<DOC>
Ways and Means Committee Print WMCP:106-14]
[2000 Green Book]
[From the U.S. Government Printing Office Online via GPO Access]

                               FINANCING

    The Medicare Hospital Insurance (HI) Trust Fund finances 
services covered under Medicare part A. The Supplementary 
Medical Insurance (SMI) Trust Fund finances services covered 
under Medicare part B. The trust funds are maintained by the 
Department of the Treasury. Each trust fund is actually an 
accounting mechanism; there is no actual transfer of money into 
and out of the fund. Income to each trust fund is credited to 
the fund in the form of interest-bearing government securities. 
The securities represent obligations that the government has 
issued to itself. Expenditures for services and administrative 
costs are recorded against the fund.

                 Hospital Insurance Trust Fund--Income

    The primary source of income to the HI fund is HI payroll 
taxes. This source accounted for $134.4 billion (87.8 percent) 
of the total $153.0 billion in income for fiscal year 1999. 
Additional income sources include premiums paid by voluntary 
enrollees, government credits, interest on Federal securities, 
and taxation of a portion of Social Security benefits.
Payroll taxes
    The HI Trust Fund is financed primarily through Social 
Security payroll tax contributions paid by employees and 
employers. Each pays a tax of 1.45 percent on all earnings in 
covered employment. The self-employed pay 2.9 percent. Prior to 
1994, there was an upper limit on earnings subject to the tax. 
An upper limit of $76,200 in 2000 continues to apply under 
Social Security. Table 2-6 shows the history of the 
contribution rates and maximum taxable earnings base for the HI 
Program.
Other income
    The following are additional sources of income to the HI 
fund:
 1. Railroad retirement account transfers.--In fiscal year 
        1999, $430 million was transferred from the railroad 
        retirement fund. This is the estimated amount that 
        would have been in the fund if railroad employment had 
        always been covered under the Social Security Act.
 2. Reimbursements for uninsured persons.--HI benefits are 
        provided to certain uninsured persons who turned 65 
        before 1968. Persons who turned 65 after 1967 but 
        before 1974 are covered under transitional provisions. 
        Similar transitional entitlement applies to Federal 
        employees who retire before earning sufficient quarters 
        of Medicare-qualified Federal employment provided they 
        were employed before and during January 1983. Payments 
        for these persons are made initially from the HI Trust 
        Fund, with reimbursement from the general fund of the 
        Treasury for the costs, including administrative 
        expenses, of the payments. In fiscal year 1999, $652 
        million was transferred to HI on this basis.

