Medicare Financing
Patricia A. Davis
Specialist in Health Care Financing
June 11, 2012
The House Ways and Means Committee is making available this version of this Congressional Research Service
(CRS) report, with the cover date shown, for inclusion in its 2012 Green Book website. CRS works exclusively
for the United States Congress, providing policy and legal analysis to Committees and Members of both the
House and Senate, regardless of party affiliation.
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R41436
CRS Report for Congress
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epared for Members and Committees of Congress
Medicare Financing
Summary
Medicare is the nation’s health insurance program for individuals aged 65 and over and certain
disabled persons. Medicare consists of four distinct parts: Part A, or Hospital Insurance (HI); Part
B, or Supplementary Medical Insurance (SMI); Part C, or Medicare Advantage (MA); and Part D,
the prescription drug benefit. The Part A program is financed primarily through payroll taxes
levied on current workers and their employers; these are credited to the HI trust fund. The Part B
program is financed through a combination of monthly premiums paid by current enrollees and
general revenues. Income from these sources is credited to the SMI trust fund. Beneficiaries can
choose to receive all their Medicare services, except hospice, through managed care plans under
the MA program; payment is made on their behalf in appropriate parts from the HI and SMI trust
funds. A separate account in the SMI trust fund accounts for the Part D drug benefit; Part D is
financed through general revenues, beneficiary premiums, and state contributions. The HI and
SMI trust funds are overseen by a board of trustees that makes annual reports to Congress.
The 2012 report of the Medicare Board of Trustees estimates that the HI trust fund will become
insolvent in 2024, the same as it had predicted in the 2011 report. This recent projection still
postpones depletion further in the future than the year of 2017, as projected in the 2009 report
prior to the passage of the Patient Protection and Affordable Care Act (ACA, P.L. 111-148), as
amended, but earlier than the 2029 date estimated in the 2010 report immediately after the ACA’s
enactment. 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
demands on Medicare beneficiaries and all taxpayers. The trustees estimate that total Medicare
costs will increase from 3.7% of GDP in 2011 to 6.7% in 2086.
Although the Medicare trustees report that the financial outlook for the Medicare program
appears to have improved as a result of ACA, they caution that the projections in the report are
more uncertain than normal, due to the potential for future expenditure reductions not to
materialize. In addition, the report projections assume that reductions in physician payment rates
scheduled under current law will occur, although these reductions have usually been overridden
by Congress. As such, as it has done each year subsequent to the enactment of ACA, the Centers
for Medicare & Medicaid Services (CMS) Office of the Actuary issued a supplemental analysis
that provides projections based on an “illustrative alternative” to current law.
This report will be updated upon receipt of the 2013 trustees report or as circumstances warrant.
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Medicare Financing
Contents
Introduction...................................................................................................................................... 1
Medicare Trust Funds ...................................................................................................................... 2
Hospital Insurance (HI) Trust Fund........................................................................................... 3
Supplementary Medical Insurance (SMI) Trust Fund ............................................................... 4
Part B Financing.................................................................................................................. 5
Part D Financing.................................................................................................................. 5
Board of Trustees....................................................................................................................... 6
Annual Trustees Report ............................................................................................................. 6
2011 Medicare Program Operations ................................................................................................ 7
Hospital Insurance Trust Fund Operations in 2011 ................................................................... 7
Supplementary Medical Insurance Trust Fund Operations in 2011........................................... 9
Short-Range Financial Soundness (10 Years).................................................................................. 9
HI Short-Range Financial Status ............................................................................................. 10
SMI Short-Range Financial Status .......................................................................................... 11
Projected Date of HI Insolvency.................................................................................................... 12
Long-Range Financial Soundness (75 Years) ................................................................................ 13
HI Income and Costs Relative to Payroll Taxes ...................................................................... 13
Year-by-Year Estimates ..................................................................................................... 14
Actuarial Balance .............................................................................................................. 15
Unfunded Obligations ............................................................................................................. 16
HI Long-Term Obligations................................................................................................ 16
SMI Long-Term Obligations ............................................................................................. 17
Medicare Costs as a Percentage of GDP ................................................................................. 18
Medicare Funding Warning (“Medicare Trigger”) ........................................................................ 19
Medicare Expenditures and the Federal Budget ............................................................................ 20
Concluding Observations............................................................................................................... 22
Figures
Figure 1. Sources of Medicare Revenue: 2011................................................................................ 3
Figure 2. Medicare Expenditures................................................................................................... 10
Figure 3. Short-Term HI Expenditures and Income....................................................................... 11
Figure 4. HI Trust Fund Assets at Beginning of Year as a Percentage of Annual
Expenditures ............................................................................................................................... 12
Figure 5. Long-Range HI Income and Cost as a Percentage of Taxable Payroll........................... 15
Figure 6. Medicare Cost and Non-Interest Income by Source as a Percentage of GDP................ 18
Tables
Table 1. Medicare Data for Calendar Year 2011.............................................................................. 8
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Table 2. Unfunded HI Obligations................................................................................................. 16
Table 3. Unfunded Part B and Part D Obligations......................................................................... 17
Table 4. SMI General Revenues as a Percentage of Personal and Corporate Federal
Income Taxes .............................................................................................................................. 21
Table A-1. Medicare Enrollment, 1970 - 2085 .............................................................................. 25
Table B-1. Medicare Income and Expenditures, Calendar Years 1970-2021 ................................ 27
Table C-1. Average Medicare Benefit Costs Per Beneficiary, Calendar Years 1970-2021............ 28
Table D-1. Operation of the Hospital Insurance Trust Fund, Calendar Years 1970-2021 ............. 29
Table E-1. Operation of the Part B Account of the SMI Trust Fund, Calendar Years 1970-
2021 ............................................................................................................................................ 30
Table F-1. Operation of the Part D Account in the SMI Trust Fund, Calendar Years 2004-
2021 ............................................................................................................................................ 31
Table G-1. Projected HI and SMI Expenditures as a Percentage of GDP ..................................... 32
Appendixes
Appendix A. Medicare Enrollment................................................................................................ 25
Appendix B. Total Medicare Income and Expenditures (HI and SMI Combined)........................ 27
Appendix C. Medicare Per Capita Expenditures ........................................................................... 28
Appendix D. Operation of the Hospital Insurance Trust Fund ...................................................... 29
Appendix E. Operation of the Supplementary Insurance Trust Fund, Part B Account.................. 30
Appendix F. Operation of the Supplementary Insurance Trust Fund, Part D Account .................. 31
Appendix G. Medicare Expenditures as a Percentage of GDP ...................................................... 32
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Medicare Financing
Introduction
Medicare is a federal insurance program that pays for covered health care services of qualified
beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act as a federal
entitlement program to provide health insurance to individuals 65 and older, and has been
expanded over the years to include permanently disabled individuals under 65. Generally,
individuals are eligible for premium-free Part A of Medicare if they or their spouse worked for at
least 40 quarters in Medicare-covered employment, are at least 65 years old, and are a citizen or
permanent resident of the United States. Individuals under 65 may also qualify for coverage if
they have a permanent disability, have End-Stage Renal disease (permanent kidney failure
requiring dialysis or transplant), or have amyotrophic lateral sclerosis (Lou Gehrig’s disease).1
Medicare consists of four parts—A through D. Part A covers hospital services, skilled nursing
facility services, home health visits, and hospice services. 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 voluntary, however most beneficiaries with
Part A also enroll in Part B. Part C provides private plan options, such as managed care, for
beneficiaries who are enrolled in both Parts A and B. Part D provides optional outpatient
prescription drug coverage.2
Medicare serves approximately one in six Americans and virtually all of the population aged 65
and over. In 2011, the program covered 48.7 million persons (40.4 million aged and 8.3 million
disabled) at a total cost of about $549 billion, accounting for about 20% of national health
spending and 3.7% of Gross Domestic Product (GDP). Medicare is an entitlement program,
which means that it is required to pay for covered services provided to enrollees so long as
specific criteria are met.
Since 1965, the Medicare program has undergone considerable change. Most recently, the Patient
Protection and Affordable Care Act (ACA, P.L. 111-148), as amended by the Health Care and
Education Reconciliation Act of 2010 (“the Reconciliation Act” or HCERA, P.L. 111-152), made
numerous changes to the Medicare program that modify provider reimbursements, provide
incentives to increase the quality and efficiency of care, and enhance certain Medicare benefits.3
For example, under the new legislation, annual updates of the prices paid by Medicare for almost
all non-physician categories of health services will be reduced by the growth in economy-wide
productivity (productivity adjustments). The ACA also established a new Independent Payment
Advisory Board (IPAB), which, beginning in 2014, is required to make recommendations to
reduce Medicare spending in years in which Medicare costs are projected to exceed a target
growth rate.4 The legislation did not, however, make changes to the physician sustainable growth
1 In addition, individuals with one or more specified lung diseases or types of cancer who lived for six months during a
specified period prior to diagnosis in an area subject to a public health emergency declaration by the Environmental
Protection Agency (EPA) as of June 17, 2009, are also deemed entitled to benefits under Part A and eligible to enroll in
Part B.
2 For additional information on the Medicare program, see CRS Report R40425, Medicare Primer, coordinated by
Patricia A. Davis.
3 See CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA):
Summary and Timeline, coordinated by Patricia A. Davis, for additional detail.
4 The board’s proposals will take effect unless Congress passes an alternative measure that achieves the same level of
savings. The board is prohibited from making proposals that ration care, raise taxes, increase Part B premiums, or
(continued...)
