House Document 117-62 — 2021 Annual Report, Hospital Insurance and Supplementary Medical Insurance Trust Funds
Summary
House Document 117-62 is the 2021 annual report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance trust funds, referred jointly to the Committees on Ways and Means and Energy and Commerce on September 23, 2021. It is the 56th such report, and the two public trustee positions have been vacant since 2015. The report projects that the HI trust fund will be depleted in 2026, when HI revenues would cover 91 percent of incurred program costs. It incorporates the costs of COVID-19 vaccines and describes how the CARES Act and CMS expanded the Medicare Accelerated and Advance Payments Program during the public health emergency.
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“House Document 117-62 — 2021 Annual Report, Hospital Insurance and Supplementary Medical Insurance Trust Funds.”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/cdoc-cdoc-117hdoc62-cdoc-117hdoc62-8bd140e5e9/
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117th Congress, 1st Session – – – – – – – – – – – – – – – – – – – House Document 117-62
THE 2021 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF
THE FEDERAL HOSPITAL INSURANCE AND FEDERAL
SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS
——————
COMMUNICATION
FROM
THE BOARDS OF TRUSTEES,
FEDERAL HOSPITAL INSURANCE AND
FEDERAL SUPPLEMENTARY MEDICAL INSURANCE
TRUST FUNDS
TRANSMITTING
THE 2021 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE
FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY
MEDICAL INSURANCE TRUST FUNDS
September 23, 2021.—Referred jointly to the Committees on Ways and Means
and Energy and Commerce, and ordered to be printed
——————
U.S. GOVERNMENT PUBLISHING OFFICE
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45-613 WASHINGTON: 2021
CONTENTS
I. INTRODUCTION................................................................................. 1
II. OVERVIEW ........................................................................................ 8
A. Highlights ........................................................................................ 8
B. Medicare Data for Calendar Year 2020....................................... 12
C. Medicare Assumptions ................................................................. 14
D. Financial Outlook for the Medicare Program ............................. 20
E. Financial Status of the HI Trust Fund ....................................... 26
F. Financial Status of the SMI Trust Fund ..................................... 32
G. Conclusion ..................................................................................... 41
III. ACTUARIAL ANALYSIS ............................................................... 44
A. Introduction................................................................................... 44
B. HI Financial Status ...................................................................... 45
1. Financial Operations in Calendar Year 2020.......................... 45
2. 10-Year Actuarial Estimates (2021–2030) .............................. 52
3. Long-Range Estimates .............................................................. 62
4. Long-Range Sensitivity Analysis ............................................. 74
C. Part B Financial Status................................................................ 80
1. Financial Operations in Calendar Year 2020.......................... 80
2. 10-Year Actuarial Estimates (2021–2030) .............................. 88
3. Long-Range Estimates ............................................................ 102
D. Part D Financial Status ............................................................. 104
1. Financial Operations in Calendar Year 2020........................ 104
2. 10-Year Actuarial Estimates (2021–2030) ............................ 108
3. Long-Range Estimates ............................................................ 116
IV. ACTUARIAL METHODOLOGY AND PRINCIPAL ASSUMPTIONS 119
A. Hospital Insurance ..................................................................... 119
B. Supplementary Medical Insurance ............................................ 131
1. Part B ....................................................................................... 131
2. Part D ....................................................................................... 143
C. Private Health Plans .................................................................. 154
D. Long-Range Medicare Cost Growth Assumptions .................... 164
V. APPENDICES ................................................................................. 172
A. Medicare Amendments since the 2020 Report ......................... 172
B. Total Medicare Financial Projections ........................................ 188
C. Illustrative Alternative Projections ........................................... 200
D. Average Medicare Expenditures per Beneficiary ..................... 205
E. Medicare Cost-Sharing and Premium Amounts ....................... 208
F. Medicare and Social Security Trust Funds and the Federal
Budget .......................................................................................... 216
G. Infinite Horizon Projections ....................................................... 223
H. Fiscal Year Historical Data and Projections through 2030 ..... 230
I. Glossary ........................................................................................ 241
J. List of Tables ............................................................................... 261
J. List of Figures.............................................................................. 265
J. Statement of Actuarial Opinion ................................................. 266
(V)
I. INTRODUCTION
The Medicare program helps pay for health care services for the aged,
disabled, and individuals with end-stage renal disease (ESRD). It has
two separate trust funds, the Hospital Insurance trust fund (HI) and
the Supplementary Medical Insurance trust fund (SMI). HI, otherwise
known as Medicare Part A, helps pay for inpatient hospital services,
hospice care, and skilled nursing facility and home health services
following hospital stays. SMI consists of Medicare Part B and Part D.
Part B helps pay for physician, outpatient hospital, home health, and
other services for individuals who have voluntarily enrolled. Part D
provides subsidized access to drug insurance coverage on a voluntary
basis for all beneficiaries and premium and cost-sharing subsidies for
low-income enrollees. Medicare also has a Part C, which serves as an
alternative to traditional Part A and Part B coverage. Under this
option, beneficiaries can choose to enroll in and receive care from
private Medicare Advantage and certain other health insurance plans.
Medicare Advantage and Program of All-Inclusive Care for the Elderly
(PACE) plans receive prospective, capitated payments for such
beneficiaries from the HI and SMI Part B trust fund accounts; the
other plans are paid from the accounts on the basis of their costs.
The Social Security Act established the Medicare Board of Trustees to
oversee the financial operations of the HI and SMI trust funds.1 The
Board has six members. Four members serve by virtue of their
positions in the Federal Government: the Secretary of the Treasury,
who is the Managing Trustee; the Secretary of Labor; the Secretary of
Health and Human Services; and the Commissioner of Social Security.
Two other members are public representatives whom the President
appoints and the Senate confirms. These positions have been vacant
since 2015. The Administrator of the Centers for Medicare & Medicaid
Services (CMS) serves as Secretary of the Board.
The Social Security Act requires that the Board, among other duties,
report annually to the Congress on the financial and actuarial status
of the HI and SMI trust funds. The 2021 report is the 56th that the
Board has submitted.
With one exception, the projections are based on the current-law
provisions of the Social Security Act. The one exception is that the
Part A projections disregard payment reductions that would result
from the projected depletion of the Medicare HI trust fund. Under
1The Social Security Act established separate boards for HI and SMI. Both boards have
the same membership, so for convenience they are collectively referred to as the
Medicare Board of Trustees in this report.
1
Introduction
COVID-19 with (ii) a potential reduction in costs due to the higher
mortality from COVID-19 among those with higher medical spending.
The estimates in this year’s report also incorporate the costs of the
COVID-19 vaccines, which consist of both the payments for the
vaccines themselves and the payments for their administration. The
Trustees expect vaccine utilization to decrease somewhat over time,
reflecting the likely reduction in the required number of doses and the
possibility that the seriousness of COVID-19 will decrease.
It should be noted that there is an unusually large degree of
uncertainty with these COVID-related impacts and that future
projections could change significantly as more information becomes
available.
The Medicare Accelerated and Advance Payments (AAP) Program was
significantly expanded during the COVID-19 public health emergency
period, by both legislative provisions and through administrative
actions taken by CMS early on during the emergency. CMS first
implemented an expedited process for eligible providers and suppliers
to request and receive approval for these payments. Next, while the
Coronavirus Aid, Relief, and Economic Support (CARES) Act added
critical access, pediatric, and certain cancer hospitals to the list of
eligible entities, CMS made several modifications to the AAP program
that, in effect, expanded eligibility to all types of providers and
suppliers.2 The CARES Act increased the maximum amounts available
under the AAP program during the emergency period to (i) 100 percent
of Medicare payments made during the past 6 months—for inpatient
acute care, pediatric, and certain cancer hospitals; (ii) 125 percent of
Medicare payments made during the past 6 months—for critical access
hospitals; and (iii) 100 percent of Medicare payments made during the
past 3 months—for all other providers and suppliers.3 In addition,
under the Continuing Appropriations Act, 2021 and Other Extensions
Act, recoupments are to begin 1 year after the accelerated or advance
payment is issued, after which recoupments are to be 25 percent of the
AAP amount over the first 11 months and 50 percent over the following
6 months; after that 29-month period has elapsed, the remaining
balance will be due within 30 days. Total payments of approximately
$107.1 billion were made: roughly $67.1 billion from the HI trust fund
and $40.0 billion from the SMI Part B trust fund account. The Trustees
2The usual eligibility criteria—to have billed Medicare during the last 180 days, to not
be in bankruptcy, to not be under review or investigation, and to not have any
outstanding delinquent Medicare overpayments—still apply.
3The maximum available AAP amounts had been 70 percent and 80 percent for providers
and suppliers, respectively, of Medicare payments made during the past 90 days.
3
Introduction
assume that the accelerated and advance payments will be fully repaid
by September of 2022, resulting in no net changes to trust fund
expenditures, but the AAP program significantly affects the timing of
expenditures from 2020 through 2022.
The projections and analysis in this report do not reflect the potential
effects of Medicare coverage of Aduhelm, the Alzheimer’s disease drug
that has been recently approved by the Food and Drug Administration.
Given the uncertainty associated with these impacts, the Trustees
believe that it is not possible to adjust the estimates accurately before
a coverage determination is made.
While the COVID-19 pandemic has significantly affected Medicare
short-term financing and spending, it is not expected to have a large
effect on the financial status of the trust funds after 2024. As discussed
throughout the report, the key measures of the financial adequacy for
each trust fund shown in this year’s report are fairly comparable to
those included in last year’s report. This consistency is partly due to
the offsetting effects of lower income and expenditures in the HI trust
fund and partly due to the expectation that the effects of the pandemic
will last only several years. The pandemic is an example of the inherent
uncertainty in projecting health care financing and spending over any
duration.
A more typical reason for uncertainty in projecting Medicare costs,
especially when looking out more than several decades, is that
scientific advances will make possible new interventions, procedures,
and therapies. Some conditions that are untreatable today may be
handled routinely in the future. Spurred by economic incentives, the
institutions through which care is delivered will evolve, possibly
becoming more efficient. While most health care technological
advances to date have tended to increase expenditures, the health care
landscape is shifting. No one knows whether future developments will,
on balance, increase or decrease costs.
Certain features of current law may result in some challenges for the
Medicare program. Physician payment update amounts are specified
for all years in the future, and these amounts do not vary based on
underlying economic conditions, nor are they expected to keep pace
with the average rate of physician cost increases. These rate updates
could be an issue in years when levels of inflation are high and would
be problematic when the cumulative gap between the price updates
and physician costs becomes large. Payment rate updates for most non-
physician categories of Medicare providers are reduced by the growth
4
Introduction
in economy-wide private nonfarm business multifactor productivity4
although these health providers have historically achieved lower levels
of productivity growth. If the health sector cannot transition to more
efficient models of care delivery and if the provider reimbursement
rates paid by commercial insurers continue to be based on the same
negotiated process used to date, then the availability, particularly with
respect to physician services, and quality of health care received by
Medicare beneficiaries would, under current law, fall over time
compared to that received by those with private health insurance.
Since 1960, U.S. national health expenditure (NHE) growth rates
typically outpaced economic growth rates, though the magnitude of the
differences has been declining. The Trustees have long assumed that
this differential would continue to narrow over the long-term projection
period and that cost-reduction provisions required under current law
would further decrease this gap. Since 2008, average annual NHE
growth has been below historical averages, though it has generally
continued to outpace average annual growth of the economy. There is
some debate regarding whether this recent slower growth in national
health expenditures reflects the impact of economic factors that are
mostly cyclical in nature, such as modest income growth over the last
decade, or factors that would lead to a permanently slower growth
environment, such as structural changes to the health sector that could
result in lower health care cost growth. The Trustees’ outlook for long-
range NHE growth is consistent with the trajectory observed over the
past half century and has not been materially affected by this recent
experience.
Current-law projections indicate that Medicare still faces a substantial
financial shortfall that will need to be addressed with further
legislation. Such legislation should be enacted sooner rather than later
to minimize the impact on beneficiaries, providers, and taxpayers.
4For convenience the term economy-wide private nonfarm business multifactor
productivity will henceforth be referred to as economy-wide productivity.
5
Introduction
Figure I.1 shows Medicare’s projected expenditures as a percentage of
the Gross Domestic Product (GDP) under two sets of assumptions:
current law and an illustrative alternative, described below.5
Figure I.1.—Medicare Expenditures as a Percentage
of the Gross Domestic Product under Current Law
and Illustrative Alternative Projections
10%
8%
6%
4%
Current Law
Illustrative Alternative
2%
0%
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Calendar year
Note: Percentages are affected by economic cycles.
The expenditure projections reflect the cost-reduction provisions
required under current law but not the payment reductions and/or
delays that would result from the HI trust fund depletion. In the year
of asset depletion, which is projected to be 2026 in this report, HI
revenues are projected to cover 91 percent of incurred program costs.
The illustrative alternative shown in the top line of figure I.1 assumes
that (i) there would be a transition from current-law6 payment updates
5A set of illustrative alternative Medicare projections has been prepared under a
hypothetical modification to current law. A summary of the projections under the
illustrative alternative is contained in section V.C of this report, and a more detailed
discussion is available at https://www.cms.gov/files/document/illustrative-alternative-
scenario-2021.pdf. Readers should not infer any endorsement of the policies represented
by the illustrative alternative by the Trustees, CMS, or the Office of the Actuary. Section
V.C also provides additional information on the uncertainties associated with
productivity adjustments to specific provider payment updates and the scheduled
physician payment updates.
6Medicare’s annual payment rate updates for most categories of provider services would
be reduced below the increase in providers’ input prices by the growth in economy-wide
productivity (1.0 percent over the long range).
6
Introduction
for providers affected by the economy-wide productivity adjustments to
payment updates that reflect adjustments for health care productivity;
(ii) the average physician payment updates would transition from
current law7 to payment updates that reflect the Medicare Economic
Index; and (iii) the 5-percent bonuses for qualified physicians in
advanced alternative payment models (advanced APMs) and the
$500-million payments for physicians in the merit-based incentive
payment system (MIPS) would continue indefinitely rather than expire
in 2025. The difference between the illustrative alternative and the
current-law projections continues to demonstrate that the long-range
costs could be substantially higher than shown throughout much of the
report if the cost-reduction measures prove problematic and new
legislation scales them back.