                             TABLE 2-5.--PART A AND PART B DEDUCTIBLE, COINSURANCE AND PREMIUMS,\1\ SELECTED YEARS 1966-2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Inpatient hospital \2\                                HI monthly premium \6\                     SMI premium
                             --------------------------------------------     Skilled    -------------------------------            --------------------
                                                          60 lifetime         nursing
        Calendar year          First 60    61st-90th      reserve days    facility 21st-                                     SMI
                                 days         day        (nonrenewable)      100th day    Effective    Full     Reduced  deductible  Effective   Amount
                              deductible  coinsurance   coinsurance per     coinsurance      date     amount    amount                  date
                                          per day \3\       day \4\         per day \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
1966........................        $40           $10              (\7\)           (\7\)      (\8\)     (\8\)        NA        $50        7/66     $3.00
1968........................         40            10                $20           $5.00      (\8\)     (\8\)        NA         50        4/68      4.00
1970........................         52            13                 26            6.50      (\8\)     (\8\)        NA         50        7/70      5.30
1972........................         68            17                 34            8.50      (\8\)     (\8\)        NA         50        7/72      5.80
1973........................         72            18                 36            9.00       7/73       $33        NA         60    \9\ 9/73      6.30
1974........................         84            21                 42           10.50       7/74        36        NA         60        7/74      6.70
1975........................         92            23                 46           11.50       7/75        40        NA         60       (\8\)      6.70
1976........................        104            26                 52           13.00       7/76        45        NA         60        7/76      7.20
1977........................        124            31                 62           15.50       7/77        54        NA         60        7/77      7.70
1978........................        144            36                 72           18.00       7/78        63        NA         60        7/78      8.20
1979........................        160            40                 80           20.00       7/79        69        NA         60        7/79      8.70
1980........................        180            45                 90           22.50       7/80        78        NA         60        7/80      9.60
1981........................        204            51                102           25.50       7/81        89        NA         60        7/81     11.00
1982........................        260            65                130           32.50       7/82       113        NA         75        7/82     12.20
1983........................        304            76                152           38.00      (\8\)       113        NA         75       (\8\)     12.20
1984........................        356            89                178           44.50       1/84       155        NA         75        1/84     14.60
1985........................        400           100                200           50.00       1/85       174        NA         75        1/85     15.50
1986........................        492           123                246           61.50       1/86       214        NA         75        1/86     15.50
1987........................        520           130                260           65.00       1/87       226        NA         75        1/87     17.90
1988........................        540           135                270           67.50       1/88       234        NA         75        1/88     24.80
1989........................   \10\ 560            NA                 NA      \11\ 25.50       1/89       156        NA         75        1/89     31.90
1990........................        592           148                296           74.00       1/90       175        NA         75        1/90     28.60
1991........................        628           157                314           78.50       1/91       177        NA        100        1/91     29.90
1992........................        652           163                326           81.50       1/92       192        NA        100        1/92     31.80
1993........................        676           169                338           84.50       1/93       221        NA        100        1/93     36.60
1994........................        696           174                348           87.00       1/94       245      $184        100        1/94     41.10
1995........................        716           179                358           89.50       1/95       261       183        100        1/95     46.10
1996........................        736           184                368           92.00       1/96       289       188        100        1/96     42.50
1997........................        760           190                380           95.00       1/97       311       187        100        1/97     43.80
1998........................        764           191                382           95.50       1/98       309       170        100        1/98     43.80
1999........................        768           192                384           96.00       1/99       309       170        100        1/99     45.50
2000........................        776           194                388           97.00       1/00       301       166        100        1/00     45.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For services furnished on or after January 1, 1982, the coinsurance amounts are based on the inpatient hospital deductible for the year in which the
  services were furnished. For services furnished prior to January 1, 1982, the coinsurance amounts are based on the inpatient hospital deductible
  applicable for the year in which the individual's benefit period began.
\2\ For care in psychiatric hospital there is a 190-day lifetime limit.
\3\ Always equal to one-fourth of inpatient hospital deductible through 1988 and for 1990 and later; eliminated for 1989.
\4\ Always equal to one-half of inpatient hospital deductible through 1988 and for 1990 and later; eliminated for 1989.
\5\ Always equal to one-third of inpatient hospital deductible through 1988 and for 1990 and later. For 1989 it was equal to 20 percent of estimated
  Medicare covered average cost per day.
\6\ Not applicable prior to July 1973. Applies to aged individuals who are not fully insured, and to certain disabled individuals who have exhausted
  other entitlement. The reduced amount is available to aged individuals who are not fully insured but who have, or whose spouse has or had, at least 30
  quarters of coverage under title II of the Social Security Act. The reduced amount is 75 percent of the full amount in 1994, 70 percent in 1995, 65
  percent in 1996, 60 percent in 1997, and 55 percent in 1998 and thereafter.
\7\ Not covered.
\8\ Not applicable.
\9\ For August 1973 the premium was $6.10.
\10\ In 1989, the HI deductible was applied on an annual basis, not a benefit period basis (unlike the other years).
\11\ In 1989, the skilled nursing facility coinsurance was on days 1-8 of the 150 days allowed annually; for the other years it is on days 21-100 of 100
  days allowed per benefit period.

NA--Not available.

Note.--In addition to the deductible and coinsurance amounts shown in the table, the first three pints of blood are not reimbursed by Medicare.
  Currently there is no deductible or coinsurance on home health benefits. From January 1973 to June 30, 1982, there was a $60 annual deductible and
  prior to July 1, 1981, benefits were limited to 100 visits per benefit period under part A and 100 visits per calendar year under part B. Special
  limits apply to certain benefits: (1) Outpatient physician services for mental illness; 50 percent of approved charges, up to a maximum of $250 in
  benefits per year, July 1, 1966 through December 31, 1987; $450 in benefits per year, January 1, 1988 through December 31, 1988; $1,100 in benefits
  per year, January 1, 1989 through December 31, 1989; beginning January 1, 1990, the limit was removed; (2) physical and occupational therapy services
  furnished by physical therapists in independent practice: maximum annual approved charges July 1, 1973 through December 31, 1981, $80 per year;
  January 1, 1982 through December 31, 1982, $400 per year; January 1, 1983 through December 31, 1989, $500 per year; January 1, 1990 through December
  31, 1993, $750 per year; and January 1, 1994 through December 31, 1998; in 1999 there was an annual $1,500 limit on all physical therapy services
  (except those provided by a hospital) and an annual $1,500 limit on all occupational therapy services (except those provided by a hospital); and no
  limit in 2000.

Source: Health Care Financing Administration, Office of the Actuary.