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rate (SGR) payment system; unless Congress takes action in 2012, reductions in physician
payment rates of close to 31% will be required beginning January 1, 2013.5 Additionally, unless
Congress passes alternative legislation later this year to block automatic cuts required under the
Budget Control Act of 2011 (BCA, P.L. 112-25), a 2% reduction in Medicare benefit spending
will be required each year from CY2013 through CY2021.6
This report provides an overview of how the Medicare program is financed, including a
description of the Medicare trust funds and a summary of key findings and estimates from the
2012 Report of the Medicare Board of Trustees regarding 2011 program operations and future
financial soundness.7
Medicare Trust Funds
Medicare’s financial operations are accounted for through two trust funds maintained by the
Department of the Treasury—the Hospital Insurance (HI) trust fund for Part A and the
Supplementary Medical Insurance (SMI) trust fund for Parts B and D. For beneficiaries enrolled
in Medicare Advantage (Part C), payments are made on their behalf in appropriate portions from
the HI and SMI trust funds. HI is primarily funded by payroll taxes, while SMI is primarily
funded through general revenue transfers and premiums (see Figure 1). The HI and SMI trust
funds are overseen by a board of trustees that provides annual reports to Congress.
(...continued)
change Medicare benefits, eligibility, or cost-sharing. For additional information on IPAB, see CRS Report R41511,
The Independent Payment Advisory Board, by Jim Hahn and Christopher M. Davis.
5 Congress has overridden these required reductions in every year since 2003, most recently by the Middle Class Tax
Relief and Job Creation Act of 2012 (P.L. 112-96) signed February 22, 2012. See CRS Report R40907, Medicare
Physician Payment Updates and the Sustainable Growth Rate (SGR) System, by Jim Hahn and Janemarie Mulvey.
6 For additional information on BCA and required spending reductions, see CRS Report R41965, The Budget Control
Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan; and CRS Report R42050, Budget
“Sequestration” and Selected Program Exemptions and Special Rules, coordinated by Karen Spar.
7 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
ReportsTrustFunds/downloads//tr2012.pdf.
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Figure 1. Sources of Medicare Revenue: 2011
Payroll Taxes
37%
General Revenue
73%
78%
Beneficiary
85%
Premiums
Payments from
42%
States
Taxation of Social
Security Benefits
13%
25%
11%
1%
Interest and Other
7%
1%
3%
11%
6%
4%
3%
TOTAL MEDICARE
HI -
SMI -
SMI -
REVENUE
PART A
PART B
PART D
$530 Billion
$229 Billion
$234 Billion
$67 Billion
Source: 2012 Report of the Medicare Trustees, Table II.B1.
Note: Totals may not add to 100% due to rounding.
Hospital Insurance (HI) Trust Fund
Covered Part A benefits, namely, inpatient hospital services, skilled nursing facility services,
some home health services, and hospice care are paid for out of the HI trust fund. Payments are
also made for administrative costs associated with operating this part of the program.
Similar to the Social Security system, the HI portion of Medicare was designed to be self-
supporting, and is financed through dedicated sources of income rather than relying on general
tax revenues. The primary source of income credited to the HI trust fund is payroll taxes paid by
employees and employers; each pays a tax of 1.45% on earnings. The self-employed pay 2.9%.
Unlike Social Security, there is no upper limit on earnings subject to the tax.8 ACA imposes an
additional tax of 0.9% on high-income workers with wages over $200,000 for single filers, and
$250,000 for joint filers effective for taxable years beginning in 2013.9 (ACA also imposes an
additional tax on unearned income, beginning in 2013; however, this tax is not credited to the
trust fund.)10
8 Prior to 1991, the upper limit on taxable earnings was the same as for Social Security. The Omnibus Budget
Reconciliation Act of 1990 (OBRA 90, P.L. 101-508) 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. The Omnibus Budget
Reconciliation Act of 1993 (OBRA 93, P.L. 103-66) eliminated the upper limit entirely beginning in 1994.
9 See CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act
(ACA), by Janemarie Mulvey, for additional detail.
10 See CRS Report R41413, The 3.8% Medicare Contribution Tax on Unearned Income, Including Real Estate
Transactions, by Mark P. Keightley, and the 2012 Medicare Trustees Report, page 24 including footnote 14,
(continued...)
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Additional income to the HI trust fund consists of: premiums paid by voluntary enrollees who are
not entitled to premium-free Medicare Part A through their (or their spouse’s) work in covered
employment; a portion of the federal income taxes paid on Social Security benefits;11 and interest
on federal securities held by the trust fund.
The HI trust fund is solely an accounting mechanism—there is no actual transfer of money into
and out of the fund. When the government receives Medicare revenues (payroll taxes), income is
credited by the Treasury to the appropriate trust fund in the form of special issue interest-bearing
government securities.12 (Interest on these securities is also credited to the trust funds.) 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 benefits 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.
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 the unified budget perspective, these “asset”
balances are regarded as future spending obligations and are thus treated as liabilities. (See the
“Medicare Expenditures and the Federal Budget” section for an overview of differences in trust
fund and unified budget accounting conventions.)
As long as the HI trust fund has a balance, the Treasury Department is authorized to make
payments for Medicare Part A services. To date, the HI trust fund has never run out of money
(i.e., become insolvent), and there are no provisions in the Social Security Act that govern what
would happen if that were to occur. For example, there is no authority in law for the program to
use general revenue to fund Part A services in the event of such a shortfall. Since the beginning of
the Medicare program, the payroll tax rate has been adjusted periodically by Congress as one of
the mechanisms to maintain the financial adequacy of the HI trust fund.13
Supplementary Medical Insurance (SMI) Trust Fund
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-
173), which created the Part D outpatient prescription drug benefit, created two separate accounts
within the SMI trust fund: one for Part B, to cover physician services, outpatient hospital care,
some home health services, durable medical equipment, diagnostic tests and other services; and
one for Part D, to cover outpatient prescription drug benefits. Unlike the HI program, the SMI
program was not intended to be fully supported through dedicated sources of income. Instead, it
(...continued)
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/
downloads//tr2012.pdf#page=30.
11 Since 1994, the HI fund has had an additional funding source—OBRA 93 increased the maximum amount of Social
Security benefits subject to income tax from 50% to 85% and provided that the additional revenues would be credited
to the HI trust fund.
12 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.
13 Historical Medicare payroll tax rates may be found in Appendix B of CRS Report RS20946, Medicare: History of
Insolvency Projections, by Patricia A. Davis.
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relies primarily on general tax revenues and beneficiary premiums as revenue sources. Beginning
in 2011, additional revenues from an annual fee imposed on certain manufacturers and importers
of branded prescription drugs (including biological products and excluding orphan drugs) are
credited to the SMI trust fund.14
Because contributions (general revenue and premiums) into the SMI trust fund are automatically
updated each year to ensure that the program has enough money to continue operating, the SMI
trust fund is kept in balance and will remain in financial balance indefinitely. Income from these
sources is credited to the SMI trust fund, and similar to the HI trust fund, any SMI revenues that
exceed SMI spending accumulate in the SMI trust fund; however, SMI trust fund balances are
generally small. Similar to HI, the basic structure of the SMI financing system can be changed
only through an act of Congress.
Part B Financing
Medicare Part B is financed mostly from federal general revenues, with beneficiaries’ premiums
set to cover 25% of estimated Part B program costs for the aged. The 2012 monthly premium is
$99.90 for most Medicare Part B enrollees,15 and individuals who receive Social Security benefits
have their Part B premium payments automatically deducted from their Social Security benefit
checks. Since 2007, higher-income enrollees pay higher premiums. As a result of ACA, the
income thresholds used to determine which beneficiaries are subject to higher Part B premium
rates will be frozen at 2010 levels through 2019. Over time, this freeze will result in a larger
number of beneficiaries paying the higher premiums and is expected to bring in increased revenue
to the SMI trust fund.
Part D Financing
Medicare Part D is primarily financed through a combination of beneficiary premiums and
federal general revenues. In addition, certain transfers are made from the states. These transfers,
referred to as “clawback payments,” represent a portion of the amounts states could otherwise
have been expected to pay for drugs under Medicaid if drug coverage for the dual-eligible
population (those who qualify for both Medicare and Medicaid) had not been transferred to Part
D.
In 2012, the base monthly premium is $31.08; however, beneficiaries pay different premiums
depending on the plan they have selected (and whether they are entitled to low-income premium
subsidies). Part D premium payments may be automatically deducted from Social Security
benefit checks, paid directly to the prescription drug plan sponsor, or made through an electronic
14 See CRS Report R41128, Health-Related Revenue Provisions in the Patient Protection and Affordable Care Act
(ACA), by Janemarie Mulvey, for more detail.
15 About 75% of Part B enrollees were not subject to Part B premium increases in 2010 and 2011. The Social Security
Act includes a provision that holds most Social Security beneficiaries harmless for increases in the Medicare Part B
premium; affected beneficiaries’ Part B premiums are reduced to ensure that their Social Security checks do not decline
from one year to the next. Those not protected by the “hold harmless” provision paid a standard premium of $115.40 in
2011; these include those who were subject to the high income premium adjustments, those eligible for both Medicare
and Medicaid (dual-eligibles), those who do not participate in Social Security, and new Part B enrollees. For additional
detail, see CRS Report R40561, Interactions Between the Social Security COLA and Medicare Part B Premiums, by
Jim Hahn and Alison M. Shelton.
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funds transfer.16 Premiums for the Part D program are required to cover 25.5% of standard benefit
costs; however, as recipients of the Part D low-income subsidies are not required to pay
premiums, premiums covered only about 11% of Part D program costs in 2011 (see Figure 1). As
required by ACA, beginning in 2011, high-income Part D prescription drug program enrollees are
required to pay higher premiums similar to high-income Part B enrollees; the income thresholds
are set at the same levels as those under Part B and frozen in the same manner through 2019.
Board of Trustees
The Medicare Board of Trustees was established under the Social Security Act to oversee the
financial operations of the HI and SMI trust funds. By law, the six-member Board is composed of
the Secretary of the Treasury, the Secretary of Health and Human Services, the Secretary of
Labor, the Commissioner of Social Security, and two public members (not of the same political
party) nominated by the President and confirmed by the Senate.17 The Secretary of the Treasury is
the Managing Trustee. The Administrator of the Centers for Medicare & Medicaid Services
(CMS) is designated Secretary of the Board.
Annual Trustees Report
The Medicare Board provides an annual report to Congress on the operations of the trust funds.
