Medicare Trigger
Patricia A. Davis
Specialist in Health Care Financing
Christopher M. Davis
Analyst on the Congress and Legislative Process
Todd Garvey
Legislative Attorney
April 9, 2012
Congressional Research Service
7-5700
www.crs.gov
RS22796
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Medicare Trigger
Summary
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA, P.L. 108-
173) requires the Medicare Board of Trustees to provide in its annual reports an expanded
analysis of Medicare expenditures and revenues (§801 of MMA). Specifically, if the trustees
determine that general revenue funding for Medicare is expected to exceed 45% of Medicare
outlays for the current fiscal year or any of the next six fiscal years, a determination of excess
general funding is made. If the determination is issued for two consecutive years, a funding
warning is issued which triggers certain presidential and congressional actions (§802-§804 of
MMA).
Because such a determination was issued in both the 2006 and 2007 Medicare Trustee’s reports,
the President was required to submit a legislative proposal to Congress within 15 days of
submitting his budget in 2008 that would lower the ratio to the 45% level. Similarly, each of the
subsequent Annual Reports of the Boards of Trustees through 2011 has included an estimate that
general revenue funding would exceed 45% during the next seven years, thus “triggering” a
response from the President and Congress. While such a proposal was submitted by President
George W. Bush in 2008, no such legislative proposals have been submitted since that time. The
House approved rules changes for a portion of the 110th Congress (H.Res. 1368) and for all of the
111th Congress ( H.Res. 5) that waived the parliamentary procedures for the House contained in
Section 803 of the MMA. The 112th Congress has not passed a similar measure, and the trigger
provision has gone back into effect in the House.
The Medicare funding warning focuses attention on the impact of program spending on the
federal budget, and provides one measure of the financial health of the program. However, some
options for reducing general revenue spending below the 45% level would have a greater impact
than others. Proponents of the trigger maintain that it forces fiscal responsibility, while critics of
the trigger suggest that other measures of Medicare spending, such as total Medicare spending as
a portion of federal spending, would be more useful indicators.
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Contents
Background...................................................................................................................................... 1
Medicare Financing................................................................................................................... 1
The Medicare Trigger ................................................................................................................ 1
Determination of a Medicare Funding Warning .............................................................................. 2
Required Presidential Action ........................................................................................................... 4
Expedited Congressional Consideration.......................................................................................... 6
Procedures (and Activity) for the House ................................................................................... 6
Procedures for the Senate .......................................................................................................... 7
Varying Impact of Legislative Options............................................................................................ 8
Discussion........................................................................................................................................ 9
Figures
Figure 1. Projected Difference Between Total Medicare Outlays and Dedicated Financing
Sources as a Percentage of Total Outlays ..................................................................................... 3
Tables
Table 1. Illustrative Effect of Options to Lower General Revenue Funding as a
Percentage of Total Medicare Outlays Under the Trigger Calculation......................................... 9
Contacts
Author Contact Information........................................................................................................... 10
Acknowledgments ......................................................................................................................... 10
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Medicare Trigger
Background
As required by the Social Security Act, a Medicare Board of Trustees oversees the financial
operations of the two Medicare trust funds: the Hospital Insurance (HI) trust fund and the
Supplementary Medical Insurance (SMI) trust fund. The HI trust fund covers Medicare Part A
services, including hospital, home health, skilled nursing facility, and hospice care; and the SMI
trust fund covers Medicare Parts B and D, including physician and outpatient hospital services,
and outpatient prescription drugs. The two trust funds are statutorily separate, with all HI and
SMI benefit expenditures paid out of their respective trust funds. The Medicare Trustees are
required to report annually to Congress on the financial and actuarial status of the funds.1
Medicare Financing2
The primary source of financing for the HI trust fund is the payroll tax on covered earnings of
current workers. Employers and employees each pay 1.45% of wages, and unlike the Social
Security tax, there is no annual maximum limit on taxable earnings. Other sources of revenue for
the HI trust fund include interest paid on the U.S. Treasury securities held in the HI trust fund, a
portion of the federal income taxes that individuals pay on their Social Security benefits, and
premiums paid by individuals who would otherwise not qualify for Medicare Part A.
