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Friday, January 14, 2011

Medicare Financing

Patricia A. Davis
Acting Section Research Manager/Specialist in Health Care Financing

Medicare is the nation’s health insurance program for individuals aged 65 and over and certain disabled persons. Medicare consists of four distinct parts: Part A, or Hospital Insurance (HI); Part B, or Supplementary Medical Insurance (SMI); Part C, or Medicare Advantage (MA); and Part D, the prescription drug benefit. The Part A program is financed primarily through payroll taxes levied on current workers and their employers; these are credited to the HI trust fund. The Part B program is financed through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. Beneficiaries can choose to receive all their Medicare services, except hospice, through managed care plans under the MA program; payment is made on their behalf in appropriate parts from the HI and SMI trust funds. A separate account in the SMI trust fund accounts for the Part D drug benefit; Part D is financed through general revenues, beneficiary premiums, and state contributions. The HI and SMI trust funds are overseen by a board of trustees that makes annual reports to Congress.

The 2010 report of the Medicare Boards of Trustees estimates that the combination of lower Part A costs and higher tax revenues expected as a result of the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (“the Reconciliation Act,” or HCERA, P.L. 111-152), will postpone the depletion of HI trust fund assets until 2029, 12 years later than projected last year’s report. Because of the way it is financed, the SMI fund can not face insolvency; however, the trustees project that SMI expenditures will continue to grow rapidly.

Although the Medicare trustees report that the financial outlook for the Medicare program appears to have improved as a result of PPACA, they caution that the projections in the report are more uncertain than normal, due to the potential for future expenditure reductions not to materialize. In addition, the report projections assume that reductions in physician payment rates scheduled under current law will occur, although these reductions have usually been overridden by Congress.

Date of Report: January 5, 2011
Number of Pages: 29
Order Number: R41436
Price: $29.95

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