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Monday, February 28, 2011

Medicare: History of Insolvency Projections

Patricia A. Davis
Specialist in Health Care Financing

Medicare is the nation’s health insurance program for persons age 65 and older and certain disabled persons. Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI); Part B (Supplementary Medical Insurance, or SMI); Part C (Medicare Advantage, or MA); and Part D (the outpatient 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. As an alternative, beneficiaries can choose to receive all their Medicare services through private health plans under the MA program; payment is made on their behalf in appropriate parts from the HI and SMI trust funds. The Part D drug benefit is funded through a separate account in the SMI trust fund and is financed through general revenues, state contributions, and beneficiary premiums. The HI and SMI trust funds are overseen by a board of trustees that makes an annual report to Congress concerning the financial status of the funds.

Almost from its inception, the HI trust fund has faced a projected shortfall. The insolvency date has been postponed a number of times, primarily due to legislative changes that have had the effect of restraining growth in program spending. The 2010 Medicare trustees report projects that, under intermediate assumptions, the HI trust fund will become insolvent in 2029, 12 years later than projected in the 2009 report primarily due to provisions in the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) that are expected to increase revenues from payroll taxes and decrease HI expenditures. This report is a supplement to CRS Report R41436, Medicare Financing, which discusses the findings from the 2010 trustees report. Both reports will be updated upon receipt of the trustees 2011 report. 

Date of Report: February 16, 2011
Number of Pages: 13
Order Number: RS20946
Price: $29.95

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