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In Brief: The Status of the Medicare Part A and Part B Trust Funds: The Trustees' Year 2000 Reports (Revised)

The Trustees of the Medicare Hospital Insurance (HI) and the Supplementary Medical Insurance (SMI) Trust Funds report annually to Congress on the short- and long-term financial health of these programs. Key findings from their year 2000 projections follow.

The Federal Hospital Insurance (HI) Trust Fund-Medicare Part A

  • The Trustees project that the HI Trust Fund will be exhausted in 2025, ten years later than projected in their 1999 report. This improvement is largely due to higher income and lower Part A spending than projected in their 1999 report.
  • This intermediate, or "best guess," estimate of insolvency is sensitive to changes in actuarial assumptions. Under pessimistic assumptions, the Trust Fund would be depleted in 2012. Under optimistic assumptions, annual Trust Fund income would continue to exceed costs for at least the next 75 years.
  • The projected long-term financial outlook of the HI Trust Fund has improved somewhat from the 1999 report. However, the Trustees project that it will be seriously underfunded over the next 75 years.

The Federal Supplementary Medical Insurance (SMI) Trust Fund-Medicare Part B

  • Federal general revenues finance about 75 percent of Part B costs while beneficiary premiums cover about 25 percent. Income from the federal government is adjusted each year to ensure that all expenses are covered. Therefore, solvency is not an issue. The SMI Trust Fund will remain adequately financed into the indefinite future.
  • SMI costs in the short-term are projected to be lower than projected in previous reports. However, these costs are projected to increase at a significantly faster rate than the economy (as measured by growth in the Gross Domestic Product, or GDP) through 2009 and beyond.
  • At this rate of growth, SMI spending is projected to consume an increasingly larger share of the economy. In 1999, SMI expenditures accounted for less than 1 percent of GDP. SMI spending is expected to increase to 2.1 percent of GDP by 2030.

Trustees' Conclusions

  • The Trustees urge policymakers to use the time gained by the later depletion of the HI Trust Fund productively to solve the Fund's remaining long-term problems.
  • The Trustees also recommend that policymakers explore effective means of controlling SMI costs and address the financial impact of the impending retirement of the baby boom generation.
  • Finally, the Trustees encourage policymakers to take action in both Parts A and B to build upon the strong steps taken in recent reforms.

Source

2000 Annual Reports of the Board of Trustees of the Federal Hospital Insurance (HI) Trust Fund and of the Federal Supplementary Medical Insurance (SMI) Trust Fund, March 30, 2000. On April 20, the Trustees announced an accounting error for Part A that underestimated the value of accumulated interest in the Trust Fund. This In Brief incorporates the Trustees' revised projections for Part A.

Written by Normandy Brangan and Craig Caplan, AARP Public Policy Institute
©2000 AARP
May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.
Public Policy Institute, AARP, 601 E Street, NW, Washington, DC 20049

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