   TABLE 2-6.--CURRENT LAW SOCIAL SECURITY PAYROLL TAX RATES FOR EMPLOYERS AND EMPLOYEES AND TAXABLE EARNINGS
                                                BASES, 1977-2000
----------------------------------------------------------------------------------------------------------------
                                                            Employee and employer rates,
                                                                   each (percent)         HI taxable
                       Calendar year                       ------------------------------  earnings   Maximum HI
                                                              OASDI              OASDHI      base         tax
                                                            combined     HI     combined
----------------------------------------------------------------------------------------------------------------
1977......................................................      4.95      0.90      5.85     $16,500     $148.50
1978......................................................      5.05      1.10      6.05      17,700      194.70
1979......................................................      5.08      1.05      6.13      22,900      240.45
1980......................................................      5.08      1.05      6.13      25,900      271.95
1981......................................................      5.35      1.30      6.65      29,700      386.10
1982......................................................      5.40      1.30      6.70      32,400      421.20
1983......................................................      5.40      1.30      6.70      35,700      464.10
1984......................................................      5.70      1.30      7.00      37,800      491.40
1985......................................................      5.70      1.35      7.05      39,600      534.60
1986......................................................      5.70      1.45      7.15      42,000      609.00
1987......................................................      5.70      1.45      7.15      43,800      635.10
1988......................................................      6.06      1.45      7.51      45,000      652.50
1989......................................................      6.06      1.45      7.51      48,000      696.00
1990......................................................      6.20      1.45      7.65      51,300      743.85
1991......................................................      6.20      1.45      7.65  \1\ 125,00    1,812.50
                                                                                                   0
1992......................................................      6.20      1.45      7.65     130,200    1,887.90
1993......................................................      6.20      1.45      7.65     135,000    1,957.50
1994......................................................      6.20      1.45      7.65      \2\ no    no limit
                                                                                               limit
1995......................................................      6.20      1.45      7.65    no limit    no limit
1996......................................................      6.20      1.45      7.65    no limit    no limit
1997......................................................      6.20      1.45      7.65    no limit    no limit
1998......................................................      6.20      1.45      7.65    no limit    no limit
1999......................................................      6.20      1.45      7.65    no limit    no limit
2000......................................................      6.20      1.45      7.65    no limit    no limit
----------------------------------------------------------------------------------------------------------------
\1\ Prior to 1991, the upper limit on tax earnings was the same as for Social Security. The Omnibus Budget
  Reconciliation Act of 1990 raised the limit in 1991 to $125,000. Under automatic indexing provisions, the
  maximum was increased to $130,200 in 1992 and $135,000 in 1993.
\2\ The Omnibus Budget Reconciliation Act of 1993 eliminated the ceiling on the earnings base beginning in 1994.

Source: Health Care Financing Administration.


 3. Premiums from voluntary enrollees.--Certain persons not 
        eligible for HI protection either on an insured basis 
        or on the uninsured basis described above may obtain 
        protection by enrolling in the program and paying a 
        monthly premium ($309 in 2000; for persons who have at 
        least 30 quarters of covered employment, $170 in 2000). 
        This accounted for an estimated $1.4 billion of 
        financing in fiscal year 1999.
 4. Payments for military wage credits.--Sections 217(g) and 
        229(b) of the Social Security Act, prior to 
        modification by the Social Security Amendments of 1983, 
        authorized annual reimbursement from the general fund 
        of the Treasury to the HI Trust Fund for costs arising 
        from the granting of deemed wage credits for military 
        service prior to 1957, according to quinquennial 
        determinations made by the Secretary of the U.S. 
        Department of Health and Human Services (DHHS). These 
        sections, as modified by the Social Security Amendments 
        of 1983, provided for a lump-sum transfer in 1983 for 
        costs arising from such wage credits. In addition, the 
        lump-sum transfer included combined employer-employee 
        HI taxes on the noncontributory wage credits for 
        military service after 1965 and before 1984. After 
        1983, HI taxes on military wage credits are credited to 
        the fund on July 1 of each year. The Social Security 
        Amendments of 1983 also provided for: (1) quinquennial 
        adjustments to the lump-sum amount transferred in 1983 
        for costs arising from pre-1957 deemed wage credits; 
        and (2) adjustments as deemed necessary to any 
        previously transferred amounts representing HI taxes on 
        noncontributory wage credits. In fiscal year 1999, this 
        adjustment was $67 million.
 5. Tax on Social Security benefits.--Beginning in 1994, the 
        trust fund acquired an additional funding source. The 
        Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) 
        increased the maximum amount of Social Security 
        benefits subject to income tax from 50 to 85 percent 
        and provided that the additional revenues would be 
        credited to the HI Trust Fund. Revenue from this source 
        totaled $6.6 billion in fiscal year 1999.
 6. Interest.--The remaining income to the trust fund consists 
        almost entirely of interest on the investments of the 
        trust fund. Interest amounted to an estimated $9.5 
        billion in fiscal year 1999.

           Supplementary Medical Insurance Trust Fund--Income

    Part B is financed from premiums paid by the aged, disabled 
and chronic renal disease enrollees and from general revenues. 
The premium rate is derived annually based on the projected 
costs of the program for the coming year. The monthly premium 
amount in calendar year 2000 is $45.50.
    When the program first went into effect in July 1966, the 
part B monthly premium was set at a level to finance one-half 
of part B program costs. Legislation enacted in 1972 limited 
the annual percentage increase in the premium to the same 
percentage by which Social Security benefits were adjusted for 
changes in cost of living (i.e., cost-of-living adjustments). 
Under this formula, revenues from premiums soon dropped from 50 
to below 25 percent of program costs because part B program 
costs increased much faster than inflation as measured by the 
Consumer Price Index (CPI) on which the Social Security cost-
of-living adjustment is based.
    Beginning in the early 1980s, Congress regularly voted to 
set part B premiums at a level to cover 25 percent of program 
costs, in effect overriding the cost-of-living adjustment 
limitation. The 25-percent provisions first became effective 
January 1, 1984. General revenues covered the remaining 75 
percent of part B program costs. BBA 1997 permanently sets the 
part B premium equal to 25 percent of program costs.

