Contents

• Overview of the Medicare Program
• Four Parts of Medicare
• Beneficiary Costs
• Provider and Plan Payments
• Medicare Trust Funds and Sources of Revenue
• Hospital Insurance Trust Fund
• Sources of HI Revenue
• HI Trust Fund Mechanics
• Supplementary Medical Insurance Trust Fund
• Sources of SMI Revenue
• SMI Trust Fund Mechanics
• Medicare Spending in 2015
2016
• 20152016 HI Operations
• 20152016 SMI Operations
• Estimated Date of HI Trust Fund Insolvency
• Projected Medicare Spending Growth
• Growth in Medicare Expenditures Relative to GDP
• Unfunded and General Revenue Obligations
• Comparison to Prior -Year Estimates
• Alternative Projections

Overview of the Medicare Program

Medicare, administered by the Centers for Medicare and Medicaid Services (CMS), is the nation's federal insurance program that pays for covered health services for most persons aged 65 years and older and for most permanently disabled individuals under the age of 65.¹ As a health insurance program, Medicare reimburses health care providers and suppliers, such as hospitals, physicians, and medical equipment companies, for the services and products they provide to Medicare beneficiaries. Medicare is prohibited by law from interfering in the practice of medicine or controlling the manner in which medical services are provided. It also is required to pay for covered services provided to eligible persons so long as specific criteria are met. As such, the growth in per person Medicare expenditures largely reflects the medical practices, use of technology, and underlying costs in the broader health care system. Spending under the program (except for a portion of administrative costs) is considered mandatory spending and is not subject to the appropriations process. Thus, there generally are no limits on annual Medicare spending.

Since its enactment in 1965, the Medicare program has undergone considerable change. Because of its rapid growth, both in terms of aggregate dollars and as a share of the federal budget, the Medicare program has been a major focus of deficit reduction legislation passed by Congress.² With a few exceptions, reductions in program spending have been achieved largely through freezes or reductions in payments to providers, primarily hospitals and physicians, and by making changes to beneficiary premiums and other cost-sharing requirements. For example, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended) made numerous changes to the Medicare program that modify provider reimbursements, provide incentives to improve the quality and efficiency of care, and enhance certain Medicare benefits.³

Four Parts of Medicare

Medicare consists of four distinct parts, A through D:

• Part A covers inpatient hospital services, skilled nursing care, hospice care, and some home health services. Most persons aged 65 and older automatically areare automatically entitled to premium-free Part A because they or their spouse paid Medicare payroll taxes for at least 40 quarters (10 years) on earnings covered by either the Social Security or the Railroad Retirement systems.
• Part B covers a broad range of medical services, including physician services, laboratory services, durable medical equipment, and outpatient hospital services. Enrollment in Part B is optional; however, most beneficiaries with Part A also enroll in Part B.
• Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries that covers all Parts A and B services, except hospice. Individuals choosing to enroll in Part C must be eligible for Part A and also must enroll in Part B. About 31%one-third of Medicare beneficiaries are enrolled in MA.
⁴
• Part D covers outpatient prescription drug benefits. This portion of the program is optional. About 76% of Medicare beneficiaries are enrolled in Medicare Part D or have coverage through an employer retiree plan subsidized by Medicare.

⁵Beneficiary Costs

In addition to paying premiums for Medicare Parts B and D,⁴6 beneficiaries must pay other out-of-pocket costs, such as deductibles and coinsurance, for services provided under all parts of the Medicare program. There is no limit on beneficiary out-of-pocket spending, and most beneficiaries have some form of supplemental insurance through private Medigap plans, employer-sponsored retiree plans, or Medicaid to help cover a portion of their Medicare premiums and/or deductibles and coinsurance.

Provider and Plan Payments

Under traditional Medicare, Parts A and B, the government generally pays providers directly for services on a fee-for-service basis using different prospective payment systems, or fee schedules.⁵7 Under Parts C and D, Medicare pays private insurers a monthly capitated per person amount to provide coverage to enrollees. The capitated payments are adjusted to reflect differences in the relative cost of sicker beneficiaries with different risk factors including age, disability, or end-stage renal disease.

