Medicare Financing
In Brief: The Trustees' 1998 Report on the Status of the Medicare Hospital Insurance (HI) Trust Fund
Research Report
Craig Caplan, AARP Public Policy Institute
David Gross, AARP Public Policy Institute
April 1998
The Trustees of the Federal Hospital Insurance Trust Fund reported in their 1998 annual report to Congress on the financial health of the Medicare Hospital Insurance (HI) program for the short- and long-term. Their key findings follow.
Short-term Financial Status
- The Trust Fund's short-term picture has substantially improved since the 1997 annual report. The improvement is largely due to the Balanced Budget Act of 1997 (BBA), which included measures to reduce the annual growth in Part A benefit costs.
- The Trust Fund is now expected to be exhausted in 2008, seven years later than projected in the 1997 report. Earlier estimates by the Congressional Budget Office of the BBA's impact had projected that the Trust Fund would be exhausted early in fiscal year 2010.
- The estimates are sensitive to changes in actuarial assumptions. Under optimistic assumptions, the Trust Fund would not be depleted until 2030. Under pessimistic assumptions, the Trust Fund would be depleted in 2004.
Long-term Financial Status
- While the BBA significantly reduced the long-term shortfall in the Trust Fund balance, the Trust Fund's long-term financial outlook remains unfavorable.
- The number of workers paying taxes relative to the number of eligible beneficiaries will decrease as the population continues to age. In 1997, there were 3.9 workers supporting each beneficiary. By 2010, there will be 3.6 workers for each beneficiary, and by 2030, there will be 2.3 workers for each beneficiary.
- Substantial measures will be needed over the long-term to increase revenues and/or lower expenses.
Conclusions and Recommendations
The Trustees believe that--while the BBA extended short-term solvency of the Trust Fund and reduced the magnitude of long-term shortfalls--prompt, effective, and decisive action is necessary to achieve long-term solvency. In this regard, they believe that the work of the National Bipartisan Commission on the Future of Medicare will be of critical importance to the American public.
Sources
1998 Annual Report of the Board of Trustees of the Federal
Hospital Insurance Trust Fund;
Congressional Budget Office, Economic and Budget Outlook:
Fiscal Years 1999-2008, Appendix F, Washington, DC, January
1998. For more information about the status of the HI Trust Fund,
write for a copy of PPI Data Digest #35, AARP, 601 E St. NW,
Washington, DC 20049.
Prepared by Craig Caplan and David Gross, AARP Public Policy
Institute
April 1998
© 1998 AARP
May be copied only for noncommercial purposes and with
attribution; permission required for all other purposes.
Public Policy Institute, AARP, 601 E Street, N.W., Washington, DC
20049
Pub ID: INB9