           Financial Status of Hospital Insurance Trust Fund

    The Hospital Insurance Trust Fund balance is dependent on 
total income to the HI Trust Fund exceeding total outlays from 
the fund. Tables 2-7 and 2-8 show historical information from 
the 2000


                                                  TABLE 2-7.--OPERATIONS OF THE HOSPITAL INSURANCE TRUST FUND, SELECTED FISCAL YEARS 1970-2009
                                                                                    [In millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Income                                                           Disbursements
                                -----------------------------------------------------------------------------------------------------------------------------------------
                                            Income                                          Payments                                                                          Net     Balance at
        Fiscal year \1\                      from     Railroad   Reimbursement   Premiums      for      Interest                                                           increase     end of
                                  Payroll  taxation  retirement  for uninsured     from     military    and other    Total     Benefits    Administrative      Total        in fund      year
                                   taxes      of       account      persons     voluntary     wage     income \2\   income   payments \3\   expenses \4\   disbursements
                                           benefits   transfers                 enrollees    credits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1970...........................    $4,785        NA       $64          $617           NA          $11        $137    $5,614       $4,804         $149           $4,953          $661      $2,677
1975...........................    11,291        NA       132           481           $6           48         609    12,568       10,353          259           10,612         1,956       9,870
1980...........................    23,244        NA       244           697           17          141       1,072    25,415       23,790          497           24,288         1,127      14,490
1985...........................    46,490        NA       371           766           38           86       3,182    50,933       47,841          813           48,654     \5\ 4,103      21,277
1990...........................    70,655        NA       367           413          113          107       7,908    79,563       65,912          774           66,687        12,876      95,631
1991...........................    74,655        NA       352           605          367   \6\ -1,011       8,969    83,938       68,705          934           69,638        14,299     109,930
1992...........................    80,978        NA       374           621          484           86      10,133    92,677       80,784        1,191           81,974        10,703     120,633
1993...........................    83,147        NA       400           367          622           81  \7\ 12,484    97,101       90,738          866           91,604         5,497     126,131
1994...........................    92,028    $1,639       413           506          852           80      10,676   106,195      101,535        1,235          102,770         3,425     129,555
1995...........................    98,053     3,913       396           462          998           61      10,963   114,847      113,583        1,300          114,883           -36     129,520
1996...........................   106,934     4,069       401           419        1,107   \8\ -2,293      10,496   121,135      124,088        1,229          125,317        -4,182     125,338
1997...........................   112,725     3,558       419           481        1,279           70      10,017   128,548      136,175        1,661          137,836        -9,287     116,050
1998...........................   121,913     5,067       419            34        1,320           67       9,382   138,203  \9\ 135,487        1,653          137,140         1,063     117,113
1999...........................   134,385     6,552       430           652        1,401           67       9,523   153,011  \9\ 129,463        1,979          131,441        21,570     138,683
2000...........................   136,327     7,200       458           470        1,397           68      10,629   156,549  \9\ 131,541        2,310          133,851        22,698     161,381
2001...........................   146,921     6,883       463           453        1,403   \10\ -1,26      12,176   167,035  \9\ 141,106        2,464          143,570        23,465     184,845
                                                                                                    4
2002...........................   153,981     7,446       481           205        1,476           68      13,826   177,484  \9\ 144,634        2,603          147,237        30,246     215,091
2003...........................   160,831     8,052       489           176        1,571           68      15,345   186,532  \9\ 154,335        2,748          157,083        29,449     244,540
2004...........................   168,031     8,646       494           167        1,681           68      16,834   195,920      163,103        2,829          165,932        29,988     274,529
2005...........................   177,923     9,211       510           174        1,804           69      18,460   208,151      176,833        2,911          179,744        28,407     302,935
2006...........................   185,688     9,856       528           183        1,938           69      20,026   218,288      183,591        2,997          186,588        31,700     334,635
2007...........................   195,121    10,593       548           195        2,078           70      21,619   230,223      199,209        3,091          202,300        27,923     362,558
2008...........................   204,366    11,464       569           204        2,218           71      23,182   242,074      212,680        3,192          215,872        26,203     388,761
2009...........................   214,167    12,534       592           212        2,357           71      24,752   254,685      226,774        3,298          230,072        24,613     413,374
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on September 30 of each year.
\2\ Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and a small amount of miscellaneous income.
\3\ Includes costs of peer review organizations (beginning with the implementation of the prospective payment system on October 1, 1983).
\4\ Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses, as provided for by Public Law 104-191.
\5\ Includes repayment of loan principal from the Old-Age and Survivors Insurance Trust Fund of $1,824 million.
\6\ Includes the lump-sum general revenue adjustment of -$1,100 million, as provided for by section 151 of Public Law 98-21.
\7\ Includes $1,805 million transfer from the SMI catastrophic coverage reserve fund, as provided for by Public Law 102-394.
\8\ Includes the lump-sum general revenue adjustment of -$2,366 million, as provided for by section 151 of Public Law 98-21.
\9\ For 1998-2003, includes moneys transferred to the SMI Trust Fund for home health agency costs, as provided for by Public Law 105-33.
\10\ Includes a preliminary estimate of -$1,332 million for the lump-sum general revenue adjustment provided for by section 151 of Public Law 98-21.