Financial projections included in the report are made by CMS actuaries using major economic
and other assumptions selected by the trustees based on current law. Among the variables used are
such things as estimations of consumer price index (CPI), fertility rate, mortality rate, workforce
size, wage increases, and life expectancy. The assumptions are reviewed annually and updated as
warranted by new analyses of trends and data. The report includes three forecasts ranging from
pessimistic (“high cost”) to mid-range (“intermediate”) to optimistic (“low cost”). The
intermediate projections represent the trustees’ best estimate of economic and demographic
trends; they are the projections most frequently cited.
The 2012 report of the Medicare trustees was issued April 23, 2012.18 However, the report warned
that estimates based on current-law assumptions may not be realistic. As such, actuaries of CMS
conducted a separate analysis that provides projections based on an “illustrative alternative” to
current law.19 The alternative estimates are based on the assumption that the economy-wide
16 The “hold harmless” provision described in the previous footnote does not apply to Part D; beneficiaries are not
protected from Part D premium increases.
17 The nominations of Charles P. Blahous III and Robert D. Reischauer to be public members of the Medicare and
Social Security Boards of Trustees were confirmed by the Senate on September 16, 2010. The seats for the two public
members had been vacant since 2008.
18 The 2012 report includes data on actual expenditures and income through 2011, and projections for years 2012 and
beyond. 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/ReportsTrustFunds/downloads//tr2012.pdf.
19 Appendix C: Illustrative Alternative Projections, 2012 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, https://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads//tr2012.pdf#page=221; and,
memo from John D. Shatto and M. Kent Clemens, CMS Office of the Actuary, “Projected Medicare Expenditures
Under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers,” May 18, 2012,
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/
Downloads/2012TRAlternativeScenario.pdf.
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productivity adjustments mandated by ACA would be made through 2019, but then would be
phased out from 2020 through 2034, and that IPAB recommendations for cost reductions would
not be implemented The alternative scenario also assumes that, instead of being cut, physician
payments will grow annually by 1% each year.
In 2010, the Board of Trustees convened an independent panel of expert actuaries and economists
to make recommendations to the Board regarding the most appropriate long-range growth
assumptions for Medicare projections. The panel members met in November 2010 and issued an
interim report in February 2011.20 In particular, the panel noted “the extreme difficulty involved
in developing a long-range average per capita growth assumption, due to the many uncertainties
that surround not only the long-term evolution of the U.S. health care system but also its
interaction with the provisions of (ACA).” While the panel was not able to recommend changes
in time for use in the development of the 2011 Medicare trustees report, the 2012 report
incorporated short-term assumptions and long-range cost projection methods recommended by
the panel. The use of these new methods increased projected short-range costs compared to
projections in the prior report; however, these increased costs are expected to be offset by the 2%
Medicare benefit spending reductions under BCA from 2013 through 2021. The new methods
also increased the projected long-term growth rate by 0.3 percentage points.
2011 Medicare Program Operations
In calendar year (CY) 2011, Medicare provided about 48.7 million beneficiaries with benefits at a
total cost of about $549 billion, or $12,042 per enrollee. (See Appendix A, Appendix B, and
Appendix C for historical and projected enrollment, total Medicare income and expenditures, and
per capita expenditures.) Because HI and SMI have different funding mechanisms, a description
of each fund’s 2011 operations is presented separately below.
Hospital Insurance Trust Fund Operations in 2011
As shown in Table 1, in CY2011, total income to the HI trust fund was $228.9 billion. Payroll
taxes of workers and their employers accounted for $195.6 billion (85.5%), with the remainder
from interest and government credits, premiums (from those buying into the program), and
taxation of Social Security benefits. The HI program paid out $256.7 billion; most of which was
for benefit costs, and about 1.5% was for administrative expenses. Similar to 2008, 2009, and
2010, expenditures again exceeded income in 2011, and the trust fund balance was reduced from
$271.9 billion at the end of 2010 to $244.2 billion at the end of 2011 (a loss of $27.7 billion).21
(See Appendix D for funding amounts in prior years and estimates for future years.)
20 2010 Technical Review Panel on the Medicare Trustees Report, “Review of the Long Range Assumptions of the
Medicare Trustees’ Projections Interim Report,” February 2011, http://aspe.hhs.gov/health/medpanel/2010/
interim1103.shtml.
21 In comparison, in CY2010, total income was $215.6 billion and total disbursements were $247.9 billion; this
represents an increase in income of $13.3 billion (increase of 6.2%) and a growth in expenditures of $8.8 billion
(increase of 3.5%) from 2010 to 2011.
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Table 1. Medicare Data for Calendar Year 2011
HI - Part A
SMI - Part B
SMI - Part D
Total Medicare
Enrollment (millions)
Aged
40.0
37.5
n/a
40.4
Disabled
8.3
7.4
n/a
8.3
Total 48.3
44.9
35.7
48.7
Average expenditures
$5,232 $4,940 $1,870 $12,042
per enrollee
Trust Fund Balance at
$271.9 $71.4 $0.7
$344.0
end of 2010 (billions)
Total Income
$228.9
$233.6
$67.4
$530.0
Payrol Taxes
195.6
—
—
195.6
Interest
12.0
3.2
0.0
15.2
Taxation of Benefits
15.1
—
—
15.1
Premiums
3.3
57.5
7.7
68.5
General Revenue
0.5
170.2
52.6
223.3
Transfers from States
—
—
7.1
7.1
Other
2.4
2.7
—
5.1
Total Expenditures
$256.7
$225.3
$67.1
$549.1
Benefits
252.9
221.7
66.7
541.3
Hospital
132.7
35.1
—
167.8
Skilled Nursing
32.9
—
—
32.9
Home Health Care
7.3
12.4
—
19.6
Physician Services
—
67.6
—
67.6
Private plans (Part C)
64.6
59.1
—
123.7
Prescription Drugs
—
—
66.7
66.7
Other
15.4
47.5
—
62.9
Administrative Expenses
$3.8
$3.6
$0.4
$7.8
Net Change
-$27.7
$8.3
$0.3
-$19.2
Trust Fund Balance at
$244.2 $79.7 $1.0
$324.9
end of 2011
Source: 2012 Report of Medicare Trustees, Table II.B1.
Notes: Totals do not necessarily equal the sums of rounded components; n/a = data not available.
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Supplementary Medical Insurance Trust Fund Operations in 2011
In CY2011, the SMI trust fund (Part B and Part D accounts combined) brought in $301.0 billion
in revenue ($233.6 billion from Part B and $67.4 billion from Part D), and expended $292.4
billion ($225.3 billion from Part B and $67.1 from Part D). General revenues accounted for
74.0% of total revenues, and premiums accounted for 21.7%.22 (See Table 1 for 2011 Parts B and
D operations data.)
Of the $233.6 billion in income to Part B, general revenues accounted for $170.2 billion (72.9%),
premiums accounted for $57.5 billion (24.6%), and interest and other income made up the
remaining $5.9 billion (2.5%). The program paid out $225.3 billion; similar to HI, almost all of
this amount was used to cover benefits and 1.6% covered administrative expenses.23 (See
Appendix E for historical and projected income and expenditures in the SMI Part B account.)
Of the $67.4 billion in Part D income, general revenues accounted for $52.6 billion (78.0%),
premiums accounted for $7.7 billion (11.4%), and transfers from states for $7.1 billion (10.5%).
Almost all of the 2011 Part D program expenditures of $67.1 billion were used to pay benefit
costs and 0.6% was used for administrative expenses.24 (See Appendix F for historical and
projected income and expenditures in the SMI Part D account.)
Short-Range Financial Soundness (10 Years)
The 2012 Medicare trustees report predicts a slightly higher growth rate of Medicare expenditures
compared to their projections in last year’s report. Over the next 10 years, total Medicare
expenditures are projected to increase at an average annual rate of 6.2% compared to 6.0% as
projected in the prior report.25 The 2012 report estimates that Medicare spending will grow from
$549.1 billion in 2011 to $1.0 trillion in 2021 (see Figure 2 and Appendix B). The average
growth rate reflects the expected growth in the number of individuals eligible for Medicare as
well as expected increases in utilization and complexity of services per beneficiary and in the
prices of those services. The growth rate also factors in ACA changes that affect cost growth
rates, such as the productivity adjustments to the annual payment updates to certain providers and
changes in payments to Medicare Advantage plans. These growth rates also assume that the
scheduled physician payment reductions of about 31% in 2013 will go into effect.
22 In comparison, in CY2010, total income for SMI was $270.5 billion and total expenditures were $274.9 billion. This
represents a growth in SMI expenditures of $17.5 billion, or an increase of 6.4%, from 2010 to 2011.
23 This represents an expenditure increase of 5.8% over the $212.9 billion in Part B expenditures in 2010.
24 The 2010 Part D expenditures represent an 8.2% growth over the 2010 expenditures of $62.0 billion.
25 By comparison, Medicare expenditures grew at an average annual rate of 8.1% from 1985 to 2011.
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Figure 2. Medicare Expenditures
Comparison of Estimates of 2009, 2010, 2011, and 2012 Medicare Trustees Reports
1200
2009 Report
2010 Report
1000
2011 Report
2012 Report
800
s
n
io
600
ill
$ b
400
200
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Sources: Data from the 2009, 2010, 2011, and 2012 Reports of the Medicare Boards of Trustees, Table III.A1
(2009-2011) and Table V.B1 (2012).
Notes: The 10-year projection window for the 2009 report only extended to 2018; there are no corresponding
projections for 2019 through 2021. Similarly, the 2010 and 2011 report projections only extend to 2019 and
2020, respectively.
HI Short-Range Financial Status
In the short term, the adequacy of the HI trust fund is determined by comparing its assets at the
beginning of the year to expected costs for that year. The trustees consider the fund to be adequate
if the level of assets is expected to be at least equal to projected costs in a year.26 The trustees note
that the HI fund is not adequately financed over the next 10 years. Specifically, the new report
states that the fund fails to meet the short-range (i.e., 10-year, 2012-2021) test of financial
adequacy because total HI assets at the start of the year ($244.2 billion) are expected to be below
100% of expenditures during 2012. The trustees also project that the ratio of trust fund assets to
expenditures will decline steadily through 2021.