The SMI trust fund has different revenue sources. There are no payroll taxes collected for this
fund, and enrollment in Medicare Parts B and D is voluntary. Individuals enrolled in Parts B and
D must pay premiums, which cover about 25% of program costs.3 The other 75% of revenues for
the SMI trust fund primarily comes from general revenue transfers. Other sources of revenue
include interest paid on the U.S. Treasury securities held in the fund and Part D state transfers for
Medicare beneficiaries who are also eligible for Medicaid (dual-eligibles).
The 2011 report of the Medicare Board of Trustees estimates that by 2024, HI revenues and assets
will no longer be sufficient to fully cover Part A costs and the fund will become insolvent.4
Because of the way it is financed, the SMI fund cannot face insolvency; however, the trustees
project that SMI expenditures will continue to grow rapidly, and thus place increasing strains on
the federal budget.
The Medicare Trigger
Because of concerns over the potential for growth in general revenue spending for Medicare over
time, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (P.L. 108-
173, MMA), created a Medicare “trigger” that requires certain actions to be taken should general
1 The annual Medicare Trustees reports may be found at http://www.cms.gov/ReportsTrustFunds/.
2 For additional detail, see CRS Report R41436, Medicare Financing, by Patricia A. Davis.
3 Certain higher income beneficiaries are required to pay an income related premium covering more than the 25% of
Part B and D costs. Certain beneficiaries with low incomes may receive assistance with their premiums.
4 For information on prior insolvency estimates, see CRS Report RS20946, Medicare: History of Insolvency
Projections, by Patricia A. Davis.
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revenue funding be expected to exceed a certain proportion of total Medicare outlays within a
certain number of years.5
Specifically, Section 801 of the MMA requires the Medicare trustees, beginning with their 2005
report, to examine and make a determination each year of whether general revenue funding is
expected to exceed 45% of Medicare outlays for the current fiscal year or any of the following six
fiscal years.6 An affirmative determination in two consecutive annual reports is considered to be a
Medicare funding warning in the year in which the second report is made.7 If such a warning is
issued, the MMA (§802-§804) established certain requirements and procedures for the President
and the Congress to follow related to the introduction and consideration of legislation designed to
reduce spending. There is, however, no requirement that legislation must be enacted and no
automatic mechanism in place to sequester money. It is also important to note that either chamber
may alter these procedures should a numerical majority choose to do so.
Determination of a Medicare Funding Warning
Section 801 of the MMA defines the key measures and terms used in determining a Medicare
funding warning.
Excess general revenue Medicare funding occurs when general revenue Medicare funding
divided by total Medicare outlays exceeds 45%.
• General revenue Medicare funding is defined as total Medicare outlays minus
dedicated financing sources.8
• Total Medicare outlays includes total outlays from the HI and SMI trust funds.
The law specifies that payments made to plans under Part C (Medicare
Advantage, MA) for rebates, administrative expenditures for carrying out
Medicare, and offsets to outlays by the amount of fraud and abuse collections
that are applied or deposited into a Medicare trust fund are included in this
amount.
• Dedicated financing sources include the following: (1) HI payroll taxes; (2)
amounts transferred to the Medicare trust funds from the Railroad Retirement
pension fund; (3) income from taxation of certain Social Security benefits which
is credited to the HI trust fund; (4) state transfers for the state share of amounts
paid to the federal government for dual-eligible beneficiaries enrolled in Part D;
(5) Medicare premiums paid under Parts A (HI), B (SMI) and D (SMI) of
Medicare—including any amounts paid as a result of late enrollment penalties
(without taking into account reductions in premiums as a result of rebates
5 As described in more detail later, general revenue funding as defined under the MMA Trigger provision is not
identical to that used to denote the share of Medicare spending financed out of general revenues; however the
definitions are very close.