As figure I.1 shows, Medicare’s costs under current law rise steadily
from their current level of 4.0 percent of GDP in 2020 to 6.2 percent in
2045. Costs then rise more slowly before leveling off at around
6.5 percent in the final 25 years of the projection period. Under the
illustrative alternative, projected costs would continue rising steadily
throughout the projection period, reaching 6.5 percent of GDP in 2045
and 8.5 percent in 2095.
As the preceding discussion explains, and as the substantial
differences between current-law and illustrative alternative
projections demonstrate, Medicare’s actual future costs are highly
uncertain for reasons apart from the inherent challenges in projecting
health care cost growth over time. The Board recommends that readers
interpret the current-law estimates in the report as the outcomes that
would be experienced under the Trustees’ economic and demographic
assumptions if the required cost-reduction provisions can be sustained
in the long range. Readers are encouraged to review section V.C for
further information on this important subject. The key financial
outcomes under the illustrative alternative scenario are shown with
the current-law projections throughout this report.
7The law specifies physician payment rate updates of 0.75 percent or 0.25 percent
annually thereafter for physicians in advanced alternative payment models (advanced
APMs) or the merit-based incentive payment system (MIPS), respectively. These updates
are notably lower than the projected physician cost increases, which are assumed to
average 2.05 percent per year in the long range.
7
II. OVERVIEW
A. HIGHLIGHTS
The major findings of this report under the intermediate set of
assumptions appear below. The balance of the Overview and the
following Actuarial Analysis section describe these findings in more
detail.
In 2020
In 2020, Medicare covered 62.6 million people: 54.1 million aged 65
and older, and 8.5 million disabled. About 40 percent of these
beneficiaries have chosen to enroll in Part C private health plans that
contract with Medicare to provide Part A and Part B health services.
Total expenditures in 2020 were $925.8 billion, and total income was
$899.9 billion, which consisted of $894.6 billion in non-interest income
and $5.3 billion in interest earnings. Assets held in special issue U.S.
Treasury securities decreased by $26.0 billion to $277.3 billion. The
significant drop in assets was due to the large amount of accelerated
and advance payments to providers, which were partially offset by
reductions in spending during the pandemic.
Short-Range Results
The estimated depletion date for the HI trust fund is 2026, the same
as in last year’s report. As in past years, the Trustees have determined
that the fund is not adequately financed over the next 10 years. HI
income is projected to be lower than last year’s estimates due to lower
payroll taxes. HI expenditures are projected to be lower than last year’s
estimates because of lower projected provider payment updates and
certain methodological improvements, including changes to the time-
to-death factors used in the projection model.
In 2020, HI expenditures exceeded income by $60.4 billion due to the
large amount of accelerated and advance payments. These payments
will be repaid in 2021 and 2022, resulting in a small deficit in 2021 and
a surplus in 2022. After that, the Trustees project deficits in all future
years until the trust fund becomes depleted in 2026. The assets were
$134.1 billion at the beginning of 2021, representing about 48 percent
of expenditures projected for 2021, which is below the Trustees’
minimum recommended level of 100 percent. The HI trust fund has not
met the Trustees’ formal test of short-range financial adequacy since
2003. Growth in HI expenditures has averaged 7.6 percent annually
over the last 5 years, compared with non-interest income growth of
5.2 percent. Over the next 5 years, projected average annual growth
8
Highlights
rates for expenditures and non-interest income are 3.1 percent and
4.6 percent, respectively.
The SMI trust fund is expected to be adequately financed over the next
10 years and beyond because income from premiums and general
revenue for Parts B and D are reset each year to cover expected costs
and ensure a reserve for Part B contingencies. The monthly Part B
premium for 2021 is $148.50.
Part B and Part D costs have averaged annual growth rates of
8.5 percent and 3.2 percent, respectively, over the last 5 years, as
compared to growth of 2.8 percent for GDP. The Trustees project that
cost growth over the next 5 years will average 7.2 percent for Part B
and 6.1 percent for Part D, faster than the projected average annual
GDP growth rate of 5.3 percent over the period.
The Trustees are issuing a determination of projected excess general
revenue Medicare funding in this report because the difference between
Medicare’s total outlays and its dedicated financing sources8 is
projected to exceed 45 percent of outlays within 7 years. Since this
determination was made last year as well, this year’s determination
triggers a Medicare funding warning, which (i) requires the President
to submit to Congress proposed legislation to respond to the warning
within 15 days after the submission of the Fiscal Year 2023 Budget and
(ii) requires Congress to consider the legislation on an expedited basis.
This is the fifth consecutive year that a determination of excess general
revenue Medicare funding has been issued, and the fourth consecutive
year that a Medicare funding warning has been issued.
Long-Range Results
For the 75-year projection period, the HI actuarial deficit has increased
to 0.77 percent of taxable payroll from 0.76 percent in last year’s
report. (Under the illustrative alternative projections, the HI actuarial
deficit would be 1.61 percent of taxable payroll.) Several factors
contributed to the change in the actuarial deficit, most notably certain
methodological improvements to the model (+0.24 percent) and lower
projected spending for Medicare Advantage (MA) beneficiaries
(+0.03 percent). These improvements are offset by recent non-COVID-
related base experience changes (ï0.04 percent), changes to economic
8Dedicated financing sources consist of HI payroll taxes, HI share of income taxes on
Social Security benefits, Part D State transfers, Part B drug fees, and beneficiary
premiums.
9
Overview
and demographic assumptions (ï0.22 percent), and other changes
(ï0.02 percent).
Part B outlays were 1.8 percent of GDP in 2020, and the Board projects
that they will grow to about 3.6 percent by 2095 under current law.
The long-range projections as a percent of GDP are slightly higher than
those projected last year, with slightly lower GDP assumptions and
slightly higher spending for outpatient hospital services and physician-
administered drugs contributing to the difference. (Part B costs in 2095
would be 4.6 percent under the illustrative alternative scenario.)
The Board estimates that Part D outlays will increase from 0.5 percent
of GDP in 2020 to about 0.9 percent by 2095. The Part D expenditure
projections for the current report are mostly lower than last year’s
projections primarily because of higher direct and indirect
remuneration and the continuing enrollment shift from Prescription
Drug Plans to Medicare Advantage Prescription Drug Plans, which
more than offset the higher gross drug prices assumed in this year’s
report.
Transfers from the general fund finance about three-quarters of SMI
costs and are central to the automatic financial balance of the fund’s
two accounts. Such transfers represent a large and growing
requirement for the Federal budget. SMI general revenues were
2.0 percent of GDP in 2020 and are projected to increase to
approximately 3.1 percent in 2095. (SMI general revenues in 2095
would be 3.9 percent under the illustrative alternative scenario.)
Conclusion
Total Medicare expenditures were $926 billion in 2020. The Board
estimates that the COVID-19 pandemic will have significant effects on
the short-term financing and spending of the Medicare program, but
the financial status of the trust funds has not materially changed. For
example, the Trustees project that expenditures will increase in future
years at a faster pace than either aggregate workers’ earnings or the
economy overall and that, as a percentage of GDP, spending will
increase from 4.0 percent in 2020 to 6.5 percent by 2095 (based on the
Trustees’ intermediate set of assumptions). If the relatively low price
increases for physicians and other health services under Medicare are
not sustained and do not take full effect in the long range as assumed
in the illustrative alternative projection, then Medicare spending
would instead represent roughly 8.5 percent of GDP in 2095. Growth
under either of these scenarios would substantially increase the strain
10
Highlights
on the nation’s workers, the economy, Medicare beneficiaries, and the
Federal budget.
The Trustees project that HI tax income and other dedicated revenues
will fall short of HI expenditures in all future years. The HI trust fund
does not meet either the Trustees’ test of short-range financial
adequacy or their test of long-range close actuarial balance.
The Part B and Part D accounts in the SMI trust fund are expected to
be adequately financed because income from premiums and general
revenue are reset each year to cover expected costs. Such financing,
however, would have to increase faster than the economy to cover
expected expenditure growth.
The financial projections in this report indicate a need for substantial
changes to address Medicare’s financial challenges. The sooner
solutions are enacted, the more flexible and gradual they can be. The
early introduction of reforms increases the time available for affected
individuals and organizations—including health care providers,
beneficiaries, and taxpayers—to adjust their expectations and
behavior. The Trustees recommend that Congress and the executive
branch work closely together with a sense of urgency to address these
challenges.
11
Overview
B. MEDICARE DATA FOR CALENDAR YEAR 2020
HI (Part A) and SMI (Parts B and D) have separate trust funds, sources
of revenue, and categories of expenditures. Table II.B1 presents
Medicare data for calendar year 2020, in total and for each part of the
program. For additional information, see section III.B for HI and
sections III.C and III.D for SMI.
For fee-for-service Medicare, the largest category of Part A
expenditures is inpatient hospital services, while the largest Part B
expenditure category is physician services. Payments to private health
plans for providing Part A and Part B services represented roughly
39 percent of total A and B benefit outlays in 2020.
Table II.B1.—Medicare Data for Calendar Year 2020
SMI
HI or Part A Part B Part D Total
Assets at end of 2019 (billions) $194.6 $99.6 $9.2 $303.3
Total income $341.7 $452.3 $105.8 $899.9
Payroll taxes 303.3 — — 303.3
Interest 3.5 1.8 0.0 5.3
Taxation of benefits 26.9 — — 26.9
Premiums 4.0 111.2 15.8 131.1
General revenue 1.4 336.0 77.7 415.1
Transfers from States — — 11.6 11.6
Other 2.6 3.3 0.7 6.6
Total expenditures $402.2 $418.6 $105.0 $925.8
Benefits 397.7 414.1 104.6 916.3
Hospital 141.2 54.9 — 196.0
Skilled nursing facility 28.3 — — 28.3
Home health care 6.5 10.9 — 17.4
Physician fee schedule services — 65.3 — 65.3
Private health plans (Part C) 136.4 180.7 — 317.1
Prescription drugs — — 104.6 104.6
Other1 85.3 102.3 — 187.6
Administrative expenses 4.5 4.5 0.4 9.5
Net change in assets í$60.4 $33.7 $0.8 í$25.9
Assets at end of 2020 $134.1 $133.3 $10.0 $277.4
Enrollment (millions)
Aged 53.8 49.5 41.5 54.1
Disabled 8.5 7.8 7.2 8.5
Total 62.3 57.3 48.7 62.6
Average benefit per enrollee1 $6,388 $7,227 $2,148 $15,763
1
Includes the impact of the Accelerated and Advance Payments Program, which was significantly
expanded during 2020 due to the COVID-19 pandemic. Total payments of $107.1 billion were made from
the HI trust fund and the SMI Part B trust fund account.
Note: Totals do not necessarily equal the sums of rounded components.
For HI, the primary source of financing is the payroll tax on covered
earnings. Employers and employees each pay 1.45 percent of a
worker’s wages, while self-employed workers pay 2.9 percent of their
net earnings. Starting in 2013, high-income workers pay an additional
0.9-percent tax on their earnings above an unindexed threshold
12
Medicare Data
($200,000 for single taxpayers and $250,000 for married couples).
Other HI revenue sources include a portion of the Federal income taxes
that Social Security recipients with incomes above certain unindexed
thresholds pay on their benefits, as well as interest earned on the
securities held in the HI trust fund.
For SMI, transfers from the general fund of the Treasury represent the
largest source of income. The transfers covered about 79 percent of
program costs in 2020.9 Also, beneficiaries pay monthly premiums for
Parts B and D that finance a portion of the total cost. As with HI, the
securities held in the SMI trust fund earn interest.
9Transfers from the general fund were higher than usual in 2020 due to a provision of
the Continuing Appropriations Act, 2021 and Other Extensions Act, which required a
transfer to Part B for the outstanding balance of the Accelerated and Advance Payments
Program.
13
Overview
C. MEDICARE ASSUMPTIONS
Future Medicare expenditures will depend on a number of factors,
including the size and composition of the population eligible for
benefits, changes in the volume and intensity of services, and increases
in the price per service. Future HI trust fund income will depend on
the size of the covered work force and the level of workers’ earnings,
and future SMI trust fund income will depend on projected program
costs. These factors will depend in turn upon future birth rates, death
rates, labor force participation rates, wage increases, and many other
economic and demographic factors affecting Medicare. To illustrate the
uncertainty and sensitivity inherent in estimates of future Medicare
trust fund operations, the Board has prepared current-law projections
under a low-cost and a high-cost set of economic and demographic
assumptions as well as under an intermediate set. In addition, the
Trustees asked the CMS Office of the Actuary to develop the
illustrative alternative projections to demonstrate the potential effect
on the Medicare financial status if certain current-law features are not
fully implemented in the future.
Table II.C1 summarizes the key assumptions used in this report. Many
of the demographic and economic variables that determine Medicare
costs and income are common to the Old-Age, Survivors, and Disability
Insurance (OASDI) program, and the OASDI annual report explains
these variables in detail. These variables include changes in the
Consumer Price Index (CPI) and wages, real interest rates, fertility
rates, mortality rates, and net immigration levels. (Real indicates that
the effects of inflation have been removed.) The assumptions vary, in
most cases, from year to year during the first 5 to 25 years before
reaching the ultimate values10 assumed for the remainder of the
75-year projection period.
The assumptions do not include economic cycles beyond the first 10 years.
10
14
Medicare Assumptions
Table II.C1.—Key Assumptions, 2045–2095
Intermediate Low-Cost High-Cost
Economic:
Annual percentage change in:
Gross Domestic Product (GDP) per capita1 ............. 3.7 4.9 2.6
Average wage in covered employment .................... 3.55 4.77 2.33
Private nonfarm business multifactor productivity2 ... 1.0 — —
Consumer Price Index (CPI) .................................... 2.4 3.0 1.8
Real-wage differential (percent) ................................... 1.15 1.77 0.53
Real interest rate (percent) .......................................... 2.3 2.8 1.8
Demographic:
Total fertility rate (children per woman) ........................ 1.99 2.19 1.69
Annual percentage reduction in total
age-sex adjusted death rates ................................... 0.74 0.28 1.25
Net lawful permanent resident (LPR) immigration ........ 788,000 1,000,000 595,000
Net other-than-LPR immigration .................................. 461,000 688,000 235,000
Health cost growth:
Annual percentage change in per beneficiary
Medicare expenditures (excluding demographic
impacts)1
3 3
HI (Part A) ................................................................ 3.5
3 3
SMI Part B ............................................................... 3.8
3 3
SMI Part D ............................................................... 4.2
3 3
Total Medicare ......................................................... 3.7
1
The assumed ultimate increases in per capita GDP and per beneficiary Medicare expenditures can also
be expressed in real terms, adjusted to remove the impact of assumed inflation. When adjusted by the
chain-weighted GDP price index, assumed real per capita GDP growth under the intermediate
assumptions is 1.7 percent, and real per beneficiary Medicare cost growth is 1.5 percent, 1.7 percent, and
2.2 percent for Parts A, B, and D, respectively.
