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The ... annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds : communication from the Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance T PDF

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Preview The ... annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds : communication from the Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance T

2003ANNUALREPORTOF THEBOARDSOFTRUSTEESOFTHE FEDERALHOSPITALINSURANCEAND FEDERALSUPPLEMENTARYMEDICALINSURANCE TRUSTFUNDS COMMUNICATION From THEBOARDSOFTRUSTEES, FEDERALHOSPITALINSURANCEAND FEDERALSUPPLEMENTARYMEDICALINSURANCE TRUSTFUNDS Transmitting THE2003ANNUALREPORTOF THEBOARDSOFTRUSTEESOFTHE FEDERALHOSPITALINSURANCEAND FEDERALSUPPLEMENTARYMEDICALINSURANCE TRUSTFUNDS LETTEROFTRANSMITTAL BOARDSOFTRUSTEESOFTHE FEDERALHOSPITALINSURANCEAND FEDERALSUPPLEMENTARYMEDICALINSURANCETRUSTFUNDS, Washington,D.C.,March17,2003 HONORABLEJ.DennisHastert SpeakeroftheHouseofRepresentatives Washington,D.C. HONORABLERichardB.Cheney PresidentoftheSenate Washington,D.C. GENTLEMEN: Wehavethehonoroftransmittingtoyouthe2003AnnualReportoftheBoardsofTrusteesofthe FederalHospitalInsuranceTrustFundandtheFederalSupplementaryMedicalInsuranceTrustFund, the38thsuchreport. Respectfully, /S/ /S/ JohnW.Snow,Secretaryofthe ElaineL.Chao,Secretaryof Treasury,andManaging Labor,andTrustee. TrusteeoftheTrustFunds. /S/ TommyG.Thompson,Secretaryof JoAnneB.Barnhart,Commissioner HealthandHumanServices, ofSocialSecurity,andTrustee. andTrustee. /S/ JohnL.Palmer,Trustee. ThomasR.Saving,Trustee. /S/ ThomasA.Scully,Administratorofthe CentersforMedicare&MedicaidServices, andSecretary,BoardsofTrustees. CONTENTS I.OVERVIEW 1 A.Introduction 1 B.Highlights 2 C.MedicareDataforCalendarYear2002 3 D.EconomicandDemographicAssumptions 4 E.FinancialOutlookfortheMedicareProgram 6 F.FinancialStatusoftheHITrustFund 10 G.FinancialStatusoftheSMITrustFund 15 H.Conclusion 18 II.ACTUARIALANALYSIS 20 A.MedicareFinancialProjections 20 B.HIFinancialStatus 26 1.HIFinancialOperationsinFiscalYear2002 26 2.10-YearActuarialEstimates(2003-2012) 33 3.75-YearActuarialEstimates(2003-2077) 45 4.Long-RangeHISensitivityAnalysis 58 C.SMIFinancialStatus 64 1.SMIFinancialOperationsinFiscalYear2002 64 2.10-YearActuarialEstimates(2003-2012) 71 3.75-YearActuarialEstimates(2003-2077) 84 4.ImplicationsofSMICostGrowth 85 III.ACTUARIALMETHODOLOGY 89 A.HospitalInsurance 89 B.SupplementaryMedicalInsurance 102 IV.APPENDICES 116 A.MedicareAmendmentssincethe2002Report 116 B.AverageMedicareExpendituresperBeneficiary 117 C.MedicareCostSharingandPremiumAmounts 119 D.SupplementaryAssessmentofUncertaintyinSMICost Projections 122 E.Glossary 132 ListofTables 148 ListofFigures 151 StatementofActuarialOpinion 152 v I.OVERVIEW A.INTRODUCTION TheMedicareprogramiscomposedoftwoparts.HospitalInsurance (HI),orMedicarePartA,helpspayforhospital,homehealth,skilled nursing facility, and hospice care for the aged and disabled. SupplementaryMedicalInsurance(SMI),orMedicarePartB,pays forphysician,outpatienthospital,homehealth,andotherservicesfor theagedanddisabled. The HItrustfundisfinancedprimarilybypayrolltaxespaid by workersandemployers.Thetaxespaideachyearareusedmainlyto paybenefitsforcurrentbeneficiaries.TheSMItrustfundisfinanced primarilybytransfersfromthegeneralfundoftheU.S.Treasuryand bymonthlypremiumspaid bybeneficiaries. Incomenotcurrently neededtopaybenefitsandrelatedexpensesisheldintheHIand SMItrustfundsandinvestedinU.S.Treasurysecurities. TheMedicareBoardofTrusteeswasestablishedundertheSocial