HI expenditures have exceeded income every year since 2008 and are projected to continue doing
so under current law over the next 10 years. In 2009 and 2010, income from payroll taxes
decreased substantially due to higher unemployment and slow growth in wages. In 2011,
revenues increased somewhat, but did not keep pace with the growth in expenditures resulting
from increased utilization and updates to provider payment rates. In 2011, the HI trust fund
experienced a deficit of $27.7 billion.
26 This amount is considered a sufficient contingency reserve to allow Congress enough time to address any anticipated
short-term financing problems.
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Income from payroll taxes is expected to increase at a faster rate than expenditures during 2012
through 2018 due to the projected economic recovery, the application of an additional 0.9% HI
payroll tax for high-income enrollees beginning in 2013, and the 2% reduction in spending
required by BCA from 2013 through 2021. Specifically, over the next 10 years, HI income is
expected to grow on average by 6.0% per year, while expenditures are expected to grow on
average at a rate of 5.3% per year. However, income will still be insufficient to cover projected HI
expenses during this period (see Figure 3).
Figure 3. Short-Term HI Expenditures and Income
500
Total Income
450
Payrol Taxes
400
Expenditures
350
Assets
s) 300
n
io 250
ill
b
$ ( 200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Data from 2012 Report of Medicare Trustees, Table III.B4.
Note: The trustees report does not project dol ar figures beyond 2021.
SMI Short-Range Financial Status
As premium and general revenue income for Medicare Parts B and D are reset each year to match
expected costs, the SMI trust fund is deemed to be adequately financed over the next 10 years and
beyond. However, over the past five years, Medicare Part B costs have been increasing rapidly—
by an average of 5.9% annually, exceeding GDP growth by 3.4 percentage points. If the physician
payment cuts are allowed to go into effect at the end of 2012, Part B expenditures (and
corresponding income) are expected to grow at a slower average growth rate of 4.9% annually
over the next five years (2012-2016), slightly lower than GDP growth over the same period
(5.1%). If Congress overrides these reductions, as it has done in the past, the Part B growth rate
during this period is projected to instead average about 7.1% each year. For Part D, annual
average growth over the past five years has been around 7.2%; however, due to costs associated
with the gradual elimination of the coverage gap and growth in the number of enrollees,27 the
27 After the beneficiary and the prescription drug plan have spent a certain amount of money for covered drugs during a
year, there is a gap in Part D coverage. During the coverage gap (also known as the “doughnut hole”), the beneficiary
pays a large portion of his or her prescription drug expenditures. Once a certain threshold is reached, Medicare again
begins providing coverage.
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average annual increase in expenditures is estimated to be 8.8% through 2021.28 (By comparison,
GDP is projected to grow at an average annual rate of 5.0% during this 10-year period.) Part D
cost estimates are somewhat lower than projected in the prior trustees report due to lower than
expected spending in 2011, and future expectations of increased availability of generic drugs and
reduced utilization due to slower economic growth.
Projected Date of HI Insolvency
Medicare’s fiscal health is often gauged by the projected solvency of the HI trust fund.29 As noted
in the section “Medicare Trust Funds,” in years in which the level of HI expenditures exceed
income, the program still has authority to continue to make payments as long as the trust fund has
a balance. The 2012 trustees report estimates that the HI trust fund will become insolvent in 2024,
the same year as projected in last year’s report (see Figure 4).
Figure 4. HI Trust Fund Assets at Beginning of Year as a Percentage of Annual
Expenditures
Estimates from 2009, 2010, 2011, and 2012 Trustees Reports
150%
2009 Estimates
2010 Estimates
130%
2011 Estimates
2012 Estimates
110%
90%
70%
50%
30%
10%
-10%
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
Sources: Data from the 2009 Medicare Trustees Report, Table II.E1, and Summaries of the 2010, 2011, and
2012 Annual Reports of the Social Security and Medicare Boards of Trustees, Chart D (2010 and 2011) and
Chart E (2012).
Beginning in 2004, tax income (from payroll taxes and from the taxation of Social Security
benefits) began to be less than expenditures. Expenditures began to exceed total income (tax
income plus all other sources of revenue) in 2008. (Refer to Figure 3 for illustration of
expenditure and income trends through 2021.) At that time, HI assets (the balance of the HI trust
fund at the beginning of the year) were used to meet the portion of expenditures that exceeded
income (the HI deficit). The trustees project that expenditures will continue to exceed income
through 2024. Therefore, the HI trust fund will need to redeem its assets (U.S. government
28 The average annual growth per enrollee is expected to be 5.6%.
29 For a history of projections of insolvency dates, see CRS Report RS20946, Medicare: History of Insolvency
Projections, by Patricia A. Davis.
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securities) in order to pay for benefits each year until the trust fund is exhausted in 2024. At that
time, there will be insufficient funds to fully pay for Part A covered health care services. Unless
action is taken prior to that date to increase HI revenue or decrease expenditures, Congress would
need to appropriate additional funding (e.g., through general revenue transfers) to make up for
these deficits and to allow for full and on time payments to Part A providers.
Because the impact of the ACA productivity adjustments is relatively modest in the short term,
the expected trust fund exhaustion date provided in the alternative illustration is the same as that
under the current law scenario, 2024; however, the trust fund is projected to be depleted slightly
earlier in the year under the alternate scenario.
Long-Range Financial Soundness (75 Years)
For projections beyond 2021, the Medicare trustees do not provide actual dollar figures due to the
difficulty of making meaningful comparisons of dollar values for different time periods over a
long timeframe. Instead, the long-term financial soundness of the Medicare program is generally
determined using one or more of the following measures:
• A comparison of the program’s income and its cost as a percentage of taxable
payroll (how much would need to be added to the payroll tax to keep HI solvent;
this measure is only applicable to the HI trust fund);
• A determination of the present value of the program’s unfunded liabilities over a
particular period (the amount in today’s dollars that would be needed to be in the
trust fund for the program to remain financially sound for a specified period);
and/or
• A comparison of expected benefit costs with GDP, the most frequently used
measure of the total output of the U.S. economy (the amount spend on Medicare
compared to the economy in general).
The trustees caution that while these estimates can provide indications as to whether the trust
funds are in adequate financial condition, financial outcomes are inherently uncertain, especially
over a very long time period.
HI Income and Costs Relative to Payroll Taxes
Long-range financial soundness of the HI trust fund is often determined by comparing the fund’s
income rate (the ratio of tax income to taxable payroll) with its cost rate (the ratio of program
expenditures to taxable payroll). The term taxable payroll refers to the total amount of wages,
salaries, and self-employment income in the economy that is subject to the HI tax. By relating
income and expenditure projections to expected future taxable payroll, comparisons can be made
for long periods of time without distortions caused by the changing value of the dollar (e.g.,
through inflation). Additionally, it indicates the relative amount of the nation’s earnings that may
be needed to cover the program’s commitments in the future when compared to what is needed
today.
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Year-by-Year Estimates
In the past, cost rates have generally increased over time, rising from 0.94% in 1967 to 3.39% in
1996 (see Figure 5). This growth reflects both the higher rate of increase in medical care costs
than in average earnings subject to HI taxes and the higher rate of increase in the number of HI
beneficiaries than in the number of covered workers. Cost rates since that time have fluctuated
primarily due to the passage of legislation affecting Medicare expenditures, including the
Balanced Budget Act of 1997 (P.L. 105-33) and the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 (MMA, P.L. 108-173), as well as favorable economic
performance. Rates increased again in 2008, 2009, 2010, and 2011 (3.30%, 3.69% and 3.71% and
3.75%, respectively) due to the lower amount of taxable payroll reflecting the impact of the
recession and subsequent slow recovery. The 2012 trustees report projects that in the short-term,
due to the expected economic recovery, the cost rate will decline from 2012 through 2017. Over
the long run, expenditures as a percentage of taxable payroll are expected to increase, from 3.75%
in 2011 to 6.29% in 2085, primarily due to the aging of the baby boom generation and expected
growth in health care costs. (Under the alternative illustration, the expected HI cost rate for 2085
is 9.93%, about a third more than the rate projected under current law.)
The HI income rate is projected to increase gradually from 3.15% in 2011 to 4.31% in 2085 due
to ACA’s increase of 0.9% in payroll taxes for high-income earners starting in 2013. As the
thresholds are not indexed to grow with inflation, it is expected that more workers will be subject
to this higher tax rate over time. Additionally, it is expected that income from taxation of Social
Security benefits will increase as the number of recipients increases over time. (Because the
alternative illustration only assumes changes in payments, the income rate is the same as that in
the trustees report.)
As indicated earlier, expenditures in future years are expected to exceed tax income, resulting in a
negative difference between cost and income rates. In 2024, payroll taxes are expected to cover
87% of HI expenditures, decline to 67% by 2045; and by the end of the 75-year period, taxes are
expected to cover 69% of the expected costs. The decreasing cost rate beyond 2045 is due to the
expected compounding of the ACA reductions in provider payment updates and assumed slowing
of growth in the volume and intensity of services, coupled with the increased proportion of
workers subject to the high income payroll tax mentioned above. The income rate and the first 10
years of the cost rate in the 2012 report are similar to that projected in the prior report. However,
due to changes in the methodology based on recommendations of the Medicare Technical Review
Panel, long-term cost-growth rate is assumed to grow more quickly than under the prior method.
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Figure 5. Long-Range HI Income and Cost as a Percentage of Taxable Payroll
7.00%
6.00%
5.00%
4.00%
3.00%
HI Income Rate
2.00%
HI Cost Rate
1.00%
0.00%
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
Source: Data from Summary of the 2012 Annual Reports of the Social Security and Medicare Boards of
Trustees, http://ssa.gov/oact/TRSUM/index.html, Chart B.
The 2012 trustees report estimates that at the end of the 75-year period, there will be an HI deficit
of 1.96% of taxable payroll (compared to a projected deficit of 0.58% in the prior report). Under
the illustrative alternative scenario, which assumes that the ACA productivity adjustments will
eventually be phased out, the HI deficit at the end of the 75-year period is expected to be about
5.68% of taxable payroll. Both estimates are still lower than the 2009 report estimate of 8.55%,
which was based on law prior to ACA.
