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Friday, June 15, 2012

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 2012 Medicare trustees report projects that,
under intermediate assumptions, the HI trust fund will become insolvent in 2024, the same as
projected in the 2011 report, but five years earlier than estimated by the 2010 report. This report
is a supplement to CRS Report R41436, Medicare Financing, which discusses the findings from
the 2012 trustees report. Both reports will be updated upon receipt of the trustees 2013 report.

Date of Report: June 11, 2012
Number of Pages: 15
Order Number: RS20946
Price: $29.95

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