medicare and Medicaid are a larger long-term problem for the federal budget than Social Security, Congressional Budget Office Director Douglas Holtz-Eakin said yesterday.

Mr. Holtz-Eakin predicted a $368 billion deficit for fiscal 2005, which ends Sept. 30, a figure he said was "marginally" better than the $412 billion deficit last year.

Medicare and Medicaid costs, which rose last year when Congress passed the Medicare prescription drug bill and will rise again next year when full coverage takes effect, is the major hindrance to long-term fiscal security, he said.

Social Security costs will rise by about 4.4 percent annually until 2015, shortly after the first baby boomers become eligible for retirement -- but Mr. Holtz-Eakin said the increase will be dwarfed by the growth in government medical coverage.

Given current spending trends, the nation cannot grow its way out of future deficits without the government's raising taxes, and the economy and productivity growing at a historically high rate, he said.

"The summary is that the budget outlook is a bit better than last year. The outlook for the future is, in a baseline sense, a bit worse," Mr. Holtz-Eakin said.

Not included in his projection are the costs for overhauling the Social Security system, for making the Bush tax cuts permanent, for waging the war on terror, for a continued military buildup, and for interest payments on the national debt.

Democrats said those undisclosed costs amount to about $5.4 trillion.

"Their projection is that the deficit this year will be $368 billion. But that includes very little of the amount of money allocated for Iraq and Afghanistan, and nothing of the $80 billion supplemental which is coming," said Rep. John M. Spratt Jr., South Carolina Democrat and ranking member on the House Budget Committee. "At best, we're treading water, going nowhere."

White House officials yesterday confirmed that the administration will request $80 billion or more in a supplemental appropriation this year for Iraq and Afghanistan operations.