NA--Not applicable.

Note.--Totals do not necessarily equal the sums of rounded components.

Source: Board of Trustees, Federal Hospital Insurance Trust Fund (2000) and Health Care Financing Administration unpublished tables.


                                                 TABLE 2-8.--OPERATIONS OF THE HOSPITAL INSURANCE TRUST FUND, SELECTED CALENDAR YEARS 1970-2009
                                                                                    [In millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Income                                                            Disbursements
                              -------------------------------------------------------------------------------------------------------------------------------------------
                                           Income                                           Payments                                                                          Net     Balance at
        Calendar year                       from     Railroad   Reimbursement   Premiums      for       Interest                                                           increase     end of
                                Payroll   taxation  retirement  for uninsured     from      military    and other    Total     Benefits    Administrative      Total        in fund      year
                                 taxes       of       account      persons     voluntary      wage     income \1\   income   payments \2\   expenses \3\   disbursements
                                          benefits   transfers                 enrollees    credits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1970.........................     $4,881        NA       $66          $863           NA           $11        $158    $5,979       $5,124         $157           $5,281          $698      $3,202
1975.........................     11,502        NA       138           621           $7            48         664    12,980       11,315          266           11,581         1,399      10,517
1980.........................     23,848        NA       244           697           18           141       1,149    26,097       25,064          512           25,577           521      13,749
1985.........................     47,576        NA       371           766           41      \4\ -719       3,362    51,397       47,580          834           48,414     \5\ 4,808      20,499
1990.........................     72,013        NA       367           413          122      \6\ -993       8,451    80,372       66,239          758           66,997        13,375      98,933
1991.........................     77,851        NA       352           605          432            89       9,510    88,839       71,549        1,021           72,570        16,269     115,202
1992.........................     81,745        NA       374           621          522            86      10,487    93,836       83,895        1,121           85,015         8,821     124,022
1993.........................     84,133        NA       400           367          675            81  \7\ 12,531    98,187       93,487          904           94,391         3,796     127,818
1994.........................     95,280    $1,639       413           506          907            80      10,745   109,570      103,282        1,263          104,545         5,025     132,844
1995.........................     98,421     3,913       396           462          954            61      10,820   115,027      116,368        1,236          117,604        -2,577     130,267
1996.........................    110,585     4,069       401           419        1,199     \8\ 2,293      10,222   124,603      128,632        1,297          129,929        -5,325     124,942
1997.........................    114,670     3,558       419           481        1,319            70       9,637   130,154      137,762        1,690          139,452        -9,298     115,643
1998.........................    124,317     5,067       419            34        1,316            67       9,327   140,547  \9\ 133,990        1,782          135,771         4,776     120,419
1999.........................    132,306     6,552       430           652        1,447            67      10,139   151,593  \9\ 128,766        1,866          130,632        20,961     141,380
2000.........................    141,141     7,200       458           470        1,380   \10\ -1,264      11,404   160,789  \9\ 134,075        2,336          136,411        24,377     165,757
2001.........................    148,750     6,883       463           453        1,411            68      12,983   171,011  \9\ 141,222        2,500          143,721        27,289     193,046
2002.........................    155,748     7,446       481           205        1,497            68      14,582   180,028  \9\ 148,682        2,638          151,320        28,708     221,754
2003.........................    162,906     8,052       489           176        1,595            68      16,084   189,370  \9\ 156,710        2,768          159,478        29,892     251,646
2004.........................    170,576     8,646       494           167        1,709            68      17,648   199,307      165,857        2,849          168,706        30,601     282,248
2005.........................    179,205     9,211       510           174        1,835            69      19,250   210,254      177,342        2,931          180,273        29,981     312,228
2006.........................    187,868     9,856       528           183        1,972            69      20,825   221,302      189,780        3,019          192,799        28,503     340,732
2007.........................    197,497    10,593       548           195        2,113            70      22,410   233,425      202,840        3,115          205,955        27,470     368,202
2008.........................    207,076    11,464       569           204        2,253            71      23,973   245,610      216,431        3,217          219,648        25,962     394,164
2009.........................    217,557    12,534       592           212        2,391            71      25,466   258,823      230,714        3,325          234,039        24,784     418,948
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\1\ Other income includes recoveries of amounts reimbursed from the trust fund, receipts from the fraud and abuse control program, which are not obligations of the trust fund and a small
  amount of miscellaneous income.
\2\ Includes cost of peer review organizations (beginning with the implementation of the prospective payment system on October 1, 1983).
\3\ Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses, as provided for by Public Law 104-91.
\4\ Includes the lump-sum general revenue adjustment of -$805 million, as provided for by section 151 of Public Law 98-21.
\5\ Includes repayment of loan principal from the Old-Age and Survivors Insurance Trust Fund of $1,824 million.
\6\ Includes the lump-sum general revenue adjustment of -$1,100 million, as provided for by section 151 of Public Law 98-21.
\7\ Includes $1,805 million transfer from the SMI catastrophic coverage reserve fund, as provided for by Public Law 102-394.
\8\ Includes the lump-sum general revenue adjustment of -$2,366 million provided for by section 151 of Public Law 98-21.
\9\ For 1998-2003, includes moneys transferred to the SMI Trust Fund for home health agency costs, as provided for by Public Law 105-33.
\10\ Includes a preliminary estimate of -$1,332 million for the lump-sum general revenue adjustment provided for by section 151 of Public Law 98-21.