6 The MMA also created the Medicare outpatient prescription drug benefit program (Part D) which increased the
amount of general revenues needed to finance the Medicare program.
7 This requirement is found in §1817(b)(2) and §1841(b)(2) of the Social Security Act, as added by §801 of the MMA.
8 This definition of general revenues is not the same as the transfers from the Treasury to the SMI trust fund, required
under current law to cover about 75% of Part B outlays.
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received by beneficiaries enrolled in MA plans); (6) and any gifts received by the
trust funds. (Interest earned on the trust fund is excluded from dedicated sources.)
• A Medicare funding warning is triggered when two consecutive Medicare
trustees reports contain projections that general revenue funding will exceed 45%
of total Medicare outlays sometime during the next seven fiscal years (i.e. they
make a determination of excess general revenue Medicare funding two years in a
row).
In their 2006 report, the Medicare trustees first projected that the 45% level would be exceeded
within the next seven years—in FY2012. The 2007 report projected that it would be exceeded in
2013, and both the 2008 and 2009 trustees reports projected the first year at 2014.9 In the 2010
trustees report, the level of general revenue financing was projected to exceed 45% in FY2010;
the 2011 report confirmed that the threshold was breached in FY2010 and is expected to do so
again in FY2011 and FY2012.10 The 2011 projection was the sixth consecutive time that the
threshold was estimated to be exceeded within the first seven years of the projection, and the fifth
time that a Medicare funding warning has been triggered. Changes made by the Patient Protection
and Affordable Care Act (ACA, P.L. 111-148) affecting future Medicare spending are expected to
reduce the ratio below 45% in years 2013 through 2021;11 however after that time, the ratio is
expected to again exceed 45% (see Figure 1).
Figure 1. Projected Difference Between Total Medicare Outlays and Dedicated
Financing Sources as a Percentage of Total Outlays
Source: 2011 Medicare Trustees Report, Figure III.A1, http://www.cms.gov/ReportsTrustFunds/.
9 The trustees did not project excess general revenue funding within the next seven fiscal years in their 2005 report.
10 The trustees estimate that additional revenues of at least $25 billion or expenditure reductions of at least $46 billion
(or some combination of the two) would be needed to reduce the ratio below 45% in 2011 and 2012.
11 Because these projections were based on current law at the time, these projections assumed that the scheduled
physician payment rate reductions would go into effect at the end of 2011. Legislation enacted since that time delays
these reductions until the end of 2012. Therefore, excess general revenue spending in 2012 may be higher than
originally projected. See CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate
(SGR) System, by Jim Hahn and Janemarie Mulvey for additional information on the physician payment system.
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Required Presidential Action
In years in which the Medicare trustees issue a Medicare “funding warning,” the President is
required to submit to Congress proposed legislation that “respond[s] to such warning.”12 Although
the precise contents of the proposal remain within the President’s discretion, Section 802 of the
MMA requires that the proposal be submitted within 15 days of submitting a budget for the
succeeding year.13 The requirement that the President submit proposed legislation in response to a
funding warning does not apply, however, if, “during the year in which the warning is made,”
Congress enacts legislation to eliminate excess general revenue Medicare funding for the seven-
fiscal year reporting period, as certified by the Medicare trustees within 30 days of the
legislation’s enactment.14
The Executive branch has generally taken the position that, under the Constitution’s
Recommendation Clause, Congress cannot compel the President, or executive branch officials, to
submit legislative proposals directly to Congress.15 These objections have been registered in
numerous presidential signing statements and Department of Justice, Office of Legal Counsel
opinions, and have repeatedly been asserted in litigation.16 For example, upon signing the MMA
on December 8, 2003, President George W. Bush issued a signing statement registering his
constitutional objections to Section 802’s requirement that the President submit proposed
legislation to Congress in response to a Medicare funding warning. Specifically, President Bush
noted that his Administration would construe Section 802 “in a manner consistent with the
President’s constitutional authority to supervise the unitary executive branch and to recommend
for the consideration of the Congress such measures as the President judges necessary and
expedient.”17
12 31 U.S.C. § 1105(h)(1).