SecurityActtooverseethefinancialoperationsoftheHIandSMI trustfunds.1TheBoardiscomposedofsixmembers.Fourmembers serve by virtue oftheir positions in the federal government: the Secretary of the Treasury, who is the Managing Trustee; the SecretaryofLabor;theSecretaryofHealthandHumanServices;and the CommissionerofSocial Security. Theothertwomembers are appointedbythePresidentandconfirmedbytheSenatetoserveas publicrepresentatives:JohnL.PalmerandThomasR.Saving,the current public Trustees, began serving their 4-year terms on October28,2000.TheAdministratoroftheCentersforMedicare& MedicaidServices(CMS)isdesignatedasSecretaryoftheBoard. This2003reportisthe38thtobesubmitted.Thereportevaluatesthe near-termandlonger-termfinancialstatusofboththeHIandSMI trustfundsunderarangeofpossiblefutureconditions. Technically,separateboardsareestablishedforHIandSMI.Becausebothboards havethesamemembership,forconveniencetheyarecollectivelyreferredtoasthe MedicareBoardofTrusteesinthisreport. 1 Overview B.HIGHLIGHTS The major findings ofthis report under the intermediate set of assumptionsaresummarizedbelow. •MedicareProgram—CombinedHI and SMI expenditures asa percentageoftheGrossDomesticProduct(GDP)areprojectedto increaserapidly,from2.6percentin2002to5.3percentby2035 andthento9.3percentby2077.Inthefuture,undercurrentlaw, an increasing proportion ofMedicare costs will be financed by general revenues and beneficiary premiums, and a decreasing proportionofcostswillbemetthroughpayrolltaxes. •HI TrustFund—In the shortrange(2003-2012), thefinancial statusofthefundisfavorable,withHIassetsestimatedtoincrease from137percentofannualexpendituresin2002to192percentin 2012.TheHItrustfundeasilymeetstheTrustees'testofshort- range financial adequacy. However, overthenext 10years, the average annualincreaseinbenefitpaymentsis estimatedtobe 5.9percent, compared to a growth rate of5.3percent for the economyasawhole,asmeasuredbyGDP.After2012,projectedHI taxincomewouldfallshortofexpendituresunderpresentlawbya rapidly expanding margin. Tax income currently equals 105percent ofexpenditures butwould cover only 73percent of costsin2026andjust30percent75yearsfromnow.Currentlaw providesformeetingsuchHIrevenueshortfallsbydrawingonHI trustfundassets(andassociatedinterestincome),redeemingthese assetsthroughtransfersfromthegeneralfund ofthetreasury. Doing so would deplete the trust fund in 2026 under the intermediateassumptions.Asubstantial75-yearactuarialdeficitof 2.40percentoftaxablepayrollisprojected,andtheHItrustfund failsbyawidemargintomeettheTrustees'long-rangetestofclose actuarialbalance. •SMI Trust Fund—Under current law the SMI trust fund is scheduledtobemaintainedatadequatelevels,bothinthenear term and into the indefinite future, because ofthe automatic financingestablishedforthefundbylaw.Overthenext10years, theaverageannualincreaseinbenefitpaymentsisestimatedtobe 7.1percent,comparedtoagrowthrateof5.3percentforGDP.SMI outlayswere1.1percentofGDPin2002andareprojectedtogrow toabout4.2percentby2077. 2 MedicareData C.MEDICAREDATAFORCALENDARYEAR2002 HI and SMI have separate trust funds, sources ofrevenue, and categories ofexpenditures. TableI.Cl presentsMedicaredatafor calendaryear2002,intotalandforeachpartoftheprogram.The largest category ofHI expenditures is inpatient hospital services, whilethelargestSMIexpenditurecategoryisphysicianservices. TableI.C1.