2
Private nonfarm business multifactor productivity is published by the Bureau of Labor Statistics and is
used as the economy-wide private nonfarm business multifactor productivity to adjust certain provider
payment updates.
3
See section III.B3 for further explanation of the Part A alternative (low-cost and high-cost) assumptions.
Long-range alternative projections are not prepared for Parts B and D.
Other assumptions are specific to Medicare. As with all of the
assumptions underlying the financial projections, the Trustees review
the Medicare-specific assumptions annually and update them based on
the latest available data and analysis of trends. In addition, the
assumptions and projection methodology are subject to periodic review
by independent panels of expert actuaries and economists. The most
recent completed review occurred with the 2016–2017 Technical
Review Panel on the Medicare Trustees Report.11
Section IV.D describes the methodology used to derive the long-range
Medicare cost growth assumptions,12 which reflect the annual percent
change in per beneficiary Medicare expenditures (excluding
demographic effects), for the following four categories of provider
services:
11The Panel’s final report is available at https://aspe.hhs.gov/system/files/pdf/257821/
MedicareTechPanelFinalReport2017.pdf.
12When Medicare cost growth rates are compared to the per capita increase in GDP, they
are characterized as GDP plus X percent.
15
Overview
(i) All HI, and some SMI Part B, services that are updated annually
by provider input price increases less the increase in economy-wide
productivity.
HI services are inpatient hospital, skilled nursing facility, home
health, and hospice. The primary Part B services affected are
outpatient hospital, home health, and dialysis. Under the
Trustees’ intermediate economic assumptions, the year-by-year
cost growth rates for these provider services start at 3.6 percent
in 2045, or GDP plus 0 percent, declining gradually to 3.4 percent
in 2095, or GDP minus 0.3 percent.
(ii) Physician services
Payment rate updates are 0.75 percent per year for those qualified
physicians assumed to be participating in advanced alternative
payment models (advanced APMs) and 0.25 percent for those
assumed to be participating in the merit-based incentive payment
system (MIPS). The year-by-year cost growth rates for physician
payments are assumed to decline from 3.2 percent in 2045, or
GDP minus 0.4 percent, to 2.8 percent in 2095, or GDP minus
0.9 percent.
(iii) Certain SMI Part B services that are updated annually by the CPI
increase less the increase in productivity.
Such services include durable medical equipment that is not
subject to competitive bidding,13 care at ambulatory surgical
centers, ambulance services, and medical supplies. The Trustees
assume the year-by-year cost growth rates for these services to
decline from 2.8 percent in 2045, or GDP minus 0.8 percent, to
2.6 percent in 2095, or GDP minus 1.1 percent.
(iv) All other Medicare services, for which payments are established
based on market processes, such as prescription drugs provided
through Part D and the remaining Part B services.
These Part B outlays constitute an estimated 15 percent of total
Part B expenditures in 2030 and consist mostly of payments for
laboratory tests, physician-administered drugs, and small facility
services. Medicare payments to Part D plans are based on a
competitive-bidding process and are not affected by the
13The portion of durable medical equipment that is subject to competitive bidding is
included with all other Medicare services since the price is determined by a competitive
bidding process. For more information on the bidding process, see section IV.B.
16
Medicare Assumptions
productivity adjustments. Similarly, payments for the other
Part B services are based on market factors.14 The long-range cost
growth rates for Part D and these Part B services are assumed to
equal the growth rates as determined from the “factors
contributing to growth” model. The corresponding year-by-year
cost growth rates for these services decline from 4.3 percent in
2045, or GDP plus 0.7 percent, to 4.2 percent by 2095, or GDP plus
0.5 percent.
After combining the rates of growth from the four long-range
assumptions, the weighted average cost growth rate for Part B is
3.8 percent in 2045, or GDP plus 0.2 percent, declining to 3.7 percent
by 2095, or GDP plus 0 percent. When Parts A, B, and D are combined,
the weighted average cost growth rate for Medicare is 3.8 percent, or
GDP plus 0.2 percent in 2045, declining to 3.7 percent, or GDP plus
0 percent by 2095.
In addition, these cost growth rates must be modified to account for
demographic impacts, which reflect the changing distribution of the
Medicare population by age, sex, and time-to-death.15 Those who are
closer to death have higher health spending, regardless of age. The
Trustees assume that as mortality rates for Medicare beneficiaries
continue to improve in the future, a smaller portion of the population
will be closer to death at a given age, which somewhat offsets the effect
of individuals getting older and spending more on health care. This is
particularly the case for Part A services—such as inpatient hospital,
skilled nursing, and home health services—for which the distribution
of spending is more concentrated in the period right before death. For
Part B services and Part D, the incorporation of the time-to-death
adjustment has a smaller effect.
As in the past, the Trustees establish detailed growth rate assumptions
for the initial 10 years (2021 through 2030) by individual type of
service (for example, inpatient hospital care and physician services).
These assumptions reflect recent trends and the impact of all
applicable statutory provisions. For each of Parts A, B, and D, the
assumed cost growth rates for years 11 through 25 of the projection
period (adjusted to reflect discontinuities in yearly payment policies)
are set by interpolating between the rate at the end of the short-range
projection period and the rate at the start of the last 50 years of the
14For example, physician-administered Part B drugs are reimbursed at the level of the
average sales price in the market plus 6 percent.
15More information on the time-to-death adjustment is available at
https://www.cms.gov/files/document/incorporation-time-death-medicare-demographic-
assumptions.pdf.
17
Overview
long-range period described above. The 2016–2017 Medicare Technical
Review Panel concluded that both the current length of the transition
period and the current approach to the transition are reasonable, and
they recommended that the Trustees continue to use the same
approach to transition between short-range and long-range projections
for both HI and SMI.16
The basis for the Medicare cost growth rate assumptions, described
above, has been chosen primarily to incorporate the productivity
adjustments and the physician payment structure in a relatively
simple, straightforward manner and with the assumption that these
elements of current law will operate in all future years as specified.
The Trustees use this approach in part due to the uncertainty
associated with these provisions and in part due to the difficulty of
modeling such consequences as access to care, health status, and
utilization if these provisions of current law do not operate as
intended.17 They have incorporated the effects of changes in payment
mechanisms, delivery systems, and other aspects of health care that
have been implemented recently, including modest savings from
accountable care organizations. However, they have not considered the
possible effects of future changes that could arise in response to the
payment limitations or future innovative payment models, nor have
they taken into account the potential effects of sustained slower
payment increases on provider participation, beneficiary access to care,
quality of services, and other factors.18
Consistent with the practice in recent reports, a set of illustrative
alternative Medicare projections has been developed. This information
is presented in section V.C. An actuarial memorandum on the
illustrative alternative is available on the CMS website.19 The
illustrative alternative projection assumes that (i) there would be a
transition from current-law payment updates for providers affected by
the economy-wide productivity adjustments to payment updates that
reflect adjustments for health care productivity; (ii) the average
physician payment updates would transition from current law to
payment updates that reflect the Medicare Economic Index; and
(iii) the 5-percent bonuses for qualified physicians in advanced APMs
and the $500-million payments for physicians in MIPS would continue
indefinitely rather than expire in 2025. The transition from current
16See Findings 6-2 and 6-3 and Recommendation 6-1.
17For a detailed discussion of uncertainty, see section V.C.
18The 2016–2017 Medicare Technical Review Panel considered these issues at some
length. Their final report contains a discussion of the delivery system changes to date
and the impact on the Medicare projections.
19See https://www.cms.gov/files/document/illustrative-alternative-scenario-2021.pdf.
18
Medicare Assumptions
law to the ultimate illustrative alternative assumptions starts at the
same dates that were assumed in last year’s report. The year-by-year
cost growth rate assumptions for HI and SMI Part B under the
illustrative alternative projections decline from approximately
4.3 percent in 2045, or GDP plus 0.7 percent, to 4.2 percent by 2095, or
GDP plus 0.5 percent. On average over this period, the growth rate of
per beneficiary expenditures for these services is equal to the growth
rate for per capita national health expenditures, as described
previously for Part D and other Medicare services for which price
updates are based on market processes.
For the HI low-cost and high-cost projections, Medicare expenditures
are determined by changing the assumption for the ratio of aggregate
costs to taxable payroll (the cost rate). These changes are intended to
provide an indication of how Medicare expenditures could vary in the
future as a result of different economic, demographic, and health care
trends.20 For the HI high-cost assumptions, the assumed annual
increase in the cost rate during the initial 25-year period is
2 percentage points greater than under the intermediate assumptions.
Under the low-cost assumptions, the assumed annual rate of increase
in the cost rate for the initial period is 2 percentage points less than
under the intermediate assumptions. The Trustees assume that, after
25 years, the 2-percentage-point differentials will decline gradually to
zero in 2070, after which the growth in cost rates is the same under all
three sets of assumptions.
While it is possible that actual economic, demographic, and health cost-
growth experience will fall within the range defined by the three
alternative sets of assumptions, there can be no assurances that it will
do so in light of the wide variations in these factors over past decades.
In general, readers can place a greater degree of confidence in the
assumptions and estimates for the earlier years than for the later
years. Nonetheless, even for the earlier years, the estimates are only
an indication of the expected trends and the general ranges of future
Medicare experience. Also, as a result of the uncertain long-range
adequacy of physician payments and payments affected by the
statutory productivity adjustments, actual future Medicare
expenditures could exceed the intermediate projections shown in this
report, possibly by large amounts. Reference to key results under the
illustrative alternative projection demonstrates this potential
understatement.
20Under the automatic financing provisions for the SMI programs, Parts B and D will be
adequately financed. Accordingly, the Trustees have not conducted high-cost and
low-cost analyses of the general revenue transfers.
19
Overview
D. FINANCIAL OUTLOOK FOR THE MEDICARE PROGRAM
This report evaluates the financial status of the HI and SMI trust
funds. For HI, the Trustees apply formal tests of financial status for
both the short range and the long range; for SMI, the Trustees assess
the ability of the trust fund to meet incurred costs over the period for
which financing has been set.
HI and SMI are financed in very different ways. Within SMI, current
law provides for the annual determination of Part B and Part D
beneficiary premiums and general revenue financing to cover expected
costs for the following year. In contrast, HI is subject to substantially
greater variation in asset growth, since employee and employer tax
rates under current law do not change or adjust to meet expenditures
except through new legislation.
Despite the significant differences in benefit provisions and financing,
the two components of Medicare are closely related. HI and SMI
operate in an interdependent health care system. Most Medicare
beneficiaries are enrolled in HI and SMI Parts B and D, and many
receive services from all three. Accordingly, efforts to improve and
reform either component must necessarily have repercussions for the
other component. In view of the anticipated growth in Medicare
expenditures, it is also important to consider the distribution among
the various sources of revenues for financing Medicare and the manner
in which this distribution will change over time.
This section reviews the projected total expenditures for the Medicare
program, along with the primary sources of financing. Figure II.D1
shows projected costs as a percentage of GDP. Medicare expenditures
represented 4.0 percent of GDP in 2020. Under current law, costs
increase to 6.2 percent of GDP by 2045, largely due to the rapid growth
in the number of beneficiaries, and then to 6.5 percent of GDP in 2095,
with growth in health care cost per beneficiary becoming the larger
factor later in the valuation period, particularly for Part D costs, which
are not affected by legislated price reductions. (If the payment update
constraints were phased down as in the illustrative alternative
projections, then Medicare expenditures would reach an estimated
8.5 percent of GDP in 2095.)
20
Medicare Financial Outlook
Figure II.D1.—Medicare Expenditures as a Percentage
of the Gross Domestic Product
7%
6%
Total
5%
4%
Part B
3%
2%
HI
1%
Part D
0%
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Calendar year
Note: Percentages are affected by economic cycles.
Table II.D1 shows five components of Medicare expenditure growth
over three valuation periods: (i) growth of overall prices as measured
by the CPI; (ii) growth of Medicare prices relative to growth in the CPI;
(iii) growth in the number of beneficiaries; (iv) change in the
demographic composition of the beneficiaries; and (v) change in the
volume and intensity of services. The price growth for Part A is
projected to be below CPI growth initially, at CPI growth in the 2031–
2045 period, and below in the long run, and for Part B it is projected to
be below CPI growth during each of the three valuation periods. As
discussed in section IV.D, prices for all of Part A and some of Part B
are constrained by the payment updates specified under current law,
and Part B prices are further constrained by the current-law physician
payment updates. For Part D, during the valuation periods 2031–2045
and 2046–2095, prices are projected to grow faster than the CPI and to
be more in line with the price growth assumed for the overall health
sector; during the period 2021–2030, however, price growth for Part D
is projected to be below CPI growth, as is the case for Part B. For all
parts of Medicare, growth in the number of beneficiaries is highest over
the next 10 years, as the baby boom generation continues to enter
Medicare, and slows continually thereafter.
21
Overview
Table II.D1.—Components of Increase in Medicare Incurred Expenditures by Part
[In percent]
Average annual percentage change
Prices
Medicare Beneficiary
Valuation relative to Overall Number of demographic Volume and Total
period CPI CPI Medicare beneficiaries mix intensity increase
Part A:
2021–2030 2.5% í0.2% 2.2% 2.1% í0.6% 2.4% 6.4%
2031–2045 2.4 0.0 2.4 0.6 0.4 1.4 4.9
2046–2095 2.4 í0.2 2.2 0.5 í0.1 1.3 3.9
Part B:
2021–2030 2.5 í1.2 1.3 2.2 í0.2 5.1 8.6
2031–2045 2.4 í0.2 2.2 0.7 0.0 2.7 5.7
2046–2095 2.4 í0.2 2.2 0.5 í0.1 1.5 4.2
Part D:
2021–2030 2.5 í0.4 2.0 2.4 í0.2 1.8 6.1
2031–2045 2.4 0.4 2.8 0.7 í0.1 1.4 4.8
2046–2095 2.4 0.4 2.8 0.5 í0.1 1.4 4.7
Notes: 1. Price reflects annual updates, multifactor productivity reductions, and any other reductions
required by law or regulation.