13 31 U.S.C. § 1105(h)(1). P.L. 108-173 included a “Sense of Congress” provision providing that: “[i]t is the sense of
Congress, that legislation submitted pursuant to section 1105(h)…in a year should designed to eliminate excess general
revenue Medicare funding (as defined in section 801(c)) for the 7-fiscal-year period that begins in such year.” Given
the discretionary language, this provision does not appear to bind the President or dictate the contents of the President’s
legislative proposal. Thus, it would appear that the President need only submit a legislative proposal that “respond[s] to
such warning.” 31 U.S.C. § 1105(h)(1).
14 31 U.S.C. § 1105(h)(2).
15 The executive branch has generally argued that the Recommendation Clause prevents Congress from directing the
President to submit legislative proposals that the President does not personally find to be “necessary and expedient.”
See, e.g., “Common Legislative Encroachments of Executive Branch Constitutional Authority,” 13 OLC 248, 256
(1989) (“Because the President has plenary exclusive authority to determine whether and when he should propose
legislation, any bill purporting to require the submission of recommendations is unconstitutional. If enacted, such
‘requirements’ should be construed as only a recommendation to the President that he submit legislative proposals.”).
16 See, e.g., George W. Bush, Statement on Signing the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, Dec. 8, 2003; Barack Obama, Statement on Signing the Omnibus Appropriations Act of 2009, Mar. 11,
2009 (“Because the Constitution gives the President the discretion to recommend only ‘such measures as he shall judge
necessary and expedient,’…I shall treat these directions as precatory.”); “Constitutional Issues Raised by Commerce,
Justice and State Appropriations Bill,” 2001 OLC LEXIS 37, Nov. 28, 2001 (“Under the Recommendations Clause,
Congress cannot compel the President to submit legislative proposals to Congress.”); Ass’n of Am. Physicians and
Surgeons v. Clinton, 997 F.2d 898, 906 (D.C. Cir. 1993) (“According to the government, [the Recommendation
Clause] gives the President the sole discretion to decide what measures to propose to Congress, and it leaves no room
for congressional interference.”); Walker v. Cheney, 230 F. Supp. 2d 51 (D.D.C. Dec. 9, 2002) (arguing that “the swath
of Presidential policy-making authority falling within the Opinions and Recommendations Clause is entirely exempt
from congressional [] review.”).
17 George W. Bush, Statement on Signing the Medicare Prescription Drug, Improvement, and Modernization Act of
(continued...)
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Notwithstanding his objections to Section 802, President Bush submitted legislation in 2008
responding to the Medicare trustees 2007 funding warning.18 No action was taken on the
President’s proposal. Although the trustees have issued warnings every year since 2007, President
Obama has not submitted any legislative proposals to Congress pursuant to Section 802.19
The Recommendation Clause provides that the President “shall from time to time give to the
Congress Information of the state of the Union, and recommend to their Consideration such
Measures as he shall judge necessary and expedient.”20 Courts have rarely been presented with
the opportunity to interpret the scope of this Clause. However, the text of the Clause, read in
conjunction with analogous case law, does not appear to support an interpretation that would
prevent Congress from directing the President to submit legislative recommendations. The Clause
is perhaps most accurately characterized as establishing a “right” as opposed to a substantive
source of authority21—ensuring that the President may submit directly to Congress legislative
proposals that he views as “necessary and expedient.”22 Thus, this “right” would appear only to
be infringed where Congress prevents the President from submitting his own legislative proposal
or attempts to dictate the contents of a required legislative proposal. Under this reading, it is
unlikely that Congress imposes an excessive burden on the President where it merely directs the
President to submit a proposal, the contents of which remain within the President’s discretion, in
response to a specific trigger. Whereas the Department of Justice may assert that “any bill
purporting to require the submission of recommendations is unconstitutional,” no judicial
decision has accepted such a broad proposition.23
(...continued)
2003, December 8, 2003, http://budget.senate.gov/republican/analysis/2008/SShr1.pdf.