—MedicareDataforCalendarYear2002 HI Qui Total Assetsatendof2001(billions) $208.7 $41.3 $250.0 Totalincome(billions) $178.6 $106.2 $284.8 Payrolltaxes 152.7 152.7 Interest 14.4 2.7 17.1 Taxationofbenefits 8.3 8.3 Premiums 1.6 25.1 26.7 Generalrevenue 0.6 78.3 79.0 Other 1.0 0.0 1.0 Totalexpenditures(billions) $152.5 $113.2 $265.7 Benefits 149.9 111.0 260.9 Hospital 104.9 15.4 120.3 SHPkhoiylmslieecdihnaeunarlfsteihencgsacfraheceildiutyle 146.61 454..04 411540...065 Managedcare 19.4 17.3 36.7 Other 4.9 28.8 33.7 Administrativeexpenses $2.6 $2.2 $4.8 Netchangeinassets(billions) $26.1 -$7.0 $19.1 Assetsatendof2002(billions) $234.8 $34.3 $269.1 Enrollment Aged(millions) 34.6 32.9 35.1 Disabled(millions) 6.0 5.2 6.0 Total(millions) 40.6 38.1 41.1 Averagebenefitperenrollee $3,689 $2,915 $6,604 ForHI,theprimarysourceoffinancingisthepayrolltaxoncovered earnings. Employers and employees each pay 1.45percent of earnings,whileself-employedworkerspay2.9percentoftheirnet income. OtherHIrevenuesourcesincludeaportionofthefederal incometaxesthatpeoplepayontheirSocialSecuritybenefits,and interestpaidontheU.S.TreasurysecuritiesheldintheHItrust fund. ForSMI,transfersfromthegeneralfundofthetreasuryrepresent thelargestsourceofincome,coveringroughly75percentofprogram costs. Beneficiaries pay monthly premiums that finance about 25percentofcosts.AswithHI,interestispaidontheU.S.Treasury securitiesheldintheSMItrustfund. 3 Overview D.ECONOMICANDDEMOGRAPHICASSUMPTIONS Actual future Medicare expenditureswill depend on anumber of factors,includingthesizeandcompositionofthepopulationeligible forbenefits,changesin thevolume and intensityofservices, and increasesinthepriceperservice.ForHI,futuretrustfundincome willdependonthesizeandcharacteristicsofthecoveredworkforce andthelevelofworkers'earnings.Thesefactorswilldependinturn uponfuturebirthrates,deathrates,laborforceparticipationrates, wage increases, and many other economic and demographic circumstancesaffectingMedicare.Toillustratetheuncertaintyand sensitivity inherent in estimates of future Medicare trust fund operations,projectionshavebeenpreparedundera"lowcost"anda "highcost"setofassumptionsaswellasunderanintermediateset. TableI.D1 summarizes the key assumptions used in this report. Many ofthe demographic and economicvariables thatdetermine MedicarecostsandincomearecommontotheOld-Age,Survivors, and Disability Insurance (OASDI) program and are explained in detailinthereportoftheOASDIBoardofTrustees.Thesevariables includechangesintheConsumerPriceIndex(CPI)andwages,real interestrates,fertilityrates,andmortalityrates.("Real"indicates thattheeffects ofinflationhavebeenremoved.)The assumptions vary,inmostcases,fromyeartoyearduringthefirst5to30years beforereachingtheirso-called"ultimate"valuesfortheremainderof the75-yearprojectionperiod.OtherassumptionsarespecifictoHI andSMI.AswithalloftheassumptionsunderlyingtheTrustees' financial projections, the HI- and SMI-specific assumptions are reviewedannuallyandupdated based onthelatestavailabledata andanalysisoftrends. TableI.D1.—UltimateAssumptions Intermediate LowCost HighCost Economic: Annualpercentagechangein: GrossDomesticProduct(GDP)percapita 4.3 4.0 4.6 ACvoenrsaugmeerwaPgreiceinIcnodveexr(eCdPIe)mployment 43..10 23..06 44..60 Real-wagedifferential(percent) 1.1 1.6 0.6 Realinterestrate(percent) 2.9 3.6 2.1 Demographic: Totalfertilityrate(childrenperwoman) 1.95 2.2 1.7 Averageannualpercentagereductionintotalage-sex adjusteddeathratesfrom2027to2077 0.76 0.35 1.33 Healthcostgrowth: AnnualpercentagechangeinperbeneficiaryMedicare SeeesxepcetnidointuIIr.Besfo(rexfucrltuhdeirngexdpelmanoagtriaopn.hicimpacts).. 5.3 1 1 4

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