2. Volume and intensity is the residual after the other four factors shown in the table (CPI, excess
Medicare price, number of beneficiaries, and beneficiary demographic mix) are removed.
3. Totals do not necessarily equal the sums of rounded components.
Most beneficiaries have the option to enroll in private health insurance
plans that contract with Medicare to provide Part A and Part B medical
services. The share of Medicare beneficiaries in such plans has risen
rapidly in recent years; it reached 40 percent in 2020 from 12.8 percent
in 2004. Payments to Medicare Advantage plans are based on
benchmarks that range from 95 to 115 percent of local fee-for-service
Medicare costs, with bonus amounts payable for plans meeting high
quality-of-care standards. The Trustees project that the overall
participation rate for private health plans will continue to increase—
from about 43 percent in 2021 to about 49 percent in 2030 and
thereafter.21
Figure II.D2 shows the past and projected amounts of Medicare
revenues under current law excluding interest income, which will not
be a significant part of program financing in the long range as trust
fund assets decline. The figure compares total Medicare expenditures
to Medicare non-interest income—from HI payroll taxes, HI income
from the taxation of Social Security benefits, HI and SMI premiums,
SMI Part D State transfers for certain Medicaid beneficiaries, fees on
manufacturers and importers of brand-name prescription drugs
(allocated to Part B), and HI and SMI general revenues. The Trustees
expect total Medicare expenditures to exceed non-interest revenue for
all future years.
For more detail on the Medicare Advantage program, see section IV.C.
21
22
Medicare Financial Outlook
Figure II.D2.—Medicare Sources of Non-Interest Income and Expenditures
as a Percentage of the Gross Domestic Product
7%
Historical Estimated Total expenditures
6%
Deficit
5%
General revenue
transfers
4%
State transfers and drug fees
3%
Premiums
2%
1% Tax on OASDI benefits
Payroll taxes
0%
1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 2066 2076 2086
Calendar year
Note: Percentages are affected by economic cycles.
As shown in figure II.D2, for most of the historical period, payroll tax
revenues increased steadily as a percentage of GDP due to increases in
the HI payroll tax rate and in the limit on taxable earnings, the latter
of which lawmakers eliminated in 1994. Beginning in 2013, the HI
trust fund receives an additional 0.9-percent tax on earnings in excess
of a threshold amount.22 The Trustees project that, as a result of this
provision, payroll taxes will grow slightly faster than GDP.23 After
2021, HI revenue from income taxes on Social Security benefits will
22Current law also specifies that individuals with incomes greater than $200,000 per
year and couples above $250,000 pay an additional Medicare contribution of 3.8 percent
on some or all of their non-work income (such as investment earnings). However, the
revenues from this tax are not allocated to the Medicare trust funds.
23Although the Trustees expect total worker compensation to grow at the same rate as
GDP after the first 10 years of the projection, wages and salaries are projected to increase
more slowly than fringe benefits (health insurance costs in particular). Thus, projected
taxable earnings (wages and salaries) gradually decline as a percentage of GDP. Absent
any change to the tax rate scheduled under current law, HI payroll tax revenue would
similarly decrease as a percentage of GDP. Over time, however, a growing proportion of
workers will have earnings that exceed the fixed earnings thresholds specified in the law
($200,000 and $250,000), and an increasing portion of taxable earnings will therefore
become subject to the additional 0.9-percent HI payroll tax. The net effect of these factors
is an increasing trend in payroll taxes as a percentage of GDP.
23
Overview
gradually increase as a share of GDP as the share of benefits subject
to such taxes increases.24
The Trustees expect growth in SMI Part B and Part D premiums and
general fund transfers to continue to outpace GDP growth and HI
payroll tax growth in the future. This phenomenon occurs primarily
because SMI revenue increases at the same rate as expenditures,
whereas HI revenue does not. Accordingly, as the HI sources of revenue
become increasingly inadequate to cover HI costs, SMI revenues will
represent a growing share of total Medicare revenues. Beginning in
2009, as HI payroll tax receipts declined due to the recession and
general revenue transfers increased, the latter income source became
the largest single source of income to the Medicare program as a whole.
General revenue transfers to the Part B account increased significantly
in 2016, as required by the Bipartisan Budget Act of 2015 to
compensate for premium revenue that was not received in 2016 due to
the hold-harmless provision, which limited the Part B premium
increase for a majority of beneficiaries. After decreasing from 2016 to
2017, and from 2020 through 2022, general revenues are projected to
gradually increase through 2039 to about 50 percent of Medicare
financing, stabilizing thereafter. Growth in general revenue financing
as a share of GDP adds significantly to the Federal budget pressures.
SMI premiums will also increase in proportion to general revenue
transfers, placing a growing burden on beneficiaries. High-income
beneficiaries have paid an income-related premium for Part B since
2007 and for Part D since 2011.
The interrelationship between the Medicare program and the Federal
budget is an important topic—one that will become increasingly
critical over time as the general revenue requirements for SMI
continue to grow. Transfers from the general fund are the major source
of financing for the SMI trust fund and are central to the automatic
financial balance of the fund’s two accounts, while representing a large
and growing requirement for the Federal budget. SMI general
revenues equaled 2.0 percent of GDP in 2020 and will increase to an
estimated 3.1 percent in 2095 under current law. Moreover, in the
absence of legislation to address the financial imbalance, interest
earnings on trust fund assets and redemption of those assets will cover
the difference between HI dedicated revenues and expenditures until
2026.25 In 2025, these financial resources for the HI trust fund
24See section V.C7 of the 2020 OASDI Trustees Report for more detailed information on
the projection of income from taxation of Social Security benefits.
25After asset depletion in 2026, as described in section II.E, no provision exists to use
general revenues or any other means to cover the HI deficit.
24
Medicare Financial Outlook
represent 0.2 percent of GDP. Section V.F describes the
interrelationship between the Federal budget and the Medicare and
Social Security trust funds; it illustrates the programs’ long-range
financial outlook from both a trust fund perspective and a budget
perspective.
Federal law requires that the Board of Trustees issue a determination
of excess general revenue Medicare funding if they project that under
current law the difference between program outlays and dedicated
financing sources26 will exceed 45 percent of Medicare outlays within
the first 7 fiscal years of the projection. For this year’s report, the
difference between program outlays and dedicated revenues is
expected to exceed 45 percent in fiscal year 2021, and therefore the
Trustees are issuing this determination. (Section V.B contains
additional details on these tests.) Since this determination was made
last year as well, this year’s determination triggers a Medicare funding
warning, which (i) requires the President to submit to Congress
proposed legislation to respond to the warning within 15 days after the
submission of the Fiscal Year 2023 Budget and (ii) requires Congress
to consider the legislation on an expedited basis. Such funding
warnings were previously issued in each of the 2007 through 2013
reports and in the 2018 through 2020 reports.
This section has summarized the total financial obligation posed by
Medicare and the manner in which it is financed. However, the HI and
SMI components of Medicare have separate and distinct trust funds,
each with its own sources of revenues and mandated expenditures.
Accordingly, it is necessary to assess the financial status of each
Medicare trust fund separately. Sections II.E and II.F present such
assessments for the HI trust fund and the SMI trust fund, respectively.
26The dedicated financing sources are HI payroll taxes, the HI share of income taxes on
Social Security benefits, Part B receipts from the fees on manufacturers and importers
of brand-name prescription drugs, Part D State transfers, and beneficiary premiums.
These sources are the first four layers depicted in figure II.D2.
25
Overview
E. FINANCIAL STATUS OF THE HI TRUST FUND
1. 10-Year Actuarial Estimates (2021–2030)
Expenditures from the HI trust fund exceeded income each year from
2008 through 2015. In 2016 and 2017, however, there were fund
surpluses amounting to $5.4 billion and $2.8 billion, respectively. In
2018, 2019, and 2020, expenditures again exceeded income, with trust
fund deficits of $1.6 billion, $5.8 billion, and $60.4 billion, respectively.
The large deficit in 2020 was mostly due to accelerated and advance
payments to providers from the trust fund; these payments will be
repaid to the trust fund over the next several years, which will lead to
a much smaller deficit in 2021 and a surplus in 2022. Deficits are
projected to return in 2023 and persist for the remainder of the
projection period, requiring redemption of trust fund assets until the
trust fund’s depletion in 2026.
Table II.E1 presents the projected operations of the HI trust fund
under the intermediate assumptions for the next decade. At the
beginning of 2021, HI assets represented 48 percent of annual
expenditures. This ratio has declined from 150 percent since 2007. The
Board has recommended an asset level at least equal to annual
expenditures, to serve as an adequate contingency reserve in the event
of adverse economic or other conditions.
The Trustees apply an explicit test of short-range financial adequacy,
described in section III.B2 of this report. Based on the 10-year
projection shown in table II.E1, the HI trust fund does not meet this
test because estimated assets are below 100 percent of annual
expenditures and are not projected to attain this level under the
intermediate assumptions. This outlook indicates the need for prompt
legislative action to achieve financial adequacy for the HI trust fund
throughout the short-range period.
26
HI Financial Outlook
Table II.E1.—Estimated Operations of the HI Trust Fund
under Intermediate Assumptions, Calendar Years 2020–2030
[Dollar amounts in billions]
Total Change in Ratio of assets to
1
Calendar year Total income expenditures fund Fund at year end expenditures2
20203 $341.7 $402.24 í$60.4 $134.1 48%
2021 334.1 345.34 í11.2 122.9 39
4
2022 372.6 363.7 8.9 131.8 34
2023 389.1 417.4 í28.3 103.5 32
2024 407.0 440.5 í33.5 70.0 23
2025 425.6 468.2 í42.6 27.4 15
5
2026 448.5 497.8 í49.3 í22.0 5
5 6
2027 471.6 529.4 í57.7 í79.7
5 6
2028 491.8 562.9 í71.2 í150.9
20295 512.0 597.5 í85.5 í236.4 6
20305 531.7 630.4 í98.6 í335.0 6
1
Includes interest income.
2
Ratio of assets in the fund at the beginning of the year to expenditures during the year.
3
Figures for 2020 represent actual experience.
4
Includes net payments of $63.5 billion made through the Medicare Accelerated and Advance Payments
Program in calendar year 2020 and subsequent repayments of $28.1 billion and $35.4 billion in calendar
years 2021 and 2022, respectively.
5
Estimates for 2026 and later are hypothetical since the HI trust fund would be depleted in those years.
6
Trust fund reserves would be depleted at the beginning of this year.
Note: Totals do not necessarily equal the sums of rounded components.
The short-range financial outlook for the HI trust fund is similar to the
projections in last year’s annual report. HI income is projected to be
about the same as last year’s estimates after 2021. HI expenditures are
projected to be lower throughout most of the short-range period
because of lower projected provider payment updates in the early years
and because of certain methodological improvements, including
changes to the time-to-death factors used in the projection model.
Under the intermediate assumptions, the assets of the HI trust fund
would steadily decrease as a percentage of annual expenditures
throughout the short-range projection period, as illustrated in
figure II.E1. The ratio declines until the fund is depleted in 2026, the
same date as projected last year. If assets were depleted, Medicare
could pay health plans and providers of Part A services only to the
extent allowed by ongoing tax revenues—and these revenues would be
inadequate to fully cover costs. Beneficiary access to health care
services could rapidly be curtailed. To date, Congress has never
allowed the HI trust fund to become depleted.
27
Overview
Figure II.E1.—HI Trust Fund Balance at Beginning of Year as a Percentage
of Annual Expenditures
200%
Historical Estimated
150%
100%
50%
0%
1990 1995 2000 2005 2010 2015 2020 2025 2030
Beginning of January
There is substantial uncertainty in the economic, demographic, and
health care projection factors for HI trust fund expenditures and
revenues. Accordingly, the date of HI trust fund depletion could differ
substantially in either direction from the 2026 intermediate estimate.
As shown in greater detail in section III.B, trust fund assets would
increase throughout the entire projection period under the low-cost
assumptions. Under the high-cost assumptions, however, asset
depletion would occur in 2024.
2. 75-Year Actuarial Estimates (2021–2095)
Each year, the Board prepares 75-year estimates of the financial and
actuarial status of the HI trust fund. Although financial outcomes are
inherently uncertain, particularly over periods as long as 75 years,
such estimates are helpful for assessing the trust fund’s long-term
financial condition.
Due to the difficulty in comparing dollar values for different periods
without some type of relative scale, the Trustees show income and
expenditure amounts relative to the earnings in covered employment
that are taxable under HI (referred to as taxable payroll). The ratio of
HI income (including payroll taxes, income from taxation of Social
Security benefits, premiums, general revenue transfers for uninsured
beneficiaries, and monies from fraud and abuse control activities, but
28
HI Financial Outlook
excluding interest income) to taxable payroll is called the income rate,
and the ratio of expenditures to taxable payroll is the cost rate.27
The standard HI payroll tax rate is scheduled to remain constant at
2.90 percent (for employees and employers, combined). In addition,
starting in 2013, high-income workers pay an additional 0.9 percent of
their earnings above $200,000 (for single workers) or $250,000 (for
married couples filing joint income tax returns). Since income
thresholds for determining eligibility for the additional HI tax are not
indexed, over time an increasing proportion of workers and their
earnings will become subject to a higher HI tax rate. (By the end of the
long-range projection period, an estimated 80 percent of workers would
be subject to this additional tax.) Thus, HI payroll tax revenues will
increase steadily as a percentage of taxable payroll. Similarly, HI
income from taxation of Social Security benefits will also increase
faster than taxable payroll because the income thresholds determining
taxable benefits are not indexed for inflation and because the income
tax brackets are indexed to the chained CPI (C-CPI-U), which
increases at a slower rate than average wages.28
The cost rate has mostly been declining since 2010 largely due to
(i) expenditure growth that was constrained in part by low utilization
and low payment updates and (ii) a rebound of taxable payroll growth
from 2007–2009 recession levels. In 2021 and beyond, the cost rate is
projected to rise primarily due to the continued retirements of those in
the baby boom generation and partly due to an acceleration of health
services cost growth. This cost rate increase is moderated by the
accumulating effect of the productivity adjustments to provider price
updates, which are estimated to reduce annual HI per capita cost
growth by an average of 0.5 percent through 2030 and 1.0 percent
thereafter. After 25, 50, and 75 years, for example, the prices paid to
HI providers under current law would be 18 percent, 36 percent, and
50 percent lower, respectively, than prices absent the productivity
reductions.