NA--Not applicable.

Note.--Totals do not necessarily equal the sums of rounded components.

Source: Board of Trustees, Federal Hospital Insurance Trust Fund (2000) and Health Care Financing Administration, unpublished tables.

Trustees' Report (as amended) on the operation of the trust 
fund. The Trustees' Report also included projections that were 
subsequently revised. The revised figures are reflected in 
tables 2-7 and 2-8.
    Each year, the HI Trustees make projections for the date 
the trust fund will become insolvent (table 2-9). The 1997 
report stated that under the Trustees intermediate assumptions, 
the fund would become insolvent in 2001. Subsequent reports 
significantly delayed the projected insolvency date. The 2000 
report (as amended) projects that the fund will become 
insolvent in 2025. The improve-


  TABLE 2-9.--HISTORICAL PROJECTIONS OF HI TRUST FUND INSOLVENCY, 1970-
                                  2000
------------------------------------------------------------------------
                                                               Projected
                                                               number of
         Year of Trustees' Report            Projected year      years
                                              of insolvency      until
                                                              insolvency
------------------------------------------------------------------------
1970......................................              1972           2
1971......................................              1973           2
1972......................................              1976           4
1973......................................    none indicated          NA
1974......................................    none indicated          NA
1975......................................        late 1990s          NA
1976......................................       early 1990s          NA
1977......................................        late 1980s          NA
1978......................................              1990          12
1979......................................              1992          13
1980......................................              1994          14
1981......................................              1991          10
1982......................................              1987           5
1983......................................              1990           7
1984......................................              1991           7
1985......................................              1998          13
1986......................................              1996          10
1986 amended..............................              1998          12
1987......................................              2002          15
1988......................................              2005          17
1989......................................             (\1\)          NA
1990......................................              2003          13
1991......................................              2005          14
1992......................................              2002          10
1993......................................              1999           6
1994......................................              2001           7
1995......................................              2002           7
1996......................................              2001           5
1997......................................              2001           4
1998......................................              2008          10
1999......................................              2015          16
2000 \2\..................................              2025          25
------------------------------------------------------------------------
\1\ Contained no long-range projections.
\2\ As amended.

NA--Not applicable.

Source: Intermediate projections of various HI Trustees' Reports, 1970-
  2000.


ments can be attributed to a number of factors including 
improvements in the economy as a whole (which are reflected in 
higher payroll tax revenues) and a lower rate of growth in 
program expenditures. A key factor was the enactment of BBA 
1997. This legislation provided for the transfer of a portion 
of home health spending (which at the time was the fastest 
growing component of part A expenditures) from part A to part 
B. It also included additional provisions to stem the growth in 
part A expenditures. These provisions included the 
implementation of new payment limits for home health services, 
a prospective payment system (PPS) for skilled nursing facility 
(SNF) services, and limits on the increases in hospital 
payments. BBA 1997 also established the Medicare+Choice (M+C) 
Program and modified the calculation of payments to managed 
care entities.
    Following enactment of BBA 1997, a number of observers 
claimed that the actual savings achieved by BBA 1997 were 
larger than was intended when the legislation was enacted. As a 
result, legislation was enacted in 1999 (Balanced Budget 
Refinement Act (BBRA) of 1999) which mitigated the impact of 
BBA 1997 on providers. Notwithstanding enactment of BBRA 1999, 
the 2000 Trustees' Report (as amended) delays the trust fund 
insolvency date an additional 10 years over that projected in 
the 1999 report (from 2015 to 2025).
    The 2000 report states that the fund meets the Trustees' 
test of short-range financial adequacy for the first time since 
1991. The projected long-range actuarial balance is moderately 
improved, but a substantial long-range deficit remains. The 
Trustees note that future operations will be very sensitive to 
future economic, demographic, and health cost trends and could 
differ substantially from the intermediate projections.
    Beginning in 2011, the program will begin to experience the 
impact of major demographic changes. First, baby boomers 
(persons born between 1946 and 1964) begin turning age 65. 
Second, there will be a shift in the number of covered workers 
supporting each HI enrollee. In 1999, there were 4 workers for 
every beneficiary; in 2030 there will only be an estimated 2.3.

     Financial Status of Supplementary Medical Insurance Trust Fund

    Because the SMI Trust Fund is financed through beneficiary 
premiums and Federal general revenues, it does not face the 
prospect of depletion, as does the HI Trust Fund. However, the 
rising cost of the program is placing a burden on the trust 
fund, and by extension on beneficiaries (in the form of 
premiums) and Federal general revenues. Table 2-10 shows 
historical information from the 2000 Trustees' Report (Board of 
Trustees, Federal Supplementary Medical Insurance Trust Fund, 
2000).