18 For additional information on the legislation, see CRS Report RL34407, The President’s Proposed Legislative
Response to the Medicare Funding Warning, by Hinda Chaikind, Jim Hahn, and Henry Cohen.
19 Various Members of Congress have criticized the President’s failure to submit a legislative proposal addressing the
Medicare funding warnings. See, e.g., Letter from Senator Jeff Session and Hon. Paul Ryan, to President Barack
Obama, Mar. 1, 2012 (advising the President that “[t]he law requires you to submit a legislative proposal to Congress
following a warning by the Medicare Trustees…”).
20 U.S. Const., Art. II, §3.
21 Ass’n of Am. Physicians and Surgeons v. Clinton, 997 F.2d 898, 908 (D.C. Cir. 1993) (“[T]he Recommendation
Clause is less an obligation than a right.”). In this sense, the Recommendation Clause has often been compared to
language, also found within Article II, § 3 of the Constitution, that establishes the President’s responsibility to “take
Care that the Laws be faithfully executed.” U.S. Const., Art. II, §3. The courts have consistently interpreted the “take
Care” Clause as a responsibility as opposed to a source of substantive power. See, e.g., Kendall ex rel Stokes v. United
States, 37 U.S. 522, 612-13 (1838) (“To contend that the obligation imposed on the President to see the laws be
faithfully executed, implies a power to forbid execution, is a novel construction of the Constitution, and entirely
inadmissible.”).
22 Indeed, the Recommendation Clause appears to have been inserted as a proactive measure to clearly establish the
President’s ability to recommend legislation to Congress. See, James Madison, Notes of Debates in the Federal
Convention of 1787, 464 (Gaillard Hunt and James Brown Scott, eds. 1987) (“On motion of Mr. Govr. Morris, ‘he
may’ was struck out, & ‘and’ inserted before ‘recommend’ in the clause 2d sect 2d art: X in order to make it the duty of
the President to recommend, & thence prevent umbrage or cavil at his doing it.”); Ass’n of Am. Physicians and
Surgeons v. Clinton, 997 F.2d 898, 908 n.7 (D.C. Cir. 1993) (“Gouverneur Morris’ amendment suggests that the clause
was intended to squelch any congressional objections to the President’s right to recommend legislation—hence the
prevention of ‘umbrage or cavil.’”(citing J. Gregory Sidak, The Recommendation Clause, 77 Geo. L. J. 2079, 2082
(1989)).
23 “Common Legislative Encroachments of Executive Branch Constitutional Authority,” 13 OLC 248, 256 (1989). The
Clause does, however, appear to “presuppose[] the [President’s] ability to collect information and advice necessary to
make such recommendations.” Judicial Watch, Inc. v. Nat. Energy Policy Dev. Gr., 219 F. Supp 2d 20, 50-51 n. 15
(D.D.C. 2002).
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Expedited Congressional Consideration
In any year in which the MMA requires the President to submit draft Medicare funding
legislation, the act directs that in each chamber, within three days of session after the proposal is
received, the two floor leaders (or their designees) introduce a bill reflecting it, with the title “A
bill to respond to a Medicare funding warning.” This measure, or, under certain circumstances, an
alternative Medicare funding measure, is potentially subject to consideration under “fast track”
rules established by the statute, rather than under the regular rules and procedures that govern
consideration of legislation in the two chambers.24
These expedited procedures place limits on committee consideration, as well as potentially on
Members’ ability to debate and amend legislation on the floor and to offer certain motions that
would otherwise be in order. These procedures are designed to guarantee that each house will
have an opportunity to consider legislation to eliminate the funding warning. They do not
guarantee, however, that (1) the President’s specific proposal will be the one considered or (2)
Congress will pass legislation to lower general revenue spending below the trigger amount. As
noted above, either chamber may alter these procedures should a numerical majority choose to do
so. The following description of the procedures and activities for the House thus serves as
reference of how the procedures would otherwise work in the House.