Figure II.E2 shows projected income and cost rates under the
intermediate assumptions. As indicated, estimated HI expenditures
continue to exceed non-interest income for all projected years. (The
27The Trustees estimate these costs on an incurred basis.
28After the 10th year of the projection period, income tax brackets are assumed to rise
with average wages, rather than with the C-CPI-U as specified in the Internal Revenue
Code. As a result of this assumption, income from the taxation of Social Security benefits
increases at a similar rate as, rather than significantly faster than, taxable payroll. See
section V.C7 of the 2021 OASDI Trustees Report for more detailed information on the
projection of income from taxation of Social Security benefits.
29
Overview
projected excess of costs over non-interest income until 2026 is covered
by interest earnings and the redemption of trust fund assets.)
The HI cost rate increases more rapidly than the income rate through
about 2045. The projected annual deficits expressed as a share of
taxable payroll increase from 0.15 percent in 2020 to a high of
1.06 percent in 2045 and then gradually decrease to 0.42 percent by
the end of the projection period. The convergence of growth rates for
income and costs reflects the continuing effects of slower payment rate
updates, assumed decelerating growth in the volume and intensity of
services, and the increasing portion of earnings that are subjected to
the additional 0.9-percent payroll tax. The percentage of expenditures
covered by non-interest income is projected to decrease from 91 percent
in 2026 to 78 percent in 2045 and then to increase to about 91 percent
by the end of the projection period. (Under the illustrative alternative,
the expenditures covered by non-interest income are projected to
decline from 91 percent in 2026 to 73 percent in 2045 and then to
decrease to about 61 percent by the end of the projection period.)
Figure II.E2.—Long-Range HI Non-Interest Income and Cost as a Percentage
of Taxable Payroll, Intermediate Assumptions
8%
Payable benefits as a
percentage of cost:
6% 2020–25: 100% Cost rate
2026: 91%
2045 78%
2095: 91%
4%
Income rate (Payable benefits)
Income rate
2%
0%
1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 2087
Calendar year
It is possible to summarize the year-by-year cost rates and income
rates shown in figure II.E2 into single values29 representing, in effect,
the average value over a given period. Based on the intermediate
assumptions, the Trustees project an HI actuarial deficit of
See section III.B3 for details on the summarized income and cost rates.
29
30
HI Financial Outlook
0.77 percent of taxable payroll for the 75-year period under current
law, which represents the difference between the summarized income
rate of 3.99 percent and the corresponding cost rate of 4.76 percent. As
a result, the HI trust fund fails the Trustees’ test for long-range
financial balance, as it has every year since 1991 when this test was
first applied. (Under the illustrative alternative projections, the long-
range HI deficit would be 1.61 percent of payroll.)
The following two examples illustrate the magnitude of the changes
needed to eliminate the deficit. For the HI trust fund to remain solvent
throughout the 75-year projection period, (i) the standard 2.90-percent
payroll tax could be immediately increased by the amount of the
actuarial deficit to 3.67 percent, or (ii) expenditures could be reduced
immediately by 16 percent.30,31 More realistically, the tax and/or
benefit changes could occur gradually but would require ultimate
adjustments that would be higher than adjustments that were done
immediately. Lawmakers have many options to address the long-range
financial imbalance.
The projected HI cost rates shown in this report are very similar to
those from the 2020 report for nearly all years.
30Under the illustrative alternative projection, the corresponding immediate changes
would be (i) an increase from 2.90 percent to 4.51 percent in the standard tax rate or
(ii) a decrease in expenditure levels of 29 percent.
31Under the two examples for addressing the actuarial deficit, tax income would initially
be substantially greater than expenditures, and trust fund assets would accumulate
rapidly. Subsequently, however, tax income would be inadequate, and assets would be
drawn down to cover the difference. This example illustrates that if lawmakers designed
legislative solutions to eliminate only the 75-year actuarial deficit, without consideration
of such year-by-year patterns, then a substantial financial imbalance could still remain
at the end of the period, and the long-range sustainability of the program could still be
in doubt.
31
Overview
F. FINANCIAL STATUS OF THE SMI TRUST FUND
SMI differs fundamentally from HI in regard to the nature of its
financing and the method by which its financial status is evaluated.
SMI comprises two parts, Part B and Part D, each with its own
separate account within the SMI trust fund. The Trustees must
determine the financial status of the SMI trust fund by evaluating the
financial status of each account separately, since there is no provision
in the law for transferring assets or income between the Part B and
Part D accounts. The nature of the financing for both parts of SMI is
similar in that the law establishes a mechanism by which income from
the Part B premium and the Part D premium, and the corresponding
general revenue transfers for each part, are sufficient to cover the
following year’s estimated expenditures. Accordingly, each account
within SMI is automatically in financial balance under current law.
This result contrasts with OASDI and HI, for which financing
established many years earlier may prove significantly higher or lower
than subsequent actual costs. Moreover, Part B and Part D are
voluntary (whereas OASDI and HI are generally compulsory), and
payroll taxes are not the source of income for these programs. The
financial assessment described in this section differs in important
ways from that for OASDI or HI.
1. 10-Year Actuarial Estimates (2021–2030)
Table II.F1 shows the estimated operations of the Part B account, the
Part D account, and the total SMI trust fund under the intermediate
assumptions during calendar years 2020 through 2030. For Part B,
expenditures grew at an average annual rate of 8.5 percent over the
past 5 years, exceeding GDP growth by 5.7 percentage points annually,
on average. Estimated Part B cost increases average about 7.2 percent
for the 5-year period 2021–2025, faster than the GDP growth rate of
5.3 percent for the same 5-year period.
32
SMI Financial Outlook
Table II.F1.—Estimated Operations of the SMI Trust Fund
under Intermediate Assumptions, Calendar Years 2020–2030
[Dollar amounts in billions]
Calendar year Total income1 Total expenditures Change in fund Fund at year end
Part B account:
20202 $452.33,4 $418.65 $33.7 $133.3
2021 434.53 418.25 16.3 149.6
2022 440.2 452.45 í12.2 137.4
2023 512.3 506.8 5.4 142.8
2024 557.7 547.7 10.1 152.9
2025 604.5 593.3 11.2 164.0
2026 662.13 644.4 17.7 181.7
2027 702.63 696.6 6.0 187.6
2028 766.4 753.1 13.3 200.9
2029 827.3 814.6 12.6 213.5
2030 887.0 871.3 15.7 229.2
Part D account:
20202 105.83 105.0 0.8 10.0
2021 109.43 111.1 í1.7 8.3
2022 120.3 119.5 0.9 9.2
2023 124.8 124.1 0.7 9.9
2024 134.1 133.4 0.7 10.7
2025 141.5 140.8 0.6 11.3
2026 151.43 150.6 0.8 12.1
2027 161.23 160.4 0.8 12.9
2028 171.2 170.4 0.8 13.7
2029 182.0 181.1 0.9 14.6
2030 192.9 192.0 0.9 15.5
Total SMI:
20202 558.13,4 523.65 34.5 143.3
2021 543.93 529.35 14.6 157.9
5
2022 560.6 571.9 í11.4 146.6
2023 637.0 630.9 6.1 152.7
2024 691.8 681.0 10.8 163.5
2025 745.9 734.1 11.8 175.3
2026 813.43 795.0 18.4 193.8
2027 863.83 857.0 6.8 200.5
2028 937.6 923.5 14.1 214.6
2029 1,009.3 995.8 13.5 228.1
2030 1,079.9 1,063.3 16.6 244.7
1
Includes interest income.
2
Figures for 2020 represent actual experience.
3
Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits
when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those
benefits normally due January 3, 2021 occurred on December 31, 2020. Consequently, the Part B and
Part D premiums withheld from these benefits and the associated Part B general revenue contributions
were added to the respective Part B (about $10.0 billion) or Part D (about $0.1 billion) account on
December 31, 2020. Similarly, the payment date for those benefits normally due January 3, 2027 will be
December 31, 2026. Accordingly an estimated $6.1 billion will be added to the Part B account, and an
estimated $0.2 billion will be added to the Part D account, on December 31, 2026. These estimated
amounts are lower than those in last year’s report to reflect that, over time, a lower percentage of Social
Security benefits are paid out on the third of the month.
4
Includes a transfer of $37.8 billion from the general fund of the Treasury to Part B, which occurred in
November of 2020 for the outstanding balance of the Medicare Accelerated and Advance Payments (AAP)
Program, as required by the Continuing Appropriations Act, 2021 and Other Extensions Act. All future
recoveries from providers will be transferred to the general fund of the Treasury.
5
Includes net payments of $37.0 billion made through the AAP program in calendar year 2020 and
subsequent repayments of $19.0 billion and $18.0 billion in calendar years 2021 and 2022, respectively.
Due to the nature of Part B financing, Part B income growth is
normally quite close to expenditure growth. The financing for 2021 was
set to accommodate the uncertainty of the COVID-19 pandemic and to
ensure that the assets held in the Part B account would be within the
33
Overview
customary range by the end of 2021.32 The projected short-range Part B
expenditures shown in table II.F1 are somewhat different from the
corresponding amounts in the 2020 Trustees Report, as this year’s
projections reflect the expected impact of the pandemic, including the
effects of the Accelerated and Advance Payments Program and the
changes in the utilization of services. Any impacts from Medicare
coverage of Aduhelm, the recently approved Alzheimer’s disease drug,
have not been considered for this year’s report.
For the Part D account, the Trustees project that income and
expenditures will grow at an average annual rate of 6.1 percent over
the 5-year period 2021–2025, mainly due to expected increases in
enrollment and growth in per capita drug costs. As with Part B, income
and outgo would remain in balance as a result of the annual
adjustment of income from premiums and general revenue to cover
costs. The appropriation for Part D general revenues has generally
been set such that amounts can be transferred to the Part D account
on an as-needed basis; under this process, there is no need to maintain
a contingency reserve. The Part D account reflects a policy to transfer
amounts from the Treasury into the account 5 business days before the
benefit payments to the plans.
The projected Part D costs shown in table II.F1 and elsewhere in this
report are lower than those in the 2020 report. The difference is
primarily attributable to lower overall drug prices and higher direct
and indirect remuneration (DIR) assumed in this year’s report.
The primary test of financial adequacy for Parts B and D pertains to
the level of the financing established for a given period (normally,
through the end of the current calendar year). The financing for each
part of SMI is considered satisfactory if it is sufficient to fund all
services, including benefits and administrative expenses, provided
through a given period. In addition, to protect against the possibility
that cost increases under either part of SMI will be higher than
expected, the accounts of the trust fund would normally need assets
adequate to cover a reasonable degree of variation between actual and
projected costs. For Part B, the Trustees estimate that the financing
established through December 2021 will be sufficient to cover benefits
32The traditional measure used to evaluate the status of the Part B account of the SMI
trust fund is defined as the ratio of the excess of Part B assets over Part B liabilities to
the next year’s Part B incurred expenditures. The customary range for this ratio is 15 to
20 percent, and the minimally financially adequate level is 14 percent; the CMS Office
of the Actuary developed these amounts based on private health insurance standards
and past studies indicating that this asset reserve level is sufficient to protect against
adverse events.
34
SMI Financial Outlook
and administrative costs incurred through that time period, and they
estimate that assets will be adequate to cover potential variations in
costs as a result of new legislation or cost growth factors that exceed
expectations. The estimated financing established for Part D, together
with the flexible appropriation authority for this trust fund account,
would be sufficient to cover benefits and administrative costs incurred
through 2021.
The amount of the contingency reserve needed in Part B is normally
much smaller (both in absolute dollars and as a fraction of annual
costs) than in HI or OASDI. A smaller reserve is adequate because the
premium rate and corresponding general revenue transfers for Part B
are determined annually based on estimated future costs, while the HI
and OASDI payroll tax rates are fixed under law and are therefore
much more difficult to adjust should circumstances change. A statutory
competitive bidding process establishes Part D revenues annually to
cover estimated costs. Moreover, the flexible appropriation authority
established by lawmakers for Part D allows additional general fund
financing if costs are higher than anticipated.
2. 75-Year Actuarial Estimates (2021–2095)
Figure II.F1 shows past and projected total SMI expenditures and
premium income as a percentage of the Gross Domestic Product (GDP).
Total SMI expenditures amounted to 2.3 percent of GDP in 2020 and
are projected to grow to about 4.0 percent of GDP within 25 years and
to 4.4 percent by the end of the projection period. (Under the
illustrative alternative, total SMI expenditures in 2095 would be
5.5 percent of GDP.)
The projected Part B expenditures shown in figure II.F1 are slightly
higher than the corresponding amounts in the 2020 Trustees Report,
with slightly lower GDP assumptions and slightly higher spending for
outpatient hospital services and physician-administered drugs
contributing to the difference. For Part D, as is the case in the short
range, projected expenditures are lower than the corresponding
amounts in the 2020 report mainly because of higher DIR and the
continuing enrollment shift from Prescription Drug Plans (PDPs) to
Medicare Advantage Prescription Drug Plans (MA-PDs), which more
than offset the higher gross drug prices assumed in this year’s report.
35
Overview
Figure II.F1.—SMI Expenditures and Premiums as a Percentage
of the Gross Domestic Product
5%
Historical Estimated Total
expenditures
Part D
4% expenditures
3%
2%
Total Part B
premiums expenditures
D
1%
B
0%
1960 1980 2000 2020 2040 2060 2080 2100 2120
Calendar year
Note: Percentages are affected by economic cycles.
3. Implications of SMI Cost Growth
Financing for the SMI trust fund is adequate because beneficiary
premiums and general revenue contributions, for both Part B and
Part D, are established annually to cover the expected costs for the
upcoming year. Should actual costs exceed those anticipated when the
financing is determined, future financing rates can include
adjustments to recover the shortfall. Likewise, should actual costs be
less than those anticipated, the savings would result in lower future
financing rates. As long as the future financing rates continue to cover
the following year’s estimated costs, both parts of the SMI trust fund
will remain financially solvent.
A critical issue for the SMI program is the impact of the rapid growth
of SMI costs, which places steadily increasing demands on
beneficiaries and taxpayers. This section compares the past and
projected growth in SMI costs with GDP growth; it also assesses the
implications of the rapid growth on beneficiaries and the budget of the
Federal Government.