Comparison of Medicare Lifetime Benefits with Beneficiary Contributions

    Medicare beneficiaries typically get back considerably more 
in Medicare benefits than they contribute in payroll taxes and 
premiums over their lifetimes. The Congressional Budget Office 
(CBO)


                 TABLE 2-10.--OPERATIONS OF THE SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND (CASH BASIS), SELECTED FISCAL YEARS 1970-2000
                                                                [In millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Income                                          Disbursements
                                      ------------------------------------------------------------------------------------------------------- Balance at
           Fiscal year \1\                                                  Interest                                                            end of
                                        Premium from       Government      and other      Total      Benefit   Administrative      Total       year \4\
                                          enrollees    contributions \2\   income \3\    income     payments      expenses     disbursements
--------------------------------------------------------------------------------------------------------------------------------------------------------
1970.................................            $936              $928           $12      $1,876      $1,979          $217          $2,196          $57
1975.................................           1,887             2,330           105       4,322       3,765           405           4,170        1,424
1980.................................           2,928             6,932           415      10,275      10,144           593          10,737        4,532
1985.................................           5,524            17,898         1,155      24,577      21,808           922          22,730       10,646
1986.................................           5,699            18,076         1,228      25,003      25,169         1,049          26,218        9,432
1987.................................           6,480            20,299         1,018      27,797      29,937           900          30,837        6,392
1988.................................           8,756            25,418           828      35,002      33,682         1,265          34,947        6,447
1989.................................      \5\ 11,548            30,712     \5\ 1,022  \5\ 43,282      36,867     \5\ 1,450      \5\ 38,317   \5\ 11,412
1990.................................      \5\ 11,494            33,210     \5\ 1,434  \5\ 46,138      41,498     \5\ 1,524      \5\ 43,022   \5\ 14,527
1991.................................          11,807            34,730         1,629      48,166      45,514         1,505          47,019       15,675
1992.................................          12,748            38,684         1,717      53,149      48,627         1,661          50,288       18,535
1993.................................          14,683            44,227         1,889      60,799  \6\ 54,214         1,845          56,059       23,276
1994.................................          16,895            38,355         2,118      57,368      58,006         1,718          59,724       20,919
1995.................................          19,244            36,988         1,937      58,169      63,491         1,722          65,213       13,874
1996.................................          18,731            61,702         1,392      82,025      67,176         1,771          68,946       26,953
1997.................................          19,141            59,471         2,193      80,806      71,133         1,420          72,553       35,206
1998.................................          19,427            59,919         2,608      81,955  \7\ 74,837         1,435          76,272       40,889
1999.................................          20,160            62,185         2,933      85,278  \7\ 79,008         1,510          80,518       45,649
2000.................................          20,405            65,209         3,054      88,667  \7\ 89,571         1,510          91,081       43,235
2001.................................          22,102            71,015         3,048      96,166  \7\ 96,043         1,696          97,738       41,663
2002.................................          24,389            78,322         2,976     105,687  \7\ 102,85         1,753         104,608       42,742
                                                                                                            5
2003.................................          26,909            86,262         2,917     116,088  \7\ 114,03         1,827         115,863       42,967
                                                                                                            6
2004.................................          29,347            92,268         2,898     124,513  \7\ 122,05         1,903         123,956       43,524
                                                                                                            3
2005.................................          31,863            99,291         2,916     134,070     133,145         1,981         135,126       42,469
2006.................................          34,319           106,725         2,969     144,013     137,601         2,063         139,665       46,818
2007.................................          36,865           114,591         3,056     154,512     150,385         2,150         152,535       48,795
2008.................................          39,716           124,009         3,192     166,918     161,939         2,242         164,180       51,533
2009.................................          42,885           135,079         3,396     181,360     174,789         2,336         177,125       55,767
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For 1970 and 1975, fiscal years cover the interval from July 1 through June 30; fiscal years 1980-2005 cover the interval from October 1 through
  September 30.
\2\ General fund matching payments, plus certain interest-adjustment items.
\3\ Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and other miscellaneous
  income.
\4\ The financial status of the program depends on both the total net assets and the liabilities of the program.
\5\ Includes the impact of the Medicare Catastrophic Coverage Act of 1988 (Public Law 100-360).
\6\ Includes the impact of the transfer to the HI Trust Fund of the SMI catastrophic coverage reserve fund on March 31, 1993 as specified in Public Law
  102-394. Actual benefit payments for 1993 were $52,409 million and the amount transferred was $1,805 million.
\7\ Benefit payments less moneys transferred from the HI Trust Fund for home health agency costs, as provided for by the Balanced Budget Act of 1997.

Source: Board of Trustees, Federal Supplementary Medical Insurance Trust Fund (2000).

has estimated (based on the 1999 Trustees' Report) the extent 
to which Medicare enrollees' contributions (through the HI 
payroll tax and the SMI premium) cover the expected value of 
their benefits under the program. Results are presented only 
for self-insured men and women (i.e., those who obtain benefits 
on the basis of their own work history) who worked each year at 
an average wage from 1966 until retirement at age 65 (table 2-
11). Three groups are shown--persons who reach 65 as of 1985, 
1995, and 2005. All estimates are dependent on uncertain 
projections of future health spending.