Medicare Trust Funds and Sources of Revenue

The Medicare program has two separate trust funds—the Hospital Insurance (HI) Trust Fund for Part A and the Supplementary Medical Insurance (SMI) Trust Fund for Parts B and D.⁶8 (For beneficiaries enrolled in MA [Part C], payments are made on their behalf in appropriate portions from the HI and SMI Trust Funds.) Both the HI and SMI Trust Funds are maintained by the Department of the Treasury and overseen by a Medicare Board of Trustees that reports annually to Congress concerning the funds' financial status.⁷9 Financial projections are made using economic assumptions based on current law, including estimates of consumer price index (CPI), workforce size, wage increases, and life expectancy.

The Medicare trust funds are financial accounts in the U.S. Treasury into which all income to the program is credited and from which all benefits and associated administrative costs of the program are paid. The trust funds are solely accounting mechanisms—there is no actual transfer of money into and out of the funds. As long as a trust fund has a balance, the Department of the Treasury is authorized to make payments for it from the U.S. Treasury.

Hospital Insurance Trust Fund

The Part A portion of Medicare is financed through the HI Trust Fund.

Sources of HI Revenue

The HI Trust Fund is funded primarily by a dedicated payroll tax of 2.9% of earnings, shared equally between employers and workers. (See Figure 1.) Unlike Social Security, there is no upper limit on wages subject to Medicare payroll taxes. Beginning in 2013, the ACA has imposed an additional tax of 0.9% on high-income workers with wages over $200,000 for single tax filers and over $250,000 for joint filers.⁸10 Other sources of income to the HI Trust Fund include premiums paid by voluntary enrollees who are not entitled to premium-free Medicare Part A, a portion of the federal income taxes paid on Social Security benefits, and interest on federal securities held by the trust fund.

HI Trust Fund Mechanics

HI operates on a pay-as-you-go basis; the taxes paid by current workers and their employers are used to pay Part A benefits for today's Medicare beneficiaries. When the government receives Medicare revenues (payroll taxes), income is credited by the Treasury to the HI Trust Fund in the form of special-issue interest-bearing government securities.⁹11 (Interest on these securities also is credited to the trust fund.) The tax income exchanged for these securities then goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund; this cash may be used for any government spending purpose. When payments for Medicare Part A services are made, the payments are paid out of the general treasury and a corresponding amount of securities is deleted from (written off) the HI Trust Fund.

Figure 1. Sources of Medicare Revenues: 2015 2016

Source: Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, The 20167 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, Table II.B1, June 22, 2016. July 13, 2017, Table II.B1 (hereinafter, the 2017 Report of the Medicare Trustees). Notes: Totals may not add to 100% due to rounding. HI = Hospital Insurance; SMI = Supplementary Medical Insurance.

In years in which the trust fund spends less than the income it receives, the trust fund securities exchanged for any income in excess of spending show up as assets on the financial accounting balance sheets and are available to the system to meet future obligations. The trust fund surpluses are not reserved for future Medicare benefits but are simply bookkeeping entries that indicate how much Medicare has lent to the Treasury (or alternatively, what is owed to Medicare by the Treasury). From a unified budget perspective, these assets represent future budget obligations and are treated as liabilities. If the HI Trust Fund is not able to pay all current expenses out of current income and accumulated trust fund assets, it is considered to be insolvent.¹⁰12

Supplementary Medical Insurance Trust Fund

The SMI Trust Fund consists of two accounts: Part B and Part D.