In response to President Bush’s legislative proposal submitted on February 14, 2008, the House
and the Senate both introduced the bill (H.R. 5480 and S. 2662 respectively) on February 25,
2008.25 On July 24, 2008, the House of Representatives adopted H.Res. 1368, a resolution which
provided that the expedited parliamentary procedures contained in Section 803 of the MMA
would not apply in the House during the remainder of the 110th Congress. Similar action was
taken by the House on January 6, 2009, when it approved a rules package (H.Res. 5) that nullified
the trigger provision for the 111th Congress. No action to waive these rules has been taken in the
112th Congress; therefore the trigger provision has gone back into effect in the House.
Procedures (and Activity) for the House
In any year in which the MMA requires the President to submit draft Medicare funding
legislation, the committee(s) of referral must report Medicare funding legislation by June 30. For
this purpose, any other bill with the same title as required for the President’s proposal also
qualifies as Medicare funding legislation, and the requirement to report legislation to address the
Medicare funding warning applies whether or not the President has submitted a proposal. As a
result, the committee may choose to report some other Medicare funding measure rather than that
of the President. The Chairman of the House Committee on the Budget is responsible for
certifying whether or not any Medicare funding legislation (or any subsequent amendments to it)
would eliminate the excess general revenue Medicare funding.
Whether or not the reported measure is affirmatively certified as responding to the funding
warning, the House may consider that measure under its regular procedures. However, if the
24 The text of this expedited procedure is contained in U.S. Congress, House, Constitution, Jefferson’s Manual, and
Rules of the House of Representatives of the United States, One Hundred Twelfth Congress, H.Doc. 111-157, 111h
Cong., 2nd sess., [compiled by] John V. Sullivan, Parliamentarian (Washington: GPO, 2011), sec. 1130(31).
25 CBO issued a score on H.R. 5480 on March 12, 2008; http://www.cbo.gov/publication/19548.
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House has not voted on final passage of an affirmatively certified measure by July 30, then after
30 more calendar days, including five days of session, any Member may offer a highly privileged
motion to discharge a committee from further consideration of any Medicare funding legislation
of which he or she is in favor, but only if it has been in committee for 30 days, and is
affirmatively certified.26 The MMA describes these procedures as a “fallback,” in that they apply
only if the House has not already voted on legislation affirmatively certified to respond to the
funding warning (regardless of whether that legislation passed or not). In addition, once the
House agrees to one such motion to discharge, the motion is no longer in order during that session
of Congress.
A motion to discharge made under this “fallback” provision must be made by a supporter,
seconded by one-fifth of the House’s membership (a quorum being present), and is debatable for
one hour. If the House adopts the motion to discharge, the Speaker must, within three days of
session thereafter, resolve the House into Committee of the Whole for consideration of the
legislation. Debate on the measure is not to exceed five hours, and only amendments that have the
affirmative certification of the Committee on the Budget are admitted. Debate on any amendment
is not to exceed one hour, and the total time for consideration of all amendments is capped at 10
hours. At the conclusion of consideration, the Committee rises and reports the legislation back to
the House for a final dispositive vote. A motion to recommit the measure with or without
instructions is not precluded.