  TABLE 2-11.--CONTRIBUTIONS AS A PERCENT OF EXPECTED LIFETIME BENEFITS
UNDER MEDICARE FOR SELECTED SELF-INSURED ENROLLEES REACHING AGE 65 AS OF
                           1985, 1995, OR 2005
------------------------------------------------------------------------
                                                        Year
                 Category                  -----------------------------
                                              1985      1995      2005
------------------------------------------------------------------------
Self-insured men who earned average wages:
    Hospital insurance (HI)...............      33.1      69.5     111.3
    Supplementary medical insurance (SMI).      24.3      22.8      22.1
                                           -----------------------------
        Medicare total....................      29.8      49.6      68.8
                                           =============================
Self-insured women who earned average
 wages:
    Hospital insurance....................      30.3      62.2      99.1
    Supplementary medical insurance.......      25.3      24.2      23.7
                                           -----------------------------
        Medicare total....................      28.3      45.4      62.4
------------------------------------------------------------------------
Note.--Contributions include employers' and employees' HI payroll taxes,
  interest, and SMI premiums. Any other taxes paid by enrollees are not
  included. Estimates are for beneficiaries with sufficient work history
  to qualify for benefits. However, up to 20 percent of Medicare
  beneficiaries qualify on the basis of their spouse's work history, not
  their own. For spouse-insured beneficiaries, contributions as a
  percent of benefits are lower because spouse-insured beneficiaries
  paid little or no HI payroll taxes. Estimates assume an expected
  lifetime at age 65 of 15 years for men (to age 80) and 19 years for
  women (to age 84). Present discounted values for expected benefits
  were obtained using the average interest rate projected for HI Trust
  Fund earnings over the same years.

Source: Congressional Budget Office, unpublished tables.


    For a self-insured man who worked continuously at an 
average wage from 1966 (when Medicare began) until retirement 
in 1985, the present discounted value of their contributions is 
about 30 percent of the expected value of lifetime Medicare 
benefits. For men retiring in 1995, contributions represent 
about 50 percent of benefits; for those retiring in 2005, 
contributions represent about 69 percent. Contributions through 
HI payroll taxes increase relative to HI benefits for later 
retirees because the HI payroll tax (which began in 1966) was 
paid for a greater proportion of their working years (table 2-
11).
    Contributions by self-insured women as a percentage of 
expected benefits are smaller than they are for men. Actual 
contributions by men and women are the same in the illustrative 
calculations. However, a woman's lifetime benefits are larger 
because a woman's lifetime expectancy is 4 years longer at age 
65 (table 2-11).
    In 1995 dollars, the present discounted value of Medicare 
benefits net of contributions (i.e., the net transfer or 
subsidy value) is estimated at $30,742 for men and $35,623 for 
women who retired in 1985. For those retiring in 1995, the 
value is estimated at $31,429 for men and $39,069 for women. 
CBO projects that values will decline in the future, reaching 
$26,429 for men and $36,354 for women by 2005 (table 2-12).

       TABLE 2-12.--PRESENT DISCOUNTED VALUE OF LIFETIME BENEFITS,
CONTRIBUTIONS, AND NET TRANSFER UNDER MEDICARE FOR SELECTED SELF-INSURED
            ENROLLEES REACHING AGE 65 IN 1985, 1995, OR 2005
                       [In constant 1995 dollars]
------------------------------------------------------------------------
                                                    Year
             Category             --------------------------------------
                                       1985         1995         2005
------------------------------------------------------------------------
Self-insured men who earned
 average wages:
    Benefits.....................     $43,780      $62,336      $84,627
    Contributions................     -13,038      -30,907      -58,198
                                  --------------------------------------
        Net transfer.............      30,742       31,429       26,429
                                  ======================================
Self-insured women who earned
 average wages
    Benefits.....................      49,673       71,570       96,802
    Contributions................     -14,051      -32,502      -60,448
                                  --------------------------------------
        Net transfer.............      35,623       39,069       36,354
------------------------------------------------------------------------
Note.--Contributions include employers' and employees' HI payroll taxes,
  interest, and SMI premiums. Any other taxes paid by enrollees are
  included. Net transfer is benefits net of contributions. Estimates are
  for beneficiaries with sufficient work history to qualify for
  benefits. However, up to 20 percent of Medicare beneficiaries qualify
  on the basis of their spouse's work history, not their own. Spouse-
  insured beneficiaries qualify on the basis of their spouse's work
  history, not their own. For spouse-insured beneficiaries,
  contributions as a percent of benefits are lower and the net transfer
  is larger because spouse-insured beneficiaries paid little or no HI
  payroll taxes. Estimates assume an expected lifetime at age 65 to 15
  years for men (to age 80) and 19 years for women (to age 84). Present
  discounted values for unexpected benefits were obtained using the
  average interest rate projected for HI Trust Fund earnings over the
  same years. The Consumer Price Index for All Urban Consumers (CPI-U)
  was used to get constant 1995 dollars.

Source: Congressional Budget Office, unpublished tables.