At 2 p.m. today, Treasury Secretary Hank Paulson presented the annual Social Security and Medicare Trustees Report. The good news is that the solvency of the trust funds hasn't changed much over the past year. The Social Security Trust Fund will remain solvent until 2041, and the Medicare Trust Fund until 2019.

Most Americans believe Social Security won't pay equal-value benefits in the future. Most Social Security experts say Social Security can be kept solvent well beyond the retirement of the Baby Boomers over the next 20 years with relatively modest changes to the GROWTH of future benefits and to payroll tax rates. Even if nothing were done, after 2041, Social Security could still pay 75 cents per dollar of benefits due into the future.

The bad news is that little time remains to restore the Medicare Trust Fund to solvency. It's going cashflow negative this year. That is benefit payments will exceed payroll tax revenues starting this year. Some drastic benefit cuts and/or payroll tax increases will be needed soon if Medicare is to remain solvent. The program is open-ended and woefully lacking in efficiency. It costs twice as much to deliver the same health outcomes to Medicare beneficiaries at the UCLA Medical Center in Los Angeles, CA as it does at the Mayo Clinic, in Rochester, MN. When Congressional Budget Office Director Peter Orszag recently asked the CBO panel of health experts what savings could be achieved in Medicare without diminishing health outcomes, the estimates ranged from between one-third and and two-thirds with an average of about half. They also agreed that the aging of our population is not the cause of our runaway health care costs; it's the rapidly rising cost per beneficiary that is the problem.

Former Congressional Budget Office Director Rudy Penner published excellent analysis last week on the fiscal challenge we face from Social Security and Mediare. He concluded we won't grow our way out of these problems and that the sooner we face up to Social Security and Medicare reforms, the better.

So remember, how we provide health care is the cause of our fiscal problem, not the aging of our population.