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 2001 projections follow.
The Federal Hospital Insurance (HI) Trust Fund—Medicare Part A
- The Trustees project that the HI Trust Fund will remain solvent until 2029, four years later than projected in their 2000 report. This improvement is due to both higher income and lower Part A spending than projected in their 2000 report.
- This intermediate, or “best guess,” estimate of solvency is sensitive to changes in actuarial assumptions. Under pessimistic assumptions, the Trust Fund's assets would be depleted in 2016. Under optimistic assumptions, annual Trust Fund income would continue to exceed costs for at least the next 75 years.
- The Trustees project that the HI Trust Fund will be seriously underfunded over the next 75 years. The long term financial outlook has worsened from the 2000 report, primarily due to a revision in the Trustees' assumptions about long-range Medicare expenditure growth.
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 significantly faster rate than the economy (as measured by growth in the Gross Domestic Product, or GDP) through 2010 and beyond.
- Over time, SMI spending is projected to consume an increasingly larger share of the economy. In 2000, SMI expenditures accounted for less than 1 percent of GDP, but are expected to increase to 2.2 percent of GDP by 2030.
- 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 timely and effective action in both Parts A and B to build upon the strong steps taken in recent reforms.
2001 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 19, 2001.
Written by Craig Caplan and David Gross, AARP Public Policy Institute
May be copied only for noncommercial purposes and with attribution; permission required for all other purposes.
Public Policy Institute, Public Affairs, AARP, 601 E Street, NW, Washington, DC 20049