Sources of SMI Revenue

Unlike the HI portion of Medicare, the SMI program was not intended to be supported through dedicated sources of income. Instead, it relies primarily on general tax revenues and beneficiary premiums as revenue sources.¹¹13

The Part B portion of SMI is funded mainly through beneficiary premiums (set at 25% of estimated program costs for the aged)¹²14 and general revenues (most of the remaining amount, approximately 7375%). In 20162017, the standard monthly Part B premium is $121.80.¹³134.00.¹⁵ However, certain low-income enrollees receive assistance with their premiums from Medicaid (joint federal-state funding), and, since 2007, high-income enrollees pay higher premiums. Beginning in 2011, additional revenues from an annual fee imposed on certain manufacturers and importers of branded prescription drugs also are credited to the SMI Trust Fund.¹⁴

16

Part D is financed through a combination of beneficiary premiums (set at 25.5% of the estimated cost of the standard benefit), general revenues, and state transfer payments (to cover a portion of the costs of beneficiaries enrolled in both Medicare and Medicaid—the dual-eligibles). Actual Part D premiums may vary depending on which plan the enrollee selects. Low-income enrollees may receive premium assistance through the Part D low-income subsidy (all federal funding), and, starting in 2011, higher income enrollees pay higher premiums.

SMI Trust Fund Mechanics

The level of SMI funding is automatically updated each year to cover expenditures in the upcoming year. If actual costs exceed those estimated when the funding was set, the amount of financing in the next year (i.e., general revenues and beneficiary premiums) may be adjusted to recover the shortfall. Similarly, if actual costs are less than expected in a given year, income levels needed for the next year may be adjusted downward. Because of these automatic adjustments, the SMI Trust Fund is always kept in balance and cannot become insolvent.

Medicare Spending in 2015¹⁵

2016¹⁷

In calendar year (CY) 20152016, Medicare provided benefits to about 55.356.8 million people (46.347.8 million people aged 65 and over,older and 9.0 million disabled people under the age of 65) at an estimated total cost of $648679 billion.¹⁶18 Most of that amount, almost $639670 billion (99%), was spent on program benefits, with the remaining amount used for program administration. (See Table 1.)

20152016 HI Operations

At the beginning of CY2015CY2016, the HI Trust Fund had an asset balance of a little over $197close to $194 billion. During 20152016, Part A expenditures were about $279285 billion. Approximately $241254 billion of that amount was funded by payroll taxes and $3437 billion by interest income and other sources. (See "Sources of HI Revenue.") Because expenditures exceeded revenue income, about $3.5 billion was drawn out of accumulated assets in the HI Trust Fund to make up the difference. At the end of 2015revenue income exceeded expenditures, about $5.4 billion in surplus accumulated in the HI Trust Fund. At the end of 2016, the HI Trust Fund had an asset balance of approximately $194199 billion. This means that if or when HI spending exceeds income in future years, the trust fund will be able to spend a total of $194199 billion in addition to what it receives in income.¹⁷19

20152016 SMI Operations

In CY2015CY2016, total spending for Part B was close to $279293 billion, with general revenues financing approximately $204236 billion of that amount and premiums covering most of the remainder. Total spending for Part D reached about $90100 billion in 20152016, with more than $6882 billion of that amount paid for by general revenues. In addition, approximately $910 billion was covered by state transfer payments, and $1314 billion was covered by beneficiary premiums. It should be noted that although beneficiary premiums are set at a rate to cover 25.5% of the costs of standard Part D benefits, the program pays for the premiums of about one-third of enrollees because these enrollees qualify for low-income assistance. As a result, Part D premiums covered onlyrepresented about 1413% of program costs in 2015revenues in 2016. (See Figure 1.)

Estimated Date of HI Trust Fund Insolvency

Since 2008From 2008 to 2015, Part A expenditures have exceeded HI income each year, and the assets credited to the trust fund have beenwere drawn down to make up the deficit. The 20162017 report of the Medicare trustees projects small surpluses in years 2016 through 2020,¹⁸ and then reports a small surplus in 2016 and projects such surpluses through 2022.²⁰ The trustees then project a return to deficits in 2021 and thereafter2023 and continuation of deficits in the following years until the HI Trust Fund becomes depleted (insolvent) in 20282029. At that time, there willwould no longer be sufficient funds to fully cover Part A expenditures; although HI would continue to receive tax income, the funds would be sufficient to pay forcover only 8788% of Part A expenses. The trustees suggest that, under these circumstances, beneficiary access to Part A services "would rapidly be curtailed."¹⁹21