Actuarial Balance
The actuarial balance can be interpreted as the percentage that would need to be added to the
current-law income rates and/or subtracted from the current-law cost rates in each of the next 75
years in order for the financing to support HI costs and to meet the targeted trust fund balance at
the end of the projection period. The actuarial balance of the HI trust fund is defined as the
difference between the sum of the income rate expected for each year in the 75-year projection
period (including the beginning trust fund balance) and the sum of the cost rates for each year,
expressed as a percentage of taxable income. This summarized rate is based on the present values
of future income, costs, and taxable payroll.
The 2012 trustees report estimates that the summarized HI income rate for the entire 75-year
period is 3.86% of taxable payroll and the summarized cost rate is expected to be 5.21%. The
difference, the actuarial balance, is -1.35%. Because this is a negative number, the HI trust fund
fails to meet the trustees’ long-range test of actuarial balance. This means that the income rate
would need to increase by 1.35% of taxable payroll throughout the next 75 years for the trust fund
to reach actuarial balance, program spending would need to be reduced by a corresponding
amount, or some combination of the two would need to occur. The HI actuarial balance estimated
in the 2012 report has increased from -0.79% in the 2011 report, but is lower than the -3.88% of
taxable payroll projected in the 2009 report. (The trustees note that if no changes in the payroll
tax or HI spending occurs prior to 2024, then the required increase after that time would be 1.72%
of taxable payroll.) If the productivity adjustments to HI provider payment updates cannot be
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continued in the long run, the CMS actuaries estimate that the actuarial deficit would be much
higher, -2.43% of taxable payroll, under their illustrative alternative scenario.
Unfunded Obligations
The unfunded obligation is a measure of the long-term funding shortfall (or surplus) of the
Medicare program. It is defined as the difference between the present value of the expected cost
of the Medicare program over a specified time period and the present value of projected income
(including the initial value of the trust fund). Put another way, the unfunded obligation is the
amount of money that would have to be added to the trust fund today to make the program
financially sound over a specified time period.
HI Long-Term Obligations
The 2012 trustees report estimates that the unfunded obligation of the HI trust fund is $5.3 trillion
(0.6% of GDP) over the next 75 years. This means that if $5.3 trillion were added to (or
expenditures reduced from) the trust fund at the beginning of 2012, the program could meet the
projected cost of current-law expenditures over the next 75 years. This is still lower than the 2009
estimate of $13.4 trillion, but higher than the $3.0 trillion in the 2011 estimate. (Under the
illustrative alternative projections, the 75-year HI unfunded obligation is expected to be about
$9.7 trillion.)
The trustees note that limiting the estimates of HI unfunded obligations to 75 years understates
the full magnitude of these obligations because the 75-year measures only reflect the full amount
of taxes paid by the next few generations of workers, but not the full amount of their expected
benefits. Therefore, since 2004, the trustees report has included a measure of unfunded
obligations that extends indefinitely (through infinity). Such extended projections can help
indicate whether the HI financial imbalance would be improving or continuing to worsen beyond
the 75-year period. In making these estimates, the trustees assume that the current-law HI
program, demographic, and economic trends used for the 75-year projection will continue
indefinitely, except that average HI expenditures per beneficiary will increase at the same rate as
GDP per capita less the productivity adjustments beginning in 2087. If the slower ACA price
updates were to continue indefinitely, then the HI financial imbalance actually improves beyond
the 75-year period. Under these assumptions, over the infinite horizon, the HI program is
projected to have a deficit of $4.8 trillion (see Table 2). (Under the illustrative alternative
scenario, the HI unfunded obligation thorough the infinite horizon is estimated to be $8.3 trillion.)
Table 2. Unfunded HI Obligations
(Present values as of January 1, 2012)
Present Value
% of GDP
Unfunded obligations through 2086
$5.3 trillion
0.6%
Unfunded obligations through
$4.8 trillion
0.3%
infinite horizon
Source: 2012 Medicare Trustees Report, Table III.B10.
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SMI Long-Term Obligations
Due to its automatic financing provisions, the SMI account is expected to be adequately financed
into the indefinite future; therefore the unfunded obligations are considered to be $0 (see Table
3). However, estimated SMI expenditures of $29.3 trillion over the next 75 years are expected to
exceed premium revenues and state payments by $21.6 trillion; general fund transfers of this
amount will be needed to keep the SMI trust fund in balance for the next 75 years.30
The estimated present value of Part B expenditures through the infinite horizon is $32.3 trillion,
of which $20.2 trillion would occur during the first 75 years. Approximately 26% of expenditures
for each time period would be financed through beneficiary premiums, and a fraction of a percent
would be financed through fees collected related to brand-name prescription drugs. The
remaining 73% is expected to be paid by general revenues. (However, as noted previously, the
trustees consider Part B expenditures after 2012 to be substantially understated due to the large
physician payment reductions scheduled under current law.) Similarly, the estimated present
value of Part D expenditures through the infinite horizon is $19.2 trillion, of which $9.1 trillion
would occur during the first 75 years. Approximately 16% of expenditures would be financed
through beneficiary premiums, 10% through state transfers, and the remaining 74% paid by
general revenues.
Table 3. Unfunded Part B and Part D Obligations
(Present values as of January 1, 2012; dol ar amounts in tril ions)
SMI—Part B
SMI—Part D
Present Value
% of GDP
Present Value
% of GDP
Unfunded obligations through 2086
$0.0 0.0%
$0.0 0.0%
Expenditures through 2086
$20.2
2.2%
$9.1
1.0%
General Revenue Contributions
14.8
1.6
6.8
0.7
Beneficiary Premiums
5.3
0.6
1.5
0.2
State Transfers
—
—
0.9
0.1
Fees related to brand-name drugs
0.1
0.0
—
—
Unfunded obligations through
$0.0 0.0%
$0.0 0.0%
infinite horizon
Expenditures through infinite horizon
$32.3
2.2%
$19.2
1.3%
General Revenue Contributions
23.7
1.6
14.3
1.0
Beneficiary Premiums
8.5
0.6
3.1
0.2
State Transfers
—
—
1.9
0.1
Fees Related to brand-name drugs
0.1
0.0
—
—
Source: 2012 Medicare Trustees Report, Tables III.C11 and III.D7.
Note: Totals may not add due to rounding.
30 These transfers represent a formal budget requirement under current law.
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Medicare Costs as a Percentage of GDP
A comparison of Medicare costs (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. The rising costs of health services, increasing
utilization rates, and anticipated increases in the complexity of services are expected to contribute
to the rising costs of Medicare relative to GDP. Additionally, it is expected that as increasing
numbers of people become eligible for Medicare, there will be a significant growth in benefit
expenditures. Under current law, the trustees expect Medicare costs to increase from 3.7% in
2011 to 6.0% of GDP in 2040 and to 6.7% in 2085.31 Under the illustrative alternative, similar to
estimates made under the law prior to ACA, projected Medicare costs are expected to represent
about 10.3% of GDP in 2085. (See Appendix G for a comparison of projections of Medicare
expenditures as a percentage of GDP from the 2009 through 2012 trustees reports.)
Over the next 75 years, general revenues and beneficiary premiums are expected to play an
increasing role in financing the program. Figure 6 shows actual and projected expenditures and
non-interest revenues for HI and SMI combined as a percentage of GDP.
Figure 6. Medicare Cost and Non-Interest Income by Source as a Percentage of GDP
Source: Summary of the 2012 Annual Reports of the Social Security and Medicare Boards of Trustees,
http://ssa.gov/oact/TRSUM/index.html, Chart C.
General revenue transfers to the SMI trust fund are projected to increase from 1.4% of GDP in
2012 to 3.0% in 2086, and beneficiary premiums from 0.5% of GDP in 2012 to 1.0% in 2086. As
shown, the share of Medicare income from payroll taxes and taxation of benefits is expected to
31 By comparison, last year’s report projected that Medicare costs would increase to 5.6% of GDP by 2035 and reach
6.2% by the end of the 75-year projection period.
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fall substantially during that period (from 43% to 31%), while the share of general fund revenue
is expected to rise (from 42% to 50%) as are premiums (from 14% to 17%). Any excess in
projected spending over revenues represents the HI deficit; in 2086, the HI deficit is projected to
represent 0.8% of GDP.
Medicare Funding Warning (“Medicare Trigger”)32
As noted, HI and SMI are financed very differently. HI is funded by current workers through a
payroll tax, while SMI is funded by premiums from current beneficiaries and federal general
revenues. Because of this financing, the SMI trust fund’s income is projected to equal
expenditures for all future years. However, there is concern that over time the economy will be
unable to support the increasing reliance on general revenues which in large measure comes from
taxes paid by the under-65 population. In response, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173) required the trustees report
to include an expanded analysis of Medicare expenditures and revenues. Specifically, a
determination must be made as to whether general revenue financing will exceed 45% of total
Medicare outlays within the next seven years (on a fiscal year basis).33 The law specifies that if an
excess general revenue funding determination is made for two successive years, a “Medicare
funding warning” is triggered, and the President is to submit a legislative proposal to respond to
the warning. The Congress is required to consider the proposals on an expedited basis. However,
passage of legislation within a specific time frame is not required.
The 2006 trustees report projected that the 45% level would first be exceeded in FY2012; the
2007 report projected that it would first be exceeded in 2013, and both the 2008 and 2009 trustees
reports projected the first year at 2014. 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 was expected to do so again in FY2011 and FY2012. The 2012
report confirmed that the 45% level was exceeded in 2011 and projects that it will be exceeded
again in 2012.34 This represents the seventh consecutive time that the threshold was estimated to
be exceeded within the first seven years of the projection, and the sixth time that the trustees have
issued a funding warning.