36
SMI Financial Outlook
Table II.F2 compares the growth in SMI expenditures with that of the
economy as a whole. SMI costs are expected to continue to outpace
growth in GDP throughout the projection period, but eventually at a
slower rate compared to the last 10 years or prior periods. The
relatively high growth during the period 2021–2030 is due to the
continuing retirement of the baby boom generation and modest
increases in cost trends. Growth rates are projected to decline during
the 2031–2045 period primarily as a result of a deceleration in
beneficiary population growth. For the last 50 years of the projection
period, cost growth moderates further due to the continued
deceleration in beneficiary population growth and lower health care
cost growth rate assumptions. On a per capita basis, SMI expenditure
growth has substantially exceeded GDP growth historically, but it is
projected to slow and increase only slightly faster than GDP after 2050
as a result of several legislatively specified payment updates, including
those for physician prices.
Table II.F2.—Average Annual Rates of Growth in SMI and the Economy
[In percent]
SMI U.S. Economy
Calendar Beneficiary Per capita Total Total Per capita Growth
years population expenditures expenditures population GDP Total GDP differential1
Historical data:
1968–2000 2.3% 11.1% 13.6% 1.0% 6.8% 7.8% 5.4%
2001–2010 1.6 9.82 11.52 0.9 2.9 3.9 7.42
2011–2020 2.7 3.0 5.8 0.6 2.8 3.4 2.3
Intermediate estimates:
2021–2030 2.2 5.8 8.1 0.6 4.1 4.7 3.2
2031–2045 0.7 4.8 5.5 0.5 3.5 4.0 1.4
2046–2070 0.6 3.8 4.4 0.4 3.6 4.1 0.4
2071–2095 0.4 3.8 4.2 0.4 3.7 4.1 0.1
1
Excess of total SMI expenditure growth above total GDP growth, calculated as a multiplicative differential.
2
Includes the addition of the prescription drug benefit to the SMI program in 2006. Excluding 2006, the
average annual per capita expenditure increase is 7.1 percent, the total expenditure increase is
8.8 percent, and the growth differential is 5.0 percent.
As SMI per capita benefits grow faster than average income or per
capita GDP, the premiums and coinsurance amounts paid by
beneficiaries represent a growing share of their total income.
Figure II.F2 compares past and projected growth in average benefits
for SMI versus Social Security. The figure also shows amounts for the
average SMI premium payments and average cost-sharing payments.
To facilitate comparison across long time periods, all values are in
constant 2020 dollars.
Over time, the average Social Security benefit tends to increase at
about the rate of growth in average earnings. Health care costs
generally reflect increases in the earnings of health care professionals,
growth in the utilization and intensity of services, and other medical
cost inflation. As indicated in figure II.F2, average SMI benefits in
37
Overview
1970 were only about one-twelfth the level of average Social Security
benefits but had grown to more than one-third by 2005. With the
introduction of the Part D prescription drug benefit in 2006, this ratio
grew to almost one-half. Under the intermediate projections, SMI
benefits would continue increasing at a faster rate and would represent
about four-fifths of the average Social Security retired-worker benefit
in 2095.
Figure II.F2.—Comparison of Average Monthly SMI Benefits, Premiums,
and Cost Sharing to the Average Monthly Social Security Benefit
[Amounts in constant 2020 dollars]
$3,500
Historical Estimated
$3,000
Average
SS benefit
$2,500
Average
$2,000 SMI benefit
$1,500
Total SMI
out-of-pocket
$1,000
Average SMI
cost sharing
$500
Average SMI
premium
$0
1970 1990 2010 2030 2050 2070 2090
Average beneficiary premiums and cost-sharing payments for SMI will
increase at about the same rate as average SMI benefits.33 Thus, a
growing proportion of most beneficiaries’ Social Security and other
income would be necessary over time to pay total out-of-pocket costs
for SMI, including both premiums and cost-sharing amounts. Most
SMI enrollees have other income in addition to Social Security benefits.
Other possible sources include earnings from employment, employer-
sponsored pension benefits, and investment earnings. In addition,
most draw down their accumulated assets to supplement their income
in retirement. For simplicity, the comparisons in figure II.F2 apply to
Social Security benefits only; a comparison of average SMI premiums
and cost-sharing amounts to average total beneficiary income would
likely lead to similar conclusions. For illustration, the Trustees
33As a result, the projected ratio of average SMI out-of-pocket payments to average SMI
benefits is nearly constant over time.
38
SMI Financial Outlook
estimate that the average Part B plus Part D premium in 2021 would
equal about 12 percent of the average Social Security benefit but would
increase to an estimated 19 percent in 2095. Similarly, an average cost-
sharing amount in 2021 would be equivalent to about 11 percent of the
Social Security benefit but would increase to about 21 percent in 2095.
The combination of premium and cost-sharing amounts for Parts B and
D would equal about 23 percent of the average Social Security benefit
in 2021 and would increase to an estimated 40 percent in 2095.
The availability of SMI Part B and Part D benefits greatly reduces the
costs that beneficiaries would otherwise pay for health care services.
The introduction of the prescription drug benefit increased
beneficiaries’ costs for SMI premiums and cost sharing, but it reduced
their costs for previously uncovered services by substantially more.
Figure II.F2 highlights the impact of rapid cost growth for a given SMI
benefit package.
The average OASI benefit amount for all retired workers is the basis
for the Social Security benefits shown in figure II.F2; individual
retirees may receive significantly more or less than the average,
depending on their past earnings and other factors. For purposes of
illustration, figure II.F2 shows the average SMI benefit value and cost-
sharing liability for all beneficiaries. The value of SMI benefits to
individual enrollees and their cost-sharing payments vary even more
substantially than OASI benefits, depending on their income, assets,
and use of covered health services in a given year. In particular,
Medicaid pays Part B premiums and cost-sharing amounts for
beneficiaries with very low incomes, and the Medicare low-income drug
subsidy pays the corresponding Part D amounts (except for nominal
copayments). Moreover, high-income beneficiaries have paid an
income-related premium for Part B since 2007 and for Part D since
2011. Further information on the nature of this comparison, and on the
variations from the average results, is available in a memorandum by
the CMS Office of the Actuary at http://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
ReportsTrustFunds/Beneficiaryoop.html.
Another way to evaluate the implications of rapid SMI cost growth is
to compare government contributions to the SMI trust fund with total
Federal income taxes (personal and corporate income taxes).
Table II.F3 shows SMI general revenues as a percentage of total
Federal income taxes. Should such taxes in the future maintain their
historical average level of the last 50 years relative to the national
economy, then, based on the intermediate assumptions, SMI general
39
Overview
revenue financing in 2095 would represent about 32.5 percent of total
income taxes.
Table II.F3.—SMI General Revenues as a Percentage
of Personal and Corporate Federal Income Taxes
Fiscal year Percentage of income taxes1
Historical data:
1970 0.8%
1980 2.2
1990 5.9
2000 5.4
2010 19.6
2011 17.7
2012 15.3
2013 14.3
2014 14.2
2015 14.0
2016 16.2
2017 16.4
2018 16.8
2019 17.0
2020 19.6
Intermediate estimates:
2030 23.6
2040 28.7
2050 29.5
2060 30.7
2070 31.9
2080 32.7
2090 32.6
2095 32.5
1
Includes the Part D prescription drug benefit beginning in 2006.
These examples illustrate the significant impact of SMI expenditure
growth on beneficiaries, taxpayers, and the Federal budget. The
projected SMI expenditure increases associated with the cost of
providing health care, plus the impact of the baby boom generation
reaching eligibility age, would continue to require a growing share of
the economic resources available to finance these costs. This outlook
reinforces the Trustees’ recommendation for development and
enactment of further reforms to reduce the rate of growth in SMI
expenditures.
40
Conclusion
G. CONCLUSION
Total Medicare expenditures were $926 billion in 2020, and the Board
projects that they will increase in most future years at a somewhat
faster pace than either aggregate workers’ earnings or the economy
overall. The faster increase is primarily due to the number of
beneficiaries increasing more rapidly than the number of workers,
coupled with an increase in the volume and intensity of services
delivered. Based on the intermediate set of assumptions under current
law, expenditures as a percentage of GDP would increase from the
current 4.0 percent to a projected 6.5 percent by 2095.
As it has since 2004, the HI trust fund fails to meet the Board of
Trustees’ short-range test of financial adequacy. In addition, as in all
past reports, the HI trust fund fails to meet the Trustees’ long-range
test of close actuarial balance.
HI experienced small surpluses in 2016 and 2017 after having deficits
from 2008 through 2015. In 2018 and 2019 small deficits returned, and
in 2020 a large deficit occurred due to the expansion of the Accelerated
and Advance Payments Program during the COVID-19 public health
emergency. Payments made to providers under this program are
assumed to be repaid in 2021 and 2022, resulting in a small deficit in
2021 and a surplus in 2022. After this, deficits are expected for the
remainder of the 75-year projection period. The projected trust fund
depletion date is 2026, the same as estimated in last year’s report. HI
income is projected to be lower than last year’s estimates due to lower
payroll taxes. HI expenditures are projected to be lower than last year’s
estimates because of lower projected provider payment updates and
certain methodological improvements, including changes to the time-
to-death factors used in the projection model.
The HI actuarial deficit in this year’s report is 0.77 percent of taxable
payroll, up from 0.76 percent in last year’s report largely because
changes in economic and demographic assumptions were offset by the
methodological improvements.
The financial outlook for SMI is fundamentally different than for HI as
a result of the statutory differences in the methods of financing for
these two components of Medicare.
The Trustees project that both the Part B and Part D accounts of the
SMI trust fund will remain in financial balance for all future years
because beneficiary premiums and general revenue transfers are
assumed to be set at a level to meet expected costs each year. However,
41
Overview
SMI costs are projected to increase significantly as a share of GDP over
the next 75 years, from 2.3 percent to 4.4 percent under current law.
The projected Part B costs in this report are similar as a share of GDP
to those in the previous report. The Part D projections are lower than
in last year’s report primarily because of higher direct and indirect
remuneration and the greater enrollment shift from Prescription Drug
Plans to Medicare Advantage Prescription Drug Plans, which more
than offset the higher gross drug prices in this year’s report.
The financial projections shown for the Medicare program in this
report reflect substantial, but very uncertain, cost savings deriving
from current-law provisions that lower increases in Medicare payment
rates to most categories of health care providers. Without fundamental
change in the current delivery system, these adjustments would
probably not be viable indefinitely.
In view of these issues with provider payment rates, the Trustees note
that the actual future costs for Medicare could exceed those shown in
this report. Projections under an alternative scenario, as provided in
section V.C and in a memorandum from the Office of the Actuary,34 can
help illustrate the potential magnitude of the understatement. For
example, the total cost of Medicare in 2095 would be 8.5 percent of GDP
under the alternative projections (versus 6.5 percent under current
law), and the HI actuarial deficit would be 1.61 percent of taxable
payroll (versus 0.77 percent). The projected depletion date for the HI
trust fund would be unchanged. Readers should interpret the
projections shown in this report as illustrations of the very favorable
impact of permanently slower growth in health care costs, if such
slower growth is achievable. The illustrative alternative projections
show the higher costs if not for these elements of current law.
Policy makers should determine effective solutions to the long-range
HI financial imbalance. Even assuming that the provider payment
rates will be adequate, the HI program does not meet either the
Trustees’ short-range test of financial adequacy or long-range test of
close actuarial balance. HI revenues would cover only 91 percent of
estimated expenditures in 2026 and 78 percent in 2045. By the end of
the 75-year projection period, HI revenues could pay 91 percent of HI
costs. Policy makers should also consider the likelihood that the price
adjustments in current law may prove difficult to adhere to fully and
may require even more changes to address the financial imbalance.
See https://www.cms.gov/files/document/illustrative-alternative-scenario-2021.pdf.
34
42
Conclusion
The projections in this year’s report continue to demonstrate the need
for timely and effective action to address Medicare’s remaining
financial challenges—including the projected depletion of the HI trust
fund, this fund’s long-range financial imbalance, and the rapid growth
in Medicare expenditures. Furthermore, if the growth in Medicare
costs is comparable to growth under the illustrative alternative
projections, then policy reforms will have to address much larger
financial challenges than those assumed under current law. The Board
of Trustees believes that solutions can and must be found to ensure the
financial integrity of HI in the short and long term and to reduce the
rate of growth in Medicare costs through viable means. The sooner
solutions are enacted, the more flexible and gradual they can be.
Moreover, the early introduction of reforms increases the time
available for affected individuals and organizations—including health
care providers, beneficiaries, and taxpayers—to adjust their
expectations and behavior. The Board recommends that Congress and
the executive branch work together with a sense of urgency to address
these challenges.
43
III. ACTUARIAL ANALYSIS
A. INTRODUCTION
The Actuarial Analysis section focuses on the costs and financing of the
individual HI and SMI trust fund accounts. The Trustees perform an
analysis for each trust fund individually, to determine whether each
account’s income and expenditures are balanced as necessary to
maintain solvency. (It is also valuable to consider Medicare’s total
expenditures and the sources and relative magnitudes of the program’s
revenues. Section V.B presents such information for Medicare overall.)
For this report, projections are shown in two different ways. The cash
basis reflects the date when payment for the service was made,
whereas the incurred basis reflects the date when the service was
performed. The projections are first prepared on an incurred basis, and
then adjustments are made to account for costs on a cash basis.
Generally, trust fund operations show the actual or projected income
and expenditures on a cash basis, while analysis and methodology are
presented on an incurred basis.
The HI and SMI trust funds are separate and distinct, each with its
own sources of financing. There are no provisions for using HI revenues
to finance SMI expenditures, or vice versa, or for lending assets
between the two trust funds. Moreover, the benefit provisions,
financing methods, and, to a lesser degree, eligibility rules are very
different between these Medicare components. In particular, both
accounts of the SMI trust fund are automatically in financial balance,
whereas the HI fund is not.
For these reasons, the Trustees can evaluate the financial status of the
Medicare trust funds only by separately assessing the status of each
fund. Sections III.B, III.C, and III.D of this report present such
assessments for HI (Part A), SMI Part B, and SMI Part D, respectively.
The Trustees also provide key results based on an illustrative
alternative scenario in section V.C.