Almost from its inception, the HI Trust Fund has faced a projected shortfall and eventual insolvency (see Figure 2), with insolvency dates ranging from 2 years to 28 years from the year of the projection. However, to date, the HI Trust Fund has never become insolvent, and there. There are no provisions in the Social Security Act that govern what would happen if that were to occur. For; for example, there is no authority in law for the program to use general revenues to fund Part A services in the event of such a shortfall. Unless action is taken prior to the expected date of insolvency to increase HI revenues or decrease expenditures, Congress may need to appropriateface a decision regarding the provision of additional funding to make up for these deficits and to allow for full and on-time payments to Part A providers.

Figure 2. Projected Number of Years Until Hospital Insurance Insolvency

Source: Intermediate projections of various Medicare trustees' reports, 1970-2016Trustees Reports, 1970-2017. Notes: No specific estimates were provided by the trustees for years 1973-1977 and 1989.

Because income (general revenue and premiums) to the SMI Trust Fund is updated automatically each year to ensure that the program has enough money to continue operating, the SMI Trust Fund is kept in balance and is always solvent. However, the Medicare trustees continue to express concerns about the rapid growth in SMI costs.

Projected Medicare Spending Growth

Although the 20162017 Medicare trustees' reportTrustees Report notes a recent slowing in the growth of U.S. national health expenditures,²⁰22 the trustees still project that U.S. health care expenditures, including Medicare spending, will grow faster than gross domestic product (GDP) in most future years. For Medicare, the projected growth in the prices of health services plus anticipated increases in utilization rates and in the complexity of services provided are expected to contribute to rising costs of Medicare relative to GDP. The aging of the baby boom population also is expected to contribute to significant increases in benefit expenditures.²¹23

Over the next 10 years, the Medicare trustees estimate that total Medicare expenditures will increase from $648679 billion in 20152016 to close to $1.336 trillion in 20252026. Of the $1.336 trillion, about $500530 billion is expected to be spent on Part A services, $570638 billion on Part B services, and $216194 billion on Part D services. (See Figure 3.)

Figure 3. Historical and Projected Medicare Expenditures

Source: 20162017 Report of the Medicare Trustees, Expanded and Supplementary Tables (historical data); and Report Tables III.B4; III.C4; and III.D3 (projected data).

Growth in Medicare Expenditures Relative to GDP

A comparison of Medicare expenditures (for Medicare Parts A through D, combined) to GDP provides a measure of the amount of financial resources that will be necessary to pay for Medicare services relative to the output of the U.S. economy. Under current law, the trustees expect total Medicare expenditures to increase from 3.6% of GDP in 2016 to about 5.6% of GDP by 20402041, mainly due to the rapid growth in the number of beneficiaries, and then to about 6.05.9% of GDP in 20902091, with growth in health care cost per beneficiary becoming the more significant factor in those years, especially for Part D. (See Figure 4.)

Over the next 75 years, general revenues and beneficiary premiums are expected to play an increasing role in financing the program. For example, the level of general revenues needed to fund SMI is expected to increase from 1.75% of GDP in 20162017 to an estimated 2.7% in 20902091 under current law.²²24 Similarly, income from beneficiary premiums is expected to increase from 0.5% of GDP in 2016 to 1.0% in 2090. In 2015, about 13.52017 to 0.9% in 2091. In 2016, about 15.7% of total federal income taxes collected that year were used to fund the general revenue portion of SMI. It is expected that the portion of personal and corporate income taxes needed to fund SMI will increase to about 21% in 2030 and to about 25% in 20902091. This amount is in addition to the payroll taxes used to fund the Part A (HI) portion of the program.

Figure 4. Medicare Cost and Non-interest Income, by Source as a Percentage of GDP

Source: Summary of the 20162017 Annual Reports of the Social Security and Medicare Boards of Trustees, Chart C, at http://www.ssa.gov/oact/TRSUM/index.html.