Procedures for the Senate
The statutory procedures provided in the Senate for Medicare funding legislation apply to a bill
reflecting a Presidential proposal pursuant to the MMA or to any other bill with the same title that
either (1) was passed by the House or (2) contains matter within the jurisdiction of the Senate
Committee on Finance (Finance Committee). A measure reflecting the President’s proposal is to
be referred to the Finance Committee. In a year in which the MMA requires the President to
submit Medicare funding legislation, and whether or not he does so, if the Finance Committee has
not reported the bill reflecting the President’s proposal or some other Medicare funding
legislation by June 30, then any Senator may move to discharge that committee from any single
Medicare funding measure. Only one such motion to discharge is in order during a session of
Congress.27 Debate on the motion to discharge is limited to two hours, a restriction which ensures
that a vote on the motion cannot be prevented by a filibuster.
In combination, these provisions afford the Senate only one assured opportunity to consider
Medicare funding legislation, which will be either the measure the Finance Committee reports or
the one specified in the discharge motion. In either case, the legislation the Senate will have the
opportunity to consider may or may not be the one that embodies the President’s proposal.
After the date on which the Finance Committee has reported or been discharged from further
consideration of Medicare funding legislation, it is in order for any Senator to move to proceed to
consideration of the bill. The MMA does not explicitly make this motion non-debatable, although
26 This motion to discharge is not in order if, during the previous session of Congress, the House voted on Medicare
funding legislation which was affirmatively certified by the House Committee on the Budget to eliminate the general
funding warning.
27 This motion is not in order at all if the Chairman of the Senate Committee on the Budget has certified that Medicare
funding legislation has already been enacted that eliminates the excess general revenue Medicare funding.
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Senate precedent exists for treating as non-debatable a motion to proceed to consider a measure
under procedures specified by statute. In the absence of such a limitation, it might be possible for
opponents to use a filibuster to prevent this motion from coming to a vote. In any case, because
the MMA establishes no further requirements regarding consideration, if the motion to proceed is
agreed to, the Senate would consider the measure under its general rules. The statute, then, does
not preclude a filibuster of the measure. Nor, if the House and Senate both pass a bill, does the act
make any provision to expedite the resolution by conference committee or otherwise of
differences between the two versions of Medicare funding legislation.
Varying Impact of Legislative Options
As noted earlier, the Medicare HI and SMI trust funds are statutorily independent; this means that
any funds raised for one fund cannot be used to pay expenses out of the other. However, the
formula used to determine excess general revenue funding combines revenue streams from both
the HI and SMI trust funds.
Revenues
Dedicated
-
Outlays
Medicare
Total
Percentage
Funding
Revenue
General
=
Outlays
Medicare
Total
Because of the way that this formula is structured, the various methods that could be used to
reduce the Medicare general revenue funding percentage would not necessarily reduce federal
general revenue outlays (used to finance Parts B and D) or reduce the percentage in direct
proportion to reductions in total spending.
Specifically, to reduce the percentage, one could increase dedicated financing (e.g. payroll taxes
or premiums) or reduce outlays (HI and/or SMI spending), or some combination of the two. In the
example presented in Table 1 below, applying FY2012 CBO estimates to the above equation,28
the total expected outlays of $585.0 billion and $289.3 billion in dedicated revenues results in a
level of general revenue funding of about 50.5%. Given this scenario, one option to reduce the
general revenue percentage to 45% would be to increase payroll taxes by an amount sufficient to
raise an additional $32.5 billion in dedicated revenues. Another option would be to decrease total
outlays by reducing Part A (HI trust fund) spending. However, because the “total outlays”
measure is included in both the top and bottom parts of the mathematical formula (i.e., the
denominator as well as the numerator is reduced), a reduction in outlays would have less of an
effect than an increase in dedicated funding on the percentage of general revenue funding.