Proponents of the 45% threshold measurement believe that it can serve as an effective early
warning system and that it forces fiscal responsibility. Opponents of the measure suggest that it
doesn’t adequately recognize a shift 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 percentage of GDP, Medicare spending as a portion of total federal
spending, or the number of workers subject to payroll taxes per Medicare beneficiary, are better
ways to measure the health of the Medicare program. On January 6, 2009, the House approved a
32 For additional information, see CRS Report RS22796, Medicare Trigger, by Patricia A. Davis, Christopher M.
Davis, and Todd Garvey.
33 Under the Trigger formula, general revenue funding is defined slightly differently. The main difference is that after
the assets in the HI trust fund are depleted, HI deficits are included in the general revenue funding measure when
determining whether the 45% threshold has been exceeded.
34 The trustees estimate that additional revenues of at least $12 billion or expenditure reductions of at least $23 billion
(or some combination of the two) would be needed to reduce the ratio below 45% in 2012.
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rules package (H.Res. 5) that nullified the trigger provision for the 111th Congress.35 The 112th
Congress has not passed a similar measure; therefore, the trigger provision has gone back into
effect in the House. To date, no legislation has been enacted to specifically respond to these
funding warnings.
Medicare Expenditures and the Federal Budget
By law, the annual Medicare trustees reports focus on the financial status of the Medicare HI and
SMI trust funds. Trust fund accounting methods are used to determine whether dedicated sources
of Medicare revenue, together with any asset balances, are sufficient to allow the payment of
expected expenditures on a timely basis. In contrast, when examining Medicare finances under
unified budget accounting methods, the total flow of money into and out of the U.S. Treasury is
typically examined regardless of the source of revenue.36
The expected shortfall in payroll taxes needed to fully cover HI expenses and the rapid growth of
SMI, which relies primarily on general revenues for financing, have made it increasingly
important to look at Medicare expenditures from the perspective of the federal budget as a whole.
To illustrate, over the next 75 years, revenues from payroll taxes are projected to fall short of HI
expenditures by $5.6 trillion in present value terms. This is the additional amount that is expected
to be needed in order to pay HI benefits at the level expected under current law over the next 75
years. Note that the federal liability from a budget perspective includes the beginning
accumulated assets in the HI trust fund ($0.2 trillion, as of January 1, 2012) as they represent
federal payment obligations.37
Additionally, general revenue transfers in present value terms of $21.6 trillion are expected to be
needed to cover SMI expenditures (Parts B and D combined) over the next 75 years.38 The
Medicare trustees estimate that, assuming personal and corporate income taxes in the future
maintain their historical average level relative to the national economy, the portion of income
taxes that will be needed to fund the general revenue portion of SMI will grow from 14.4% in
2012 to 25.7% in 2080 (see Table 4).39
35 H.Res. 5 declared that the accelerated legislative procedures required by MMA for a presidential legislative proposal
in response to a Medicare funding warning shall not apply during the 111th Congress.
36 Spending is normally categorized either as mandatory (not subject to the appropriations process) or discretionary
(must be appropriated). Medicare benefit spending is mandatory, while some administrative costs are discretionary.
37 The net 75-year unfunded liability from the trust fund perspective of $5.3 trillion in present value terms, does not
include the trust fund assets. (Figures do not add due to rounding.) See “Unfunded Obligations.”
38 This amount could be substantially higher than that if Congress modifies the physician payment system to eliminate
scheduled payment reductions.
39 This amount is in addition to the HI payroll tax.
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Table 4. SMI General Revenues as a Percentage of Personal and Corporate Federal
Income Taxes
Percentage of
Percentage of
Percentage of
Percentage of
Income Taxes—
Income Taxes—
Income Taxes—
Income Taxes—
Fiscal Year
2009 Report
2010 Report
2011 Report
2012 Report
Historical
1970 0.8%
0.8%
0.8%
0.8%
1980
2.2 2.2 2.2 2.2
1990
5.9 5.9 5.9 5.9
2000
5.4 5.4 5.4 5.4
2008
10.9 12.0 12.0 12.0
2009
n/a 17.7 17.7 17.7
2010
12.2 18.6 19.2 19.2
2011 n/a
n/a
18.0
17.2
Intermediate Estimates
2012 n/a
n/a
n/a
14.4
2020
15.8 15.0 17.1 16.3
2030
24.0 19.5 19.9 18.6
2040
28.9 21.8 22.1 22.6
2050
31.9 22.7 23.0 23.0
2060
35.1 24.6 24.7 24.0
2070
38.1 25.7 25.7 25.0
2080
40.5 26.6 26.3 25.7
Source: 2009, 2010, 2011, and 2012 Medicare Trustees Reports, Table III.C4 (2009-2011) and Table II.F3
(2012).
Note: Includes the Part D prescription drug benefit beginning in 2006; n/a = not available.
As noted earlier, ACA contained numerous provisions that are expected to reduce Medicare
spending growth (both HI and SMI) in future years. From the trust fund perspective, the slower
growth in HI spending, coupled with payroll tax increases for high-income workers, is currently
expected to extend the solvency of the HI trust fund for an additional seven years beyond the pre-
ACA estimate of 2017, to 2024. Under federal budget accounting rules (used by CBO when
scoring legislation), these expected savings, together with income and savings from other ACA
provisions, represent a reduction in expected future federal spending compared to spending levels
estimated before the passage of ACA. Both CBO and the CMS Office of the Actuary, however,
caution against combining trust fund accounting conventions with budget accounting rules, as
doing so can result in the appearance of double counting ACA savings.
As previously described, as Medicare is an open-ended entitlement program funded primarily
through mandatory spending, generally whatever expenses are incurred for covered Medicare
benefits in a given year are reimbursed. Further, as a social insurance program, most funding for
Medicare (aside from premiums paid by beneficiaries) comes from current workers through
Medicare payroll taxes and income taxes (i.e., current income is used to pay current
expenditures). Medicare is not “pre-funded,” and aside from certain constraints in HI, the
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program is not subject to spending limits. (While CBO and the Medicare trustees make estimates
of future Medicare expenditures, actual spending may differ from their projections.)
Under trust fund accounting rules,40 Medicare program expenditures are tracked through its two
trust funds (HI and SMI) and the program is only authorized to pay up to the amount of revenues
received plus any balance credited to the funds. There is no actual flow of money in or out of the
funds, and trust fund “balances” are not retained in an actual account and set aside for future
spending—they are just bookkeeping entries that indicate the amount that the program is
authorized to pay without the need for Congress to appropriate additional funds.41
In their three reports issued subsequent to the enactment of ACA (2010, 2011, and 2012), the
Medicare trustees have projected that Medicare HI expenditures will continue to exceed income
in the foreseeable future, but because of slower than expected spending growth in the near term,
coupled with additional taxes paid by higher income workers, the difference between the two (the
deficit) in each year will not be as large as had been projected under prior law. Therefore, from a
trust fund perspective, this balance (spending authority) will decrease more slowly over time and
solvency has been extended. As Medicare is not “pre-funded,” the difference in expected
spending before and after the enactment of ACA is not “credited” to Medicare; the program
simply does not spend as much as had been previously estimated. (See Figure 2 for a comparison
of pre- and post-ACA Medicare expenditure estimates.) Therefore, it would not be correct to
conclude that “Medicare savings” are being diverted to other purposes.42
On the other hand, from the unified budget accounting perspective, under which only the total
inflow of revenues and outflow of funds are tracked, it does not matter whether specific monies
are being credited to or deducted from various trust funds. As HI trust fund balances are regarded
as liabilities under budget accounting rules, these amounts are included in estimates of the
national debt; when the special securities credited to the fund are redeemed, resources need to be
generated from taxes, other government income, or government borrowing. Therefore, from the
standpoint of the federal budget as a whole, if Medicare spending is reduced, but spending is
increased by an equivalent amount somewhere else, overall federal spending has not decreased
and thus the ability of the federal budget to support Medicare spending has not improved, it just
stays the same.
Concluding Observations
As shown in this report, a wide array of measures can be used to describe the short- and long-
term financial status of the Medicare program. While trust fund solvency issues are important,
they only present part of the picture. When viewed from the perspective of the entire federal
40 The relationship between federal trust funds and the budget is explained in CRS Report R41328, Federal Trust
Funds and the Budget, by Thomas L. Hungerford.
41 In other words, in 2012 and beyond, the HI program is authorized to spend $244 billion more than it receives in
income; it doesn’t actually have $244 billion set aside in an account.
42 The misperception that Medicare spending reductions are “paying for” new entitlements mainly stems from the
provisions being in the same legislation and because Medicare savings estimates were used as an offset to estimates of
increased costs in ACA to meet budget pay-go rules at a particular point in time. For illustration purposes, if the
Medicare savings provisions had been in one bill passed at one time (e.g., in 2010) and other parts of the reform
legislation (costs) had been passed in a different bill at a different time (e.g., in 2011), then it would be clearer that one
is not directly funding the other.
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budget and the economy, Medicare spending obligations, even under the more optimistic scenario
presented in the 2012 Medicare trustees report, are expected to consume an increasing portion of
federal budgetary resources over time. Budget experts have expressed concern about the long-run
implications of Medicare expenditures on federal deficits; for example, in its long-term budget
forecast, CBO noted:
The aging of the baby-boom generation portends a significant and sustained increase in the
share of the population receiving benefits from Social Security and Medicare, as well as
long-term care services financed by Medicaid. Moreover, per capita spending for health care
is likely to continue rising faster than spending per person on other goods and services for
many years (although the magnitude of that gap is uncertain). Without significant changes in
government policy, those factors will boost federal outlays relative to GDP well above their
average of the past several decades—a conclusion that holds under any plausible
assumptions about future trends in demographics, economic conditions, and health care
costs.43
The Medicare trustees caution that it is difficult to forecast health and economic indicators over
an extended period of time. For example, forecasts are based on the assumption that health
spending will outpace GDP growth in the future because it has consistently done so in the past. It
is possible that in the future, advances in medical technology, changes in consumer preferences,
shifts in the health status of the population, or changes in the way health care services are
delivered could result in very different financial outcomes from those estimated in the trustees
report.44 Further, as evidenced by the issuance of an illustrative alternative to the 2012 trustees
report, if changes to current health care policies are enacted (most notably these affecting
physician reimbursement or productivity adjustments), future Medicare costs could be
significantly different from current projections.