Unfunded and General Revenue Obligations

The trustees' report provides estimates of the present value of the HI deficit—the unfunded obligation—over both a 75-year horizon and an "infinite" horizon. (See Table 2.) This unfunded obligation represents the dollar amount by which expenditures would need to be reduced or revenue increased to maintain the financial soundness of the program over a period of time. The trustees estimate that the current value of funding needed to cover the expected difference between income to the HI Trust Fund and expenditures over the next 75 years is $3.63 trillion. The trustees note that this financial imbalance could be addressed by immediately increasing payroll taxes to 3.6354% (from the current 2.9%) or, by immediately decreasing expenditures by 16%.

The trustees'14%, or by some combination of the two. From a budgetary standpoint, the accumulated assets in the trust fund are considered liabilities, as the redemption of the assets represents a formal budget commitment. Therefore, the starting balance of $0.2 trillion in the HI Trust Fund needs to be added to the unfunded obligation of $3.3 trillion for a present value of $3.5 trillion shortfall in dedicated revenues. The trustees report also provides estimates of the present value of future SMI spending. Although SMI is funded automatically and does not face a shortfall, the general revenue portion represents obligated federal spending. The present value of expected general revenues needed to pay for Medicare Parts B and D over the next 75 years is $28.730.0 trillion. Adding the HI unfunded obligation estimate and the present value of future SMI spending for the 75-year period yields a total of $32.333.5 trillion.²³25 In other words, it would take about $32.333.5 trillion in current dollars to cover the cost of Medicare not funded through dedicated sources over the next 75 years.

Comparison to Prior -Year Estimates

Over both the short and long terms, projections of total Medicare spending in the 20162017 trustees' report are very similar to those in last year'sthe 2016 report. (See Figure 5.) Both the short-term and the long-term financial outlooks for the HI Trust Fund have improved slightly report. (See Figure 5.) The small difference is mainly due to a methodology change in the determination of Part A spending²⁴ and to higher than previously expected spending for Part D specialty and generic drugs.

The short-term financial outlook for the HI Trust Fund has slightly worsened compared to estimates in last year's report. The estimated depletion date of the HI Trust Fund is 2028, two years earlier2029, one year later than projected in the 2015 report. This change is due to lower than previously expected payroll tax income resulting from a slowing in real-wage growth, as well as lower expected ACA-related reductions in provider payment rate updates through 2019. 2016 report. Over the next 75 years, the estimated HI actuarial deficit (the amount that would need to be added to the payroll tax to maintain HI solvency for this period) increased 0.05decreased by 0.09%—from 0.6873% of taxable payroll in last year'sthe 2016 report to 0.7364% of taxable payroll in the 20162017 report. The change is primarily due to a higher than previously expected utilization of hospital inpatient services and lower than expected income from payroll taxeslower-than-expected HI expenditures in 2016 (which reduce the projection base) and lower assumed utilization of inpatient hospital services.

Part B projected short- and long-term costs are lower in this year's report due to lower than expected costs in 2015, as well as lower projections for price inflation. Part D projected short-term costs, however, are higher than projected in last year's report due to higher projected drug costs, mainly for specialty drugs. Over the long term, both Parts B and D spending projections are slightly lower than those in the prior report, mainly due to assumptions of slower price inflationhigher in the 2017 report due to higher-than-expected spending for outpatient hospital services and physician-administered drugs in 2016. Longer-term projections also were affected by a methodological change that resulted in projections of increased drug costs for beneficiaries with end-stage renal disease. Part D projected costs, both over the short and long term, are lower than estimates in last year's report due to higher manufacturer rebates provided to Part D plans and lower utilization of hepatitis C drugs.

Figure 5. Comparison of 20152016 and 20162017 Medicare Expenditure Projections (Expendituresexpenditures as a percentage of GDP)

Sources: 20152016 and 20162017 Medicare trustees' reportsTrustees Reports, Supplementary Tables.