44
HI Financial Status
B. HI FINANCIAL STATUS
This section presents actual HI trust fund operations in 2020 and HI
trust fund projections for the next 75 years. Section III.B1 discusses HI
financial results for 2020, and sections III.B2 and III.B3 discuss the
short-range HI projections and the long-range projections,
respectively. The projections shown in sections III.B2 and III.B3
assume no changes will occur in the statutory provisions and
regulations under which HI now operates.35
1. Financial Operations in Calendar Year 2020
On July 30, 1965, the Social Security Act established the Federal
Hospital Insurance Trust Fund as a separate account in the U.S.
Treasury. All the HI financial operations occur within this fund.
Table III.B1 presents a statement of the revenue and expenditures of
the fund in calendar year 2020, and of its assets at the beginning and
end of the calendar year.
The total assets of the trust fund amounted to $194.6 billion on
December 31, 2019. During calendar year 2020, total revenue
amounted to $341.7 billion, and total expenditures were $402.2 billion.
Total assets thus decreased by $60.45 billion during the year to
$134.1 billion on December 31, 2020.
35The one exception is that the projections disregard payment reductions that would
result from the projected depletion of the HI trust fund.
45
Actuarial Analysis
Table III.B1.—Statement of Operations of the HI Trust Fund
during Calendar Year 2020
[In thousands]
Total assets of the trust fund, beginning of period ............................................................ $194,567,523
Revenue:
Payroll taxes ........................................................................................................... $303,288,323
Income from taxation of OASDI benefits ................................................................. 26,941,000
Interest on investments ........................................................................................... 3,473,941
Premiums collected from voluntary participants ...................................................... 4,033,851
Premiums collected from Medicare Advantage participants .................................... 348,342
ACA Medicare shared savings program receipts ..................................................... 25,676
Transfer from Railroad Retirement account ............................................................. 582,900
Reimbursement, transitional uninsured coverage.................................................... 109,000
Reimbursement, program management general fund ............................................. 913,000
Interfund interest payments to OASDI1 .................................................................... í287
CMS Interfund interest receipts1 .............................................................................. 869
Interest on reimbursements, Railroad Retirement ................................................... 23,549
Other ....................................................................................................................... 52
Reimbursement, union activity ................................................................................ 447
Fraud and abuse control receipts:
Criminal fines ...................................................................................................... 1,542
Civil monetary penalties ...................................................................................... 28,039
Civil penalties and damages, Department of Justice........................................... 802,910
Asset forfeitures, Department of Justice ............................................................. 749,876
3% administrative expense reimbursement, Department of Justice .................... 26,505
General fund appropriation fraud and abuse, FBI ............................................... 141,423
General fund transfer, Discretionary ................................................................... 227,516
Total revenue ............................................................................................................... $341,718,476
Expenditures:
Net benefit payments2 ........................................................................................ $397,668,196
Administrative expenses:
Treasury administrative expenses .................................................................. 111,493
Salaries and expenses, SSA3......................................................................... 963,227
Salaries and expenses, CMS4 ........................................................................ 1,413,716
Salaries and expenses, Office of the Secretary, HHS .................................... 108,994
Medicare Payment Advisory Commission ...................................................... 7,527
CMS program management—Affordable Care Act......................................... í66,849
ACL State Health Insurance Assistance Program5 ......................................... 18,341
Medicare Access Children’s Health Insurance Program (CHIP) ..................... 1,172
Fraud and abuse control expenses:
HHS Medicare integrity program .................................................................... 730,300
HHS Office of Inspector General .................................................................... 434,947
Department of Justice .................................................................................... 52,148
FBI ................................................................................................................. 132,119
HCFAC Department of Justice Discretionary, CMS ........................................ 135,329
HCFAC Office of Inspector General Discretionary, CMS ................................ 8,354
HCFAC Other HHS Discretionary, CMS ......................................................... 218,121
HCFAC Discretionary, CMS ........................................................................... 229,981
Total administrative expenses ............................................................................ 4,498,922
Total expenditures ............................................................................................................ $402,167,117
Net addition to the trust fund ............................................................................................ í60,448,641
Total assets of the trust fund, end of period...................................................................... $134,118,882
1
Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust
funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from
the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A
positive figure represents a transfer to the HI trust fund from the other trust funds. A negative figure
represents a transfer from the HI trust fund to the other funds.
2
Includes net payments of $63.5 billion made through the Medicare Accelerated and Advance Payments
Program: $67.1 billion in payments to providers and $3.6 billion in repayments.
3
For facilities, goods, and services provided by the Social Security Administration (SSA).
4
Includes expenses of the Medicare Administrative Contractors.
46
HI Financial Status
5
Reflects amount transferred from the HI trust fund to the Administration for Community Living (ACL) for
administration of the State Health Insurance Assistance program, as authorized by the Consolidated
Appropriations Act of 2014.
Note: Totals do not necessarily equal the sums of rounded components.
a. Revenues
The trust fund’s primary source of income consists of amounts
appropriated to it, under permanent authority, on the basis of taxes
paid by workers, their employers, and individuals with
self-employment earnings, in work covered by HI. Included in HI are
workers covered under the OASDI program, those covered under the
Railroad Retirement program, and certain Federal, State, and local
employees not otherwise covered under the OASDI program.
HI taxes are payable without limit on a covered individual’s total
wages and self-employment earnings. For calendar years prior to 1994,
taxes were computed on a person’s annual earnings up to a specified
maximum annual amount called the maximum tax base. Table III.B2
presents the maximum tax bases for 1966–1993. Legislation enacted
in 1993 removed the limit on taxable income beginning in calendar
year 1994.
Table III.B2 also shows the HI tax rates applicable in each of calendar
years 1966 and later. For 2022 and thereafter, the tax rates shown are
the rates scheduled in current law. As indicated in the footnote to the
table, in 2013 and later employees and self-employed individuals pay
an additional HI tax of 0.9 percent on their earnings above certain
thresholds.
47
Actuarial Analysis
Table III.B2.—Tax Rates and Maximum Tax Bases
Tax rate
(Percentage of taxable earnings)
Employees and
Calendar years Maximum tax base employers, each Self-employed
Past experience:
1966 $6,600 0.35% 0.35%
1967 6,600 0.50 0.50
1968–71 7,800 0.60 0.60
1972 9,000 0.60 0.60
1973 10,800 1.00 1.00
1974 13,200 0.90 0.90
1975 14,100 0.90 0.90
1976 15,300 0.90 0.90
1977 16,500 0.90 0.90
1978 17,700 1.00 1.00
1979 22,900 1.05 1.05
1980 25,900 1.05 1.05
1981 29,700 1.30 1.30
1982 32,400 1.30 1.30
1983 35,700 1.30 1.30
1984 37,800 1.30 2.60
1985 39,600 1.35 2.70
1986 42,000 1.45 2.90
1987 43,800 1.45 2.90
1988 45,000 1.45 2.90
1989 48,000 1.45 2.90
1990 51,300 1.45 2.90
1991 125,000 1.45 2.90
1992 130,200 1.45 2.90
1993 135,000 1.45 2.90
1994–2012 no limit 1.45 2.90
2013–2021 no limit 1.451 2.901
Scheduled in current law:
2022 & later no limit 1.451 2.901
1
Beginning in 2013, workers pay an additional 0.9 percent of their earnings above $200,000 (for those
who file an individual tax return) or $250,000 (for those who file a joint income tax return).
Total HI payroll tax income in calendar year 2020 amounted to
$303.3 billion—an increase of 6.4 percent over the amount of
$285.1 billion for the preceding 12-month period. This increase
occurred primarily because the payroll tax income was based on
estimates that did not anticipate the COVID-19 pandemic and the
ensuing recession.
Up to 85 percent of an individual’s or couple’s OASDI benefits may be
subject to Federal income taxation if their income exceeds certain
thresholds. The income tax revenue attributable to the first 50 percent
of OASDI benefits is allocated to the OASI and DI trust funds. The
revenue associated with the amount between 50 and 85 percent of
benefits is allocated to the HI trust fund. Income from the taxation of
OASDI benefits amounted to $26.9 billion in calendar year 2020.
Another substantial source of trust fund income is interest credited
from investments in government securities held by the fund. In
calendar year 2020, the fund received $3.5 billion in such interest. A
48
HI Financial Status
description of the trust fund’s investment procedures appears later in
this section.
Section 1818 of the Social Security Act provides that certain persons
not otherwise eligible for HI protection may obtain coverage by
enrolling in HI and paying a monthly premium. In 2020, premiums
collected from such voluntary participants (or paid on their behalf by
Medicaid) amounted to about $4.0 billion.
The Railroad Retirement Act provides for a system of coordination and
financial interchange between the Railroad Retirement program and
the HI trust fund. This financial interchange requires a transfer that
would place the HI trust fund in the same position in which it would
have been if the Social Security Act had always covered railroad
employment. In accordance with these provisions, a transfer of
$583 million in principal and about $14 million in interest from the
Railroad Retirement program’s Social Security Equivalent Benefit
Account to the HI trust fund balanced the two systems as of
September 30, 2019. The trust fund received this transfer, together
with interest to the date of transfer totaling about $10 million, in
June 2020.
Legislation in 1982 added transitional entitlement for those Federal
employees who retire before having had a chance to earn sufficient
quarters of Medicare-qualified Federal employment. The general fund
of the Treasury provides reimbursement for the costs of this coverage,
including administrative expenses. In calendar year 2020, such
reimbursement amounted to $109 million for estimated benefit
payments for these beneficiaries.
Legislation in 1996 established a health care fraud and abuse control
account within the HI trust fund. Monies derived from the fraud and
abuse control program are transferred from the general fund of the
Treasury to the HI trust fund. During calendar year 2020, the trust
fund received about $2.0 billion from this program.
b. Expenditures
The HI trust fund pays expenditures for HI benefit payments and
administrative expenses. All HI administrative expenses incurred by
the Department of Health and Human Services, the Social Security
Administration, the Department of the Treasury (including the
Internal Revenue Service), and the Department of Justice in
administering HI are charged to the trust fund. Such administrative
duties include payment of benefits, the collection of taxes, fraud and
49
Actuarial Analysis
abuse control activities, and experiments and demonstration projects
designed to determine various methods of increasing efficiency and
economy in providing health care services, while maintaining the
quality of such services, under HI and SMI.
In addition, Congress has authorized expenditures from the trust
funds for construction, rental and lease, or purchase contracts of office
buildings and related facilities for use in connection with the
administration of HI. Although trust fund expenditures include these
costs, the statement of trust fund assets presented in this report does
not carry the net worth of facilities and other fixed capital assets
because the proceeds of sales of such assets revert to the General
Services Administration. Since the value of fixed capital assets does
not represent funds available for benefit or administrative
expenditures, the Trustees do not consider it in assessing the actuarial
status of the funds.
Of the $402.2 billion in total HI expenditures, $397.7 billion
represented net benefits paid from the trust fund for health services.36
Net benefit payments increased 23.2 percent in calendar year 2020
over the corresponding amount of $322.8 billion paid during the
preceding calendar year. This growth in spending reflects the change
in the number of beneficiaries, the price of health services, the volume
and intensity of services, and the large amount of accelerated and
advance payments to providers (which constituted $63.5 billion net of
repayments in 2020). Further information on HI benefits by type of
service is available in section IV.A.
The remaining $4.5 billion in expenditures was for net HI
administrative expenses, after adjustments to the preliminary
allocation of administrative costs among the Social Security and
Medicare trust funds and the general fund of the Treasury. The
expenditure amount of $4.5 billion also included $1.9 billion for the
health care fraud and abuse control program.
c. Actual experience versus prior estimates
Table III.B3 compares the actual experience in calendar year 2020
with the estimates presented in the 2019 and 2020 annual reports. A
number of factors can contribute to differences between estimates and
subsequent actual experience. In particular, actual values for key
economic and other variables can differ from assumed levels, and
36Net benefits equal the total gross amounts initially paid from the trust fund during the
year, less recoveries of overpayments identified through fraud and abuse control
activities.
50
HI Financial Status
legislative and regulatory changes may occur after a report’s
preparation. The comparison in table III.B3 indicates that actual HI
payroll tax income in 2020 was about the same as estimated in the
2019 and 2020 reports. This is the case because the payroll taxes
deposited into the fund in 2020 were based on estimates that were
prepared prior to the COVID-19 pandemic. Actual HI benefit payments
in calendar year 2020 were larger than projected in 2019 and 2020—
primarily due to the large amount of accelerated and advance
payments paid to providers—and were partially offset by large
reductions in the utilization of services.
Table III.B3.—Comparison of Actual and Estimated Operations of the HI Trust Fund,
Calendar Year 2020
[Dollar amounts in millions]
Comparison of actual experience with estimates for
calendar year 2020 published in—
2020 report 2019 report
Actual as a Actual as a
Actual Estimated percentage Estimated percentage
Item amount amount1 of estimate amount1 of estimate
Payroll taxes $303,288 $301,451 101% $301,338 101%
Benefit payments2 397,6683 345,660 115 346,025 115
1
Under the intermediate assumptions.
2
Benefit payments include (i) additional premiums for Medicare Advantage plans that are deducted from
beneficiaries’ Social Security benefits, (ii) costs of Quality Improvement Organizations, and (iii) health
information technology payments.
3
See footnote 2 of table III.B1.
d. Assets
The Department of the Treasury invests, on a daily basis, the portion
of the trust fund not needed to meet current expenditures for benefits
and administration in interest-bearing obligations of the U.S.
Government. The Social Security Act authorizes the issuance of special
public-debt obligations for purchase exclusively by the trust fund. The
law requires that these special public-debt obligations bear interest at
a rate based on the average market yield (computed on the basis of
market quotations as of the end of the calendar month immediately
preceding the date of such issue) for all marketable interest-bearing
obligations of the United States forming a part of the public debt that
are not due or callable until after 4 years from the end of that month.
Currently, all invested assets of the HI trust fund are in the form of
such special-issue securities.37 Table V.H9, presented in section V.H,
shows the assets of the HI trust fund at the end of fiscal years 2019
and 2020.
37The Department of the Treasury may also make investments in obligations guaranteed
as to both principal and interest by the United States, including certain federally
sponsored agency obligations.
51
Actuarial Analysis
2. 10-Year Actuarial Estimates (2021–2030)
This section provides detailed information concerning the short-range
financial status of the trust fund, including projected annual income,
outgo, differences between income and outgo, and trust fund balances.
Also discussed is the Trustees’ test of short-range financial adequacy.