Therefore a reduction of $59.0 billion in Part A funding would be needed to reduce general
revenue funding to 45% (in contrast to the $32.5 billion increase in taxes).29 While the above
options of increasing the payroll tax or lowering Part A spending would eliminate “excess general
revenue spending” as defined under the Medicare trigger, because Part A is primarily funded
through payroll taxes, these options would have no impact on actual federal general revenue
spending (used to finance Parts B and D outlays).30
28 Congressional Budget Office, Medicare Baseline, March 2012, “Comparison of Medicare Spending and Dedicated
Funding,” p. 4, http://www.cbo.gov/sites/default/files/cbofiles/attachments/43060_Medicare.pdf.
29 By comparison, decreasing total outlays by reducing Part A spending (HI trust fund spending) the same amount,
$32.5 billion, would result in an excess general revenue percentage of about 47.6%.
30 Another measure of Medicare’s financial health is the date on which the HI trust fund is expected to become
(continued...)
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Table 1. Illustrative Effect of Options to Lower General Revenue Funding as a
Percentage of Total Medicare Outlays Under the Trigger Calculation
(dollars in billions)
Increase
Dedicated
Decrease Part A
Decrease Part B
FY2012
Revenues by
Spending by
Spending by
(estimated)
$32.5
$59.0
$108.2
Total Medicare Outlays
$585.0
$585.0
$526.0
$476.8
Dedicated Revenues
$289.3
$321.8
$289.3
$262.3
General Revenues
(Total Outlays-
$295.7 $263.3
$236.8
$214.5
Dedicated Revenues)
General Revenues as a
% of Total Medicare
50.5% 45.0%
45.0%
45.0%
Outlays
Source: CRS analysis based on CBO March 2012 Medicare Baseline estimates.
Similarly, continuing with the example in Table 1, one could reach the 45% general revenue
spending level by increasing beneficiaries’ Part B premiums by a percentage that would increase
dedicated revenues by $32.5 billion.31 Although total Medicare outlays would remain the same,
the general revenue percentage as defined by the trigger calculation and the level of Medicare
spending financed through federal general revenues would both decline. Because approximately
25% of SMI spending is financed by premiums, if Part B spending were reduced, income from
premiums (which are calculated based on expected outlays) would also be reduced, i.e. the
reduction in outlays would be partially offset by a reduction in a the dedicated revenues.
Therefore, greater spending reductions would be needed under Part B than under Part A to
achieve the same amount of reduction in the general revenue funding percentage. In this case, a
reduction in Part B outlays of $108.2 billion would be needed to bring down the level of general
revenue funding to 45%.
Discussion
Excess general revenue funding is one measure that can be used to examine the financial status of
the Medicare program. Other measures, discussed in CRS Report R41436, Medicare Financing,
include the date of HI insolvency, HI income and costs relative to payroll taxes, long-term
unfunded obligations, and Medicare costs as a percentage of GDP.
Proponents of the 45% threshold measurement believe that it can serve as an effective early
warning system of the impact of Medicare spending on the federal budget, and that it forces fiscal
responsibility. Opponents of the measure suggest that it does not adequately recognize a shift
(...continued)
insolvent. Although actions taken to reduce Part A spending or increase HI revenue would not impact federal general
revenue spending, such actions would extend the solvency of the HI trust fund.
31 By comparison, if Part B spending (SMI trust fund) were reduced by $32.5 billion, the general revenue funding
percentage would decrease to only 49.1%.
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Medicare Trigger
towards the provision of more services on an outpatient basis or the impact of the Part D program
on general revenue increases, and that other measures, such as Medicare spending as a portion of
total federal spending, are better ways to determine the health of the Medicare program.
Author Contact Information
Patricia A. Davis
Todd Garvey
Specialist in Health Care Financing
Legislative Attorney
pdavis@crs.loc.gov, 7-7362
tgarvey@crs.loc.gov, 7-0174
Christopher M. Davis
Analyst on the Congress and Legislative Process
cmdavis@crs.loc.gov, 7-0656
Acknowledgments
Hinda Chaikind and Christopher M. Davis co-authored an earlier version of this report.
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