There are no simple solutions to address the problems raised by the rapid growth in health care
costs, the economic conditions, and the aging of the population. Additionally, as an entitlement
program, Medicare must pay for all medically necessary covered benefits for enrollees; except for
constraints placed on the program by the HI financing mechanism, there are no limits on overall
Medicare spending. As such, policy options to restrain the growth of Medicare spending will
continue to attract considerable interest.
Proposals to reduce Medicare spending generally fall into one of two categories: (1) those that
would reduce the federal share of Medicare spending (for example, by increasing beneficiary
premiums and/or cost-sharing; changing Medicare eligibility criteria such as age; reducing the
range of covered benefits; establishing defined federal contributions;45 or setting federal spending
limits), and (2) those that would reduce the total amount of health care spending regardless of
who is paying (e.g., reducing prices paid for items and services;46 decreasing medical errors;
43 “The 2012 Long-Term Budget Outlook,” Congressional Budget Office, June 5, 2012, p. 1, http://www.cbo.gov/sites/
default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook.pdf.
44 For example, information learned from pilot programs and demonstrations mandated by recent legislation, such as
changing financial incentives of health care providers and improving the care coordination of beneficiaries with chronic
conditions, could lead to long-term changes in how health care is delivered and in the cost of that care.
45 See CRS Report R42441, Overview of Health Care Changes in the FY2013 Budget Proposal Offered by House
Budget Committee Chairman Ryan, by Patricia A. Davis, Alison Mitchell, and Bernadette Fernandez, for a description
of the premium support model proposed in the House FY2013 budget.
46 Some may argue that reducing prices for some payers, such as Medicare, can lead to shifting costs to other payers,
such as private insurers, and thus not decrease the overall cost of health care.
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reducing unneeded, duplicative and/or ineffective care; and eliminating fraud and abuse). On the
revenue side, options to increase program income may include modifying dedicated Medicare
payroll taxes or general income taxes, and/or imposing new fees.47 Some of the above changes
could be made while still retaining Medicare’s current structure, while others could only be made
in the context of major program restructuring. Many of the proposals could be combined as part
of an overall reform package.
The challenge to policy makers will be to slow the growth in Medicare spending over the long-
term, to establish fair levels of contributions from beneficiaries and taxpayers, and to ensure
continued beneficiary access to needed health care services. The Medicare trustees suggest that
prompt action is needed to address both the short- and the long-range financial challenges of the
Medicare program; the sooner that solutions can be enacted, the more flexible these solutions can
be, and the more gradually they may be phased in.
47 Additionally, broadening the tax base through increased levels of employment and/or wages (e.g. through economic
recovery) would also result in increased Medicare payroll tax income.
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Appendix A. Medicare Enrollment
Table A-1. Medicare Enrollment, 1970 - 2085
(in thousands)
Year
HI—Part A
SMI—Part B
SMI—Part D
Part C
Total
Historical
1970
20,104
19,496
—
—
20,398
1975
24,481
23,744
—
—
24,864
1980
28,002
27,278
—
—
28,433
1985
30,621
29,869
—
1,271
31,081
1990
33,747
32,567
—
2,017
34,251
1995
37,175
35,641
—
3,467
37,594
2000
39,257
37,335
—
6,856
39,688
2001
39,669
37,667
—
6,166
40,103
2002
40,065
37,982
—
5,538
40,508
2003
40,738
38,584
—
5,302
41,188
2004
41,485
39,123
1,217
5,375
41,902
2005
42,233
39,752
1,841
5,794
42,606
2006
43,065 40,361 30,560 7,291 43,436
2007
44,010 41,093 31,392 8,667 44,368
2008
45,150 41,975 32,589 10,010 45,500
2009
46,256 42,908 33,644 11,104 46,604
2010
47,336 43,871 34,772 11,692 47,685
2011
48,334 44,879 35,693 12,381 48,685
Estimated
2012
50,344 46,560 37,214 13,521 50,695
2013
52,076 48,136 38,372 13,676 52,426
2014
53,736 49,595 39,487 12,948 54,085
2015
55,331 51,007 40,586 11,703 55,679
2016
56,911 52,404 41,688 10,232 57,259
2017
58,524 53,825 42,844 9,748 58,871
2018
60,184 55,290 43,995 9,781 60,531
2019
61,904 56,815 45,180 10,204 62,252
2020
63,687 58,454 46,760 10,668 64,036
2021
65,497 60,076 48,083 11,134 65,848
2025
72,825 66,673 53,440 12,636 73,185
2030
80,628 73,759 59,145 13,947 80,997
2035
85,179 77,827 62,470 14,703 85,551
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Year
HI—Part A
SMI—Part B
SMI—Part D
Part C
Total
2040
87,249 79,775 63,981 — 87,620
2045
88,363 80,759 64,795 — 88,735
2050
90,279 82,505 66,201 — 90,660
2055
92,884 84,858 68,110 — 93,274
2060
96,141 87,853 70,497 — 96,543
2065
99,420 90,839 72,898 — 99,831
2070
103,152
94,246
75,629
—
103,571
2075
106,902
97,705
78,373
—
107,329
2080
110,481
100,953
80,989
—
110,911
2085
114,417
104,557
83,865
—
114,851
Source: 2012 Medicare Trustees Report, Table V.B3.
Notes: The trustees report did not provide enrol ment projections separately for Part C beyond 2035.
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Appendix B. Total Medicare Income and
Expenditures (HI and SMI Combined)
Table B-1. Medicare Income and Expenditures,
Calendar Years 1970-2021
($ in billions)
Income
Expenditures
Interest
Payroll General
State
and
Benefit
Admin
Year
Taxes
Revenue Premiums Transfers
Other Total Payments Expenses Total
Historical Data
1970 $4.9
$1.1
$1.1
—
$1.2
$8.2
$7.1
$0.4
$7.5
1975 11.5
2.6
1.9
—
1.5
17.7
15.6
0.8
16.3
1980 23.8
7.5
3.0
—
2.5
37.0
35.7
1.1
36.8
1985 47.6
18.3
5.6
—
5.1
76.5
70.5
1.7
72.3
1990 72.0
33.0
11.4
—
9.9
126.3
108.7
2.3
111.0
1995 98.4
39.0
20.7
—
17.3
175.3
181.4
2.8
184.2
2000 144.4
65.9
22.0
—
24.9
257.1
217.4
4.4
221.8
2005 171.4
119.2
39.9
—
27.0
357.5
330.3
6.1
336.4
2006 181.3
171.9
49.0
$5.5
29.4
437.0
402.0
6.3
408.3
2007 191.9
178.4
53.7
6.9
31.3
462.1
425.4
6.3
431.7
2008 198.7
184.1
58.1
7.1
32.7
480.8
461.6
6.6
468.2
2009 190.9
209.9
65.2
7.6
34.7
508.3
502.4
6.6
509.0
2010 182.0
204.6
61.8
4.0
33.6
486.1
515.9
7.1
522.9
2011 195.6
222.8
68.5
7.1
36.0
530.0
541.3
7.8
549.1
Intermediate Estimate
2012 207.6
217.1
70.7
8.4
36.2
540.0
578.6
7.5
586.1
2013 224.0
254.0
80.1
8.9
39.9
607.1
590.4
8.0
598.4
2014 236.3
271.5
85.8
9.2
41.3
644.1
622.3
8.8
631.2
2015 252.0
297.7
96.5
9.5
45.4
701.1
652.7
9.9
662.6
2016 268.3
303.1
99.0
10.2
50.3
731.0
692.9
11.1
704.0
2017 285.7
334.1
111.1
10.9
57.0
798.7
739.8
12.1
752.0
2018 303.3
361.6
121.1
11.8
63.3
861.2
793.2
13.1
806.3
2019 318.6
393.1
132.3
12.7
69.1
925.9
851.2
14.0
865.1
2020 333.7
442.2
146.3
13.8
77.1
1,013.2 918.3
14.9
933.2
2021
348.9
457.8
150.3
15.1
85.6
1,057.7 989.3
15.8
1,005.1
Source: Data from 2012 Medicare Trustees Report, Tables III.B4, III.C4, III.D3 and VB1.
Notes: Totals do not necessarily equal the sums of rounded components.
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Appendix C. Medicare Per Capita Expenditures
Table C-1. Average Medicare Benefit Costs Per Beneficiary,
Calendar Years 1970-2021
SMI
Year HI Part B
Part D
Total
Historical Data
1970 $255
$101
—
$356
1975 462
180
—
642
1980 895
390
—
1,285
1985 1,554
768
—
2,322
1990 1,963
1,304
—
3,267
1995 3,130
1,823
—
4,953
2000 3,272
2,381
—
5,653
2005 4,262
3,754
—
8,016
2006 4,388
4,111
$1,708
10,208
2007 4,548
4,293
1,556
10,397
2008 5,145
4,296
1,504
10,945
2009 5,172
4,721
1,798
11,692
2010 5,164
4,780
1,775
11,720
2011 5,232
4,940
1,870
12,042
Intermediate Estimates
2012 5,291
5,222
1,838
12,351
2013 5,299
4,891
2,058
12,247
2014 5,373
5,018
2,146
12,537
2015 5,350
5,197
2,256
12,803
2016 5,473
5,367
2,402
13,243
2017 5,620
5,611
2,543
13,774
2018 5,797
5,887
2,700
14,385
2019 5,991
6,173
2,869
15,032
2020 6,216
6,497
3,050
15,763
2021 6,452
6,847
3,230
16,530
Source: 2012 Report of Medicare Trustees, Table V.D1.
Notes: These amounts do not include administrative costs. The expenditure figures do not net out premiums
and state transfers.
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Appendix D. Operation of the Hospital Insurance
Trust Fund
Table D-1. Operation of the Hospital Insurance Trust Fund,
Calendar Years 1970-2021
($ in billions)
Income
Expenditures
Trust Fund
Interest,
Payroll
Transfers,
Benefit
Admin.