Alternative Projections

Throughout the 20162017 report, the Medicare trustees caution that actual costs are likely tomay be higher than their intermediate projections. For example, because the trustees are required to base their estimates on current law, their assumptions assume that physician payments will be updated according to levels set forth in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10),²⁵26 that the full ACA-required Medicare plan and provider payment reductions will be maintained,²⁶27 and that Independent Payment Advisory Board (IPAB) proposals to reduce Medicare costs will go into effect.²⁷28

Because of concerns about the accuracy of these projections, the Medicare trustees asked the CMS Office of the Actuary to prepare an alternative projection based on the assumptions that annual physician payment updates will transition beginning in 20252026 from 0.06% to 2.2% by 20402041, that the 5% bonuses for physicians in the alternative payment models will continue after 2025, that ACA provider payment adjustments will be partially phased out beginning in 2020, and that reductions proposed by the IPAB will not occur.²⁸29 Under this alternative scenario, long-term Medicare costs are projected to reach almost 9.18.9% of GDP in 2090, instead of 6.05.9% under the trustees' current-law projections. Additionally, under the alternative scenario, the HI actuarial deficit would be 1.8576% of taxable payroll (compared with 0.7364% under the current-law projection), which could be addressed by immediately increasing payroll taxes to 4.7566% or by immediately decreasing expenditures by 3231% (compared with 3.6354% and 1614%, respectively, under current law). The alternative scenario also projects that HI insolvency would occur one yearin 2029, but earlier, in 2027the year.

Figure 6. Comparison of Medicare Expenditure Projections Based on Current Law and an Alternative Scenarios Scenario (Expendituresexpenditures as a percentage of GDP)

Source: 20162017 Report of the Medicare Trustees, Supplementary Tables. Note: The alternative scenario assumes phasing out certain MACRA and ACA provider payment reductions.

Author Contact Information

Footnotes

6.

