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Medicare Financing

In Brief: The Status of the Medicare Part A and Part B Trust Funds: The Trustees' 2003 Annual Report

Research Report

Craig Caplan, AARP Public Policy Institute

Ryan Cool, AARP Public Policy Institute

March 2003


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The Trustees of the Federal Hospital Insurance (HI) and the Federal Supplementary Medical Insurance (SMI) Trust Funds report annually to Congress on the short- and long-term financial health of these Medicare trust funds. Key findings from their year 2003 projections follow.

The Federal Hospital Insurance (HI) Trust Fund—Medicare Part A
  • Although the short-term financial status of the HI Trust Fund remains favorable, the long-term financial status of the Trust Fund is problematic.

  • The Trustees project that, under their intermediate or "best guess" assumptions, the HI Trust Fund will remain solvent until 2026. By comparison, the Trustees' 2002 Annual Report projected that the Trust Fund would be solvent until 2030. The earlier insolvency date is the result of significantly lower projected payroll tax income and somewhat higher expenditures for inpatient hospital care.

  • The Trustees' estimates of solvency are sensitive to changes in actuarial assumptions. Under high cost assumptions, the HI Trust Fund's assets would be depleted in 2015. Under low cost assumptions, annual trust fund income would continue to exceed costs for at least 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, so, by design, the SMI Trust Fund will remain adequately financed into the indefinite future.

  • SMI costs in the short-term are projected to increase at a faster rate than the economy (as measured by growth in the Gross Domestic Product, or GDP) through 2012 and beyond.

  • Over time, SMI spending is projected to consume an increasingly larger share of the economy. In 2002, SMI expenditures accounted for 1.1 percent of GDP, but are expected to increase to 2.3 percent of GDP by 2030.
Trustees' Conclusions
  • The Trustees believe that solutions should be found in the near future to ensure the financial integrity of the HI program and to provide effective means to control Medicare costs.

  • The Trustees believe that effective and decisive action is necessary to build upon the steps already taken.
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Source

2003 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, March 17, 2003.

Written by Craig Caplan and Ryan Cool, AARP Public Policy Institute
March 2003
©2003 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

Pub ID: INB64