Net
Balance at
Year
Taxes
Other Total
Payments
Expenses Total Change
End of Year
Historical Data
1970
$4.9 $1.2 $6.0 $5.1 $0.2 $5.3 $0.7 $3.2
1975
11.5 1.4 13.0 11.3 0.3 11.6 1.4 10.5
1980
23.8 2.1 26.1 25.1 0.5 25.6 0.5 13.7
1985
47.6 3.9 51.4 47.6 0.8 48.4 4.8 20.5
1990
72.0 8.4 80.4 66.2 0.8 67.0 13.4 98.9
1995
98.4 16.7 115.0 116.4 1.2 117.6 -2.6 130.3
2000 144.4 22.9 167.2 128.5 2.6 131.1 36.1 177.5
2001 152.0 22.7 174.6 141.2 2.2 143.4 31.3 208.7
2002 152.7 25.8 178.6 149.9 2.6 152.5 26.1 234.8
2003 149.2 26.5 175.8 152.1 2.5 154.6 21.2 256.0
2004 156.5 27.5 183.9 167.6 3.0 170.6 13.3 269.3
2005 171.4 28
199.4 180.0 2.9 182.9 16.4 285.8
2006 181.3 30.2 211.5 189.0 2.9 191.9 19.6 305.4
2007 191.9 31.9 223.7 200.2 2.9 203.1 20.7 326.0
2008 198.7 32
230.8 232.3 3.3 235.6 -4.7 321.3
2009 190.9 34.5 225.4 239.3 3.2 242.5 -17.1 304.2
2010 182.0 33.6 215.6 244.5 3.5 247.9 -32.3 271.9
2011 195.6 33.4 228.9 252.9 3.8 256.7 -27.7 244.2
Intermediate Estimate
2012 207.6 33.9 241.5 266.4 4.0 270.4 -28.9 215.3
2013 224.0 37.8 261.9 275.9 4.3 280.2 -18.3 197.0
2014 236.3 37.8 274.2 288.7 4.8 293.5 -19.3 177.7
2015 252.0 40.2 292.1 296.0 5.3 301.4 -9.2 168.5
2016 268.3 43.2 311.5 311.5 6.0 317.5 -5.9 162.5
2017 285.7 46.7 332.4 328.9 6.6 335.5 -3.1 159.4
2018 303.3 50.4 353.7 348.9 7.1 356.0 -2.3 157.2
2019 318.6 54.2 372.8 370.9 7.6 378.4 -5.6 151.6
2020 333.7 58.3 392.0 395.9 8.1 404.0 -12.0 139.6
2021 348.9 62.2 411.0 422.6 8.6 431.2 -20.2 119.4
Source: 2012 Medicare Trustees Report, Table III.B4.
Notes: Sums may not equal totals due to rounding.
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Appendix E. Operation of the Supplementary
Insurance Trust Fund, Part B Account
Table E-1. Operation of the Part B Account of the SMI Trust Fund,
Calendar Years 1970-2021
($ in billions)
Income
Expenditures
Trust Fund
Interest
Balance
General
and
Benefit
Admin.
Net
at End
Year Premiums Revenue
Other Total Payments Expenses Total Change of Year
Historical Data
1970 $1.1
$1.1
$0.0
$2.2 $2.0
$0.2
$2.2 -$0.0
$0.2
1975 1.9
2.6
0.1
4.7
4.3
0.5
4.7
-0.1
1.4
1980 3.0
7.5
0.4
10.9 10.6
0.6
11.2 -0.4
4.5
1985 5.6
18.3
1.2
25.1 22.9
0.9
23.9 1.2
10.9
1990 11.3
33.0
1.6
45.9 42.5
1.5
44.0 1.9
15.5
1995 19.7
39.0
1.6
60.3 65.0
1.6
66.6 -6.3
13.1
2000 20.6
65.9
3.4
89.9 88.9
1.8
90.7 -0.8
44.0
2005 37.5
118.1
1.4
157.0 149.2
3.2
152.4 4.6
24.0
2006 42.9
132.7
1.8
177.3 165.9
3.1
169.0 8.3
32.3
2007 46.8
139.6
2.2
188.7 176.4
2.5
178.9 9.7
42.1
2008 50.2
146.8
3.6
200.6 180.3
3.0
183.3 17.3
59.4
2009 56.0
162.8
3.1
221.9 202.6
3.1
205.7 16.2
75.5
2010 52.0
153.5
3.3
208.8 209.7
3.2
212.9 -4.1
71.4
2011 57.5
170.2
5.9
233.6 221.7
3.6
225.3 8.3
79.7
Intermediate Estimates
2012 58.5
165.7
5.8
230.0 243.8
3.1
246.9 -16.9
62.8
2013 65.9
194.2
5.6
265.7 235.5
3.3
238.8 26.9
89.7
2014 69.7
208.0
7.1
284.8 248.9
3.6
252.5 32.2
122.0
2015 78.4
229.6
8.9
316.9 265.1
4.1
269.2 47.7
169.7
2016 79.5
228.2
11.0
318.7 281.3
4.6
285.9 32.9
202.6
2017 89.6
252.9
14.4
356.8 302.0
5.0
307.1 49.7
252.3
2018 97.7
273.2
17.2
388.1 325.5
5.5
331.0 57.1
309.4
2019 106.7
296.7
19.4
422.8 350.7
5.8
356.5 66.3
375.7
2020 118.5
335.8
23.6
477.9 379.8
6.2
386.0 91.9
467.6
2021 121.1
341.1
28.4
490.6 411.4
6.6
418.0 72.6
540.2
Source: 2012 Medicare Trustees Report, Table III.C4.
Notes: Sums may not equal totals due to rounding.
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Appendix F. Operation of the Supplementary
Insurance Trust Fund, Part D Account
Table F-1. Operation of the Part D Account in the SMI Trust Fund,
Calendar Years 2004-2021
($ in billions)
Income
Expenditures
Trust Fund
Transfers
Balance
General
from
Benefit
Admin.
Net
at End
Year Premiums Revenue
States Total
Payments Expenses Total Change of Year
Historical Data
2004 —
$0.4
—
$0.4 $0.4
—
$0.4 —
—
2005
—
1.1
—
1.1 1.1
—
1.1 0
0
2006 $3.5
39.2
$5.5
48.2 47.1
$0.3
47.4 $0.8 $0.8
2007 4.1
38.8
6.9
49.7 48.8
0.9
49.7 0.0
0.8
2008 5.0
37.3
7.1
49.4 49.0
0.3
49.3 0.1
0.9
2009 6.3
47.1
7.6
61.0 60.5
0.3
60.8 0.1
1.1
2010 6.5
51.1
4.0
61.7 61.7
0.4
62.1 -0.4
0.7
2011 7.7
52.6
7.1
67.4 66.7
0.4
67.1 0.3
1.0
Intermediate Estimates
2012 8.7
51.4
8.4
68.5 68.4
0.4
68.8 -0.3
0.7
2013 10.7
59.8
8.9
79.4 79.0
0.4
79.4 0.0
0.7
2014 12.5
63.5
9.2
85.2 84.7
0.4
85.2 0.0
0.8
2015 14.4
68.1
9.5
92.1 91.6
0.5
92.0 0.0
0.8
2016 15.6
74.9
10.2
100.7 100.1
0.5
100.6 0.1
0.9
2017 17.4
81.2
10.9
109.5 108.9
0.5
109.5 0.1
0.9
2018 19.1
88.4
11.8
119.4 118.8
0.5
119.3 0.1
1.0
2019 21.1
96.4
12.7
130.3 129.6
0.6
130.2 0.1
1.1
2020 23.0
106.4
13.8
143.3 142.6
0.6
143.2 0.1
1.2
2021 24.2
116.7
15.1
156.0 155.3
0.6
155.9 0.1
1.3
Source: 2012 Medicare Trustees Report, Table III.D3.
Notes: Sums may not equal totals due to rounding.
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Appendix G. Medicare Expenditures as a Percentage of GDP
Table G-1. Projected HI and SMI Expenditures as a Percentage of GDP
Comparison of 2009, 2010, 2011 and 2012 Medicare Trustees Reports
HI
SMI-B
SMI-D
Total Medicare
2009
2010
2011
2012
2009
2010
2011
2012
2009
2010
2011
2012
2009
2010
2011
2012
Year
Report Report Report Report Report
Report Report Report Report Report Report
Report
Report Report Report Report
2009 1.71% 1.67% 1.67% 1.70% 1.44% 1.45% 1.46% 1.48% 0.43% 0.41% 0.41% 0.42% 3.59% 3.53% 3.54% 3.59%
2010 1.71 1.66 1.69 1.68 1.38 1.49 1.46 1.48 0.45 0.43 0.43 0.43 3.54 3.59 3.58 3.59
2020 2.05 1.63 1.70 1.70 1.76 1.61 1.63 1.65 0.71 0.67 0.67 0.61 4.53 3.91 3.99 3.96
2030 2.75 1.99 2.03 2.16 2.30 2.10 2.15 2.25 1.08 1.02 0.98 0.88 6.43 5.11 5.16 5.29
2040 3.43 2.24 2.27 2.53 3.15 2.30 2.34 2.42 1.28 1.21 1.15 1.02 7.96 5.76 5.77 5.97
2050 3.85 2.27 2.30 2.62 3.47 2.33 2.36 2.41 1.42 1.35 1.28 1.11 8.74 5.94 5.94 6.15
2060 4.21 2.23 2.26 2.63 3.82 2.39 2.40 2.45 1.57 1.50 1.42 1.23 9.60 6.12 6.09 6.31
2070 4.61 2.21 2.24 2.70 4.16 2.45 2.44 2.50 1.69 1.63 1.55 1.35 10.46 6.29 6.22 6.55
2080 4.96 2.17 2.16 2.73 4.43 2.47 2.43 2.52 1.80 1.75 1.66 1.45 11.18 6.37 6.25 6.69
Sources: 2009, 2010, 2011, and 2012 Reports of the Medicare Trustees, Table III.A2 (2009-2011) and Table V.B2 (2012).
CRS-32
Medicare Financing
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