1.	For additional information on the Medicare program, see CRS Report R40425, Medicare Primer, coordinated by [author name scrubbed] and [author name scrubbed].
2.	For a brief history of changes to the Medicare program, see CRS Report R40425, Medicare Primer, coordinated by [author name scrubbed] and [author name scrubbed], and the Medicare chapter of the House of Representatives, Committee on Ways and Means, Greenbook, at http://greenbook.waysandmeans.house.gov/20142016-green-book/chapter-2-medicare.
3.	For details on individual Medicare provisions in the Patient Protection and Affordable Care Act (ACA; 111-148, as amended), see CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline, coordinated by [author name scrubbed].
4.
4.	Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, The 2017 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, July 13, 2017, Table V.B4.
5.	Ibid.
Beneficiaries enrolled in a Medicare Advantage (MA; Part C) plan must pay Part B premiums as well as any additional premium required by the MA plan.
57.	Under a prospective payment system (PPS), Medicare payments are made using a predetermined, fixed amount based on the classification system for a particular service. The Centers for Medicare & Medicaid Services (CMS) uses separate PPSs to reimburse acute inpatient hospitals, home health agencies, hospice, hospital outpatient departments, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities. A fee schedule is a listing of fees used by Medicare to pay doctors or other providers/suppliers. Fee schedules are used to pay for physician services; ambulance services; clinical laboratory services; and durable medical equipment, prosthetics, orthotics, and supplies in certain locations.
68.	Many government programs are financed through trust funds. Despite the name, federal trust funds are not the same as private-sector trust funds. A trust in the private sector is "a fiduciary relationship in which one person (the trustee) holds property for the benefit of another (the beneficiary)." The trustee must follow the express terms of the trust instrument and administer the trust for the benefit of the beneficiary. Most federal trust funds are not based on a legal fiduciary relationship. Congress creates trust funds that involve a commitment to use monies for a specific purpose, but it can alter the terms (e.g., receipts, outlays, or purpose) of the trust fund at any time. For additional information, see CRS Report R41328, Federal Trust Funds and the Budget, by [author name scrubbed].
79.	These reports may be found at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html.
810.	See archived CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act (ACA), for more detail.
911.	Unlike marketable securities, special issues can be redeemed at any time at face value. Investment in special issues gives the trust funds the same flexibility as holding cash.
1012.	From time to time, it is reported that Medicare is on the verge of bankruptcy; however, in the context of federal trust funds, this term is not meaningful. WhileAlthough a federal trust fund's spending can be greater than its income and trust funds can have a zero balance, unlike private businesses, the federal government is not in danger of "going out of business" or having its assets seized by creditors.
1113.	There have been reports that Medicare beneficiaries receive more from the program than what they have paid throughout their working years in payroll taxes; however, as noted, unlike Part A, the costs of Medicare Parts B and D were designed in the original statute to be subsidized by the government and not through dedicated taxes.
1214.	For additional information, see CRS Report R40082, Medicare: Part B Premiums, by [author name scrubbed].
1315.	However, in 20162017, about 70% of Part B enrollees are protected by a provision in the Social Security Act (the hold-harmless provision) that prevents their Medicare premiums from increasing more than the annual increase in their Social Security benefit payments. These individuals are continuing to pay the 2015 premium amount of $104.90 through 2016pay, on average, $109 per month in 2017. For additional information, see CRS Report R40082, Medicare: Part B Premiums, by [author name scrubbed].
1416.	This revenue source is included in "Interest and Other" for Part B in Figure 1. For additional detail, see archived CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act (ACA), by [author name scrubbed].
1517.	Data is from the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, The 20167 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, June 22, 2016July 13, 2017 (hereinafter, the 20162017 Report of the Medicare Trustees).
1618.	This amount reflects Medicare total spending regardless of revenue source; it does not net out nonfederal income (e.g., premiums, state transfers). By law, the Medicare trustees' reportTrustees Report focuses on the financial status of the program's trust funds and does not examine the impact of Medicare spending on the overall federal budget.
1719.	In years in which income exceeds expenditures, the surplus amount(s) would be added to this balance.
1820.	The trustees attribute this expected period of surplus to ACA provisions that are expected to reduce Part A spendinglow spending growth for Part A services, to an assumed strengthening economy, and to the continued sequestration of 2% of Medicare benefit spending.
1921.	The 20162017 Report of the Medicare Trustees, p. 26.
2022.	The trustees are uncertain whether this slowing is of limited duration (e.g., due to recent economic downturns) or whether it may be a longer-term trend due to structural changes in the health care industry.
2123.	When Medicare first began, there were about 19 million beneficiaries. This number has grown to about 57almost 59 million enrollees in 20162017 and is expected to increase to about 86 million in 2035 and to almostclose to 121 million in 20902091.
2224.	Total Part B outlays were almost 1.6% of GDP in 20152016, and the trustees project that they will grow to close to 2.46% of GDP by 20902091. The trustees also estimate that total Part D outlays will increase from about 0.5% of GDP in 20152016 to about 1.42% of GDP in 20902091.
2325.	The trustees note that while SMI general revenue transfers represent formal budget commitments under current law, no provision exists for covering the HI Trust Fund once assets are depleted.
24.	While most individuals aged 65 and over qualify for premium-free Medicare Part A based on their own or their spouse's work in covered employment for 40 quarters, about 700,000 Medicare beneficiaries do not have sufficient work credits and enroll in Part A by paying a premium. For the first time, the 2016 trustees' report includes the income and costs for these beneficiaries in the incurred HI projections.
2526.	See CRS Report R43962, The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10), coordinated by [author name scrubbed].
2627.	See CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline, coordinated by [author name scrubbed].
2728.	The IPAB has not yet been created. The 20162017 Medicare Trustees' report Report did not issue a determination that would have required the IPAB to submit a legislative proposal to reduce Medicare spending. The trustees project that such a determination will be made in their 2017 report. For information on the IPAB, see CRS In Focus IF10425, The Independent Payment Advisory Board (IPAB): Implications of a Positive Trigger Determination in 2017, by [author name scrubbed] and [author name scrubbed]; and CRS Report R44075, The Independent Payment Advisory Board (IPAB): Frequently Asked Questions, by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. For information on the IPAB, see CRS Report R44075, The Independent Payment Advisory Board (IPAB): Frequently Asked Questions.
2829.	John D. Shatto and M. Kent Clemens, "Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers," June 22, 2016, July 13, 2017, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2016TRAlternativeScenario2017TRAlternativeScenario.pdf.