To illustrate the sensitivity of future costs to different economic and
demographic factors and to portray a reasonable range of possible
future trends, the Trustees show estimates under three alternative
sets of economic and demographic assumptions—intermediate,
low-cost, and high-cost assumptions. Due to the uncertainty inherent
in such projections, however, the actual operations of the HI trust fund
in the future could differ significantly from these estimates.
Figure III.B1 shows past and projected income and expenditures for
the HI trust fund under the Trustees’ intermediate assumptions.
Following the Balanced Budget Act of 1997, the fund experienced
annual surpluses through 2007. Beginning in 2008, expenditures
exceeded total income, and this situation continued through 2015. In
2016 and 2017, the fund experienced small surpluses. In 2018 through
2019 there were deficits, and in 2020 there was a very large deficit due
to the accelerated and advance payments made to providers. These
payments will be repaid in 2021 and 2022, resulting in a small deficit
in 2021 and a surplus in 2022. After that, the annual deficits are
expected to return throughout the rest of the projection period.
52
HI Financial Status
Figure III.B1.—HI Expenditures and Income
[In billions]
$700
$600 Historical Estimated
$500
$400
$300
$200
Expenditures
Income
$100
$0
1990 1995 2000 2005 2010 2015 2020 2025 2030
Calendar year
The impact of the December 2007 through June 2009 recession on HI
payroll tax income is apparent in figure III.B1. In 2009 and 2010,
payroll taxes decreased substantially as a result of higher
unemployment and slow growth in wages along with collection lags;
these factors contributed to the $32.3-billion trust fund deficit in 2010.
For 2011 through 2015, revenues rebounded somewhat but not enough
to reach the level of expenditures, which continued to grow due to
increased enrollment and the regular updating of the payment rates.
Together these factors resulted in a decline in trust fund deficits from
$27.7 billion in 2011 to $3.5 billion in 2015. In 2016 and 2017, a lower
level of growth in expenditures combined with higher growth in payroll
taxes led to surpluses of $5.4 billion and $2.8 billion, respectively, in
the trust fund. In 2018 and 2019 the trend reversed, with a higher level
of growth in expenditures and lower growth in payroll taxes leading to
trust fund deficits of $1.6 billion and $5.8 billion, respectively. In 2020,
a very large deficit of $60.4 billion was reached as a result of the
accelerated and advance payments to providers, which amounted to
$63.5 billion net of repayments and which were paid from the trust
fund.
Despite a significant increase in the number of beneficiaries over the
last decade, expenditure growth has been slower than observed
throughout the history of the program due to a reduction in price
updates and low growth in the utilization of services. For example,
beginning in 2012, price updates for all HI providers were reduced by
53
Actuarial Analysis
the growth in economy-wide productivity. For 2012 through 2020,
these update reductions slowed expenditure growth rates by
0.5 percentage point on average and are projected to lower HI
expenditure growth by 0.9 percentage point by 2030.
HI expenditures are further affected by the sequestration of non-salary
Medicare expenditures. The sequestration reduces benefit payments
by 2 percent from April 1, 2013 through April 30, 2020, by 2 percent
again from January 1, 2022 through September 15, 2030, and by
4 percent from September 16, 2030 through the first half of March
2031. Because of sequestration, non-salary administrative expenses
are reduced by an estimated 5 to 7 percent from March 1, 2013 through
September 30, 2030, excluding May 1, 2020 through December 31,
2021. (See section V.A for recent legislative changes affecting the
sequestration of Medicare expenditures.)
As figure III.B1 illustrates, HI income increased at a faster rate during
2011–2016 than HI expenditures, in contrast to the situation that has
prevailed during most of the program’s history. The recovery from the
economic recession (which ended in 2009) accelerated income growth
during this period. At the same time, the provider payment updates
mentioned previously slowed expenditure growth significantly. Since
2017, however, expenditure growth has increased more rapidly than
income growth, a reversal that is expected to continue for most years
of the projection period.
Table III.B4 shows the expected operations of the HI trust fund during
calendar years 2021–2030 based on the intermediate set of
assumptions, together with the past experience. Section IV.A of this
report presents the detailed assumptions underlying the intermediate
projections.
The increases in estimated income shown in table III.B4 primarily
reflect increases in payroll tax income to the trust fund since such taxes
are the main source of HI financing. As noted, payroll tax revenues
increase in 2013 and later as a result of the additional 0.9-percent tax
rate on earnings for high-income workers. For all other workers, while
the payroll tax rate will remain constant under current law, covered
earnings would increase every year under the intermediate
assumptions due to projected increases in both the number of HI
workers covered and the average earnings of these workers.
The income from taxation of Social Security benefits is affected by 2017
legislation that reduced individual income tax rates beginning in 2018.
54
HI Financial Status
This income is expected to increase after 2021, with a larger increase
in 2026 when the tax rate reductions expire.
Interest earnings have been a significant source of income to the trust
fund for many years, surpassed only by payroll taxes and, recently,
income from the taxation of OASDI benefits. As the trust fund balance
decreases, interest earnings will follow the same pattern.
55
56 Table III.B4.—Operations of the HI Trust Fund during Calendar Years 1970–2030
[In billions]
Income Expenditures Trust fund
Income Railroad Reimburse- Premiums Payments
from Retirement ment for from for military Interest
Calendar Payroll taxation of account uninsured voluntary wage and Benefit Administrative Net Fund at
year taxes benefits transfers persons enrollees credits other1,2 Total payments2,3 expenses4 Total change end of year
Historical data:
1970 $4.9 — $0.1 $0.9 — $0.0 $0.2 $6.0 $5.1 $0.2 $5.3 $0.7 $3.2
Actuarial Analysis
1975 11.5 — 0.1 0.6 $0.0 0.0 0.7 13.0 11.3 0.3 11.6 1.4 10.5
1980 23.8 — 0.2 0.7 0.0 0.1 1.1 26.1 25.1 0.5 25.6 0.5 13.7
1985 47.6 — 0.4 0.8 0.0 í0.75 3.4 51.4 47.6 0.8 48.4 4.86 20.5
1990 72.0 — 0.4 0.4 0.1 í1.07 8.5 80.4 66.2 0.8 67.0 13.4 98.9
1995 98.4 $3.9 0.4 0.5 1.0 0.1 10.8 115.0 116.4 1.2 117.6 í2.6 130.3
2000 144.4 8.8 0.5 0.5 1.4 0.0 11.7 167.2 128.58 2.6 131.1 36.1 177.5
2005 171.4 8.8 0.4 0.3 2.4 0.0 16.1 199.4 180.0 2.9 182.9 16.4 285.8
2010 182.0 13.8 0.5 í0.1 3.3 0.0 16.1 215.6 244.5 3.5 247.9 í32.3 271.9
2011 195.6 15.1 0.5 0.3 3.3 0.0 14.2 228.9 252.9 3.8 256.7 í27.7 244.2
2012 205.7 18.6 0.5 0.3 3.4 0.0 14.5 243.0 262.9 3.9 266.8 í23.8 220.4
2013 220.8 14.3 0.6 0.2 3.4 0.0 11.8 251.1 261.9 4.3 266.2 í15.0 205.4
2014 227.4 18.1 0.6 0.2 3.3 0.0 11.7 261.2 264.9 4.5 269.3 í8.1 197.3
2015 241.1 20.2 0.6 0.2 3.2 0.0 10.1 275.4 273.4 5.5 278.9 í3.5 193.8
2016 253.5 23.0 0.7 0.2 3.3 0.0 10.1 290.8 280.5 4.9 285.4 5.4 199.1
2017 261.5 24.2 0.6 0.1 3.5 0.0 9.4 299.4 293.3 3.29 296.5 2.8 202.0
2018 268.3 24.2 0.6 0.1 3.6 0.0 9.8 306.6 303.0 5.2 308.2 í1.6 200.4
2019 285.1 23.8 0.6 0.1 3.9 0.0 9.0 322.5 322.8 5.4 328.3 í5.8 194.6
2020 303.3 26.9 0.6 0.1 4.0 0.0 6.7 341.7 397.710 4.5 402.2 í60.4 134.1
Intermediate estimates:
2021 298.5 24.5 0.6 0.1 4.5 0.0 5.8 334.1 340.610 4.7 345.3 í11.2 122.9
2022 330.7 30.1 0.7 0.1 4.8 0.0 6.2 372.6 359.110 4.6 363.7 8.9 131.8
2023 344.2 32.8 0.7 0.1 5.0 0.0 6.2 389.1 412.6 4.8 417.4 í28.3 103.5
2024 359.4 35.8 0.7 0.1 5.3 0.0 5.9 407.0 435.4 5.0 440.5 í33.5 70.0
2025 374.9 39.1 0.7 0.1 5.6 0.0 5.3 425.6 463.0 5.3 468.2 í42.6 27.4
11
2026 391.0 46.2 0.8 0.0 5.9 0.0 4.5 448.5 492.3 5.6 497.8 í49.3 í22.0
11
2027 407.0 53.9 0.8 0.0 6.3 0.0 3.6 471.6 523.6 5.8 529.4 í57.7 í79.7
202811 424.4 58.7 0.8 0.0 6.7 0.0 1.2 491.8 556.8 6.1 562.9 í71.2 í150.9
11
2029 442.3 63.7 0.8 0.0 7.1 0.0 í1.9 512.0 591.2 6.4 597.5 í85.5 í236.4
11
2030 460.3 69.1 0.8 0.0 7.4 0.0 í5.9 531.7 623.6 6.8 630.4 í98.6 í335.0
1
Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund, receipts from the fraud and abuse control
program, and a small amount of miscellaneous income. These receipts amount to $2.0–$3.1 billion each year for the 10-year projection period.
2
Values after 2005 include additional premiums for Medicare Advantage (MA) plans that are deducted from beneficiaries’ Social Security benefits. These
additional premiums are beneficiary obligations and occur when a beneficiary chooses an MA plan whose monthly plan payment exceeds the benchmark
amount. Beneficiaries subject to such premiums may choose to either reimburse the plans directly or have the premiums deducted from their Social Security
benefits. The premiums deducted from the Social Security benefits are transferred to the HI and SMI trust funds and then transferred from the trust funds to
the plans.
3
Includes costs of Peer Review Organizations from 1983 through 2001 (beginning with the implementation of the prospective payment system on
October 1, 1983) and costs of Quality Improvement Organizations beginning in 2002.
4
Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses.
5
Includes lump-sum general revenue adjustment of í$0.8 billion.
6
Includes repayment of loan principal, from the OASI trust fund, of $1.8 billion.
7
Includes lump-sum general revenue adjustment of í$1.1 billion.
8
For 1998 through 2003, includes monies transferred to the SMI trust fund for home health agency costs.
9
Reflects a larger-than-usual downward adjustment of $1.8 billion for prior-year allocations among Part A, Part B, and Part D.
10
Includes net payments of $63.5 billion made through the Medicare Accelerated and Advance Payments Program in calendar year 2020 and subsequent
repayments of $28.1 billion and $35.4 billion in calendar years 2021 and 2022, respectively.
11
Estimates for 2026 and later are hypothetical since the HI trust fund would be depleted in those years.
Note: Totals do not necessarily equal the sums of rounded components.
57
HI Financial Status
Actuarial Analysis
The Trustees project that over the next 10 years most of the other
smaller sources of financing for the HI trust fund will increase along
with payroll tax revenues and covered earnings. More detailed
descriptions of these sources of income were discussed earlier in this
section.
The Trustees have recommended maintenance of HI trust fund assets
at a level of at least 100 percent of annual expenditures throughout the
projection period. Such a level would provide a cushion of several years
in the event that income falls short of expenditures, thereby allowing
time for policy makers to implement legislative corrections. The trust
fund balance has been below 1 year’s expenditures in every year since
2012 and is not projected to reach that level under the intermediate
assumptions.
The Trustees have also prepared projections using two alternative sets
of assumptions. Table III.B5 summarizes the estimated operations
under all three alternatives. Section IV.A presents in substantial
detail the assumptions underlying the intermediate assumptions, as
well as the assumptions used in preparing estimates under the low-cost
and high-cost alternatives.
58
HI Financial Status
Table III.B5.—Estimated Operations of the HI Trust Fund
during Calendar Years 2020–2030, under Alternative Sets of Assumptions
[Dollar amounts in billions]
Ratio of assets to Expenditures as
Calendar Total Net increase Fund at expenditures1 a percentage of
year Total income expenditures in fund end of year (percent) taxable payroll
Intermediate:
20202 $341.7 $402.23 í$60.4 $134.1 48% 3.52%
2021 334.1 345.33 í11.2 122.9 39 3.64
2022 372.6 363.73 8.9 131.8 34 3.67
2023 389.1 417.4 í28.3 103.5 32 3.68
2024 407.0 440.5 í33.5 70.0 23 3.73
2025 425.6 468.2 í42.6 27.4 15 3.81
20264 448.5 497.8 í49.3 í22.0 5 3.89
20274 471.6 529.4 í57.7 í79.7 5
3.97
20284 491.8 562.9 í71.2 í150.9 5
4.06
20294 512.0 597.5 í85.5 í236.4 5
4.14
20304 531.7 630.4 í98.6 í335.0 5
4.20
Low-cost:
20202 341.7 402.23 í60.4 134.1 48 3.47
2021 339.9 339.03 0.8 135.0 40 3.50
2022 391.1 356.53 34.5 169.5 38 3.44
2023 410.5 401.6 8.9 178.4 42 3.35
2024 436.1 421.0 15.1 193.5 42 3.32
2025 463.2 444.8 18.4 211.9 43 3.33
2026 496.3 469.8 26.5 238.4 45 3.33
2027 531.2 496.4 34.8 273.2 48 3.34
2028 565.9 524.4 41.4 314.6 52 3.35
2029 602.6 553.0 49.6 364.3 57 3.35
2030 641.0 579.6 61.5 425.7 63 3.32
High-cost:
20202 341.7 402.23 í60.4 134.1 48 3.53
2021 328.2 351.73 í23.5 110.6 38 3.77
3
2022 346.9 362.6 í15.7 94.9 31 3.98
2023 356.7 415.7 í59.0 35.9 23 4.03
20244 371.1 444.6 í73.5 í37.6 8 4.15
20254 385.7 479.0 í93.3 í130.9 5
4.32
20264 402.8 516.6 í113.8 í244.8 5
4.49
20274 419.5 557.4 í137.8 í382.6 5
4.68
20284 432.3 599.9 í167.7 í550.3 5
4.87
20294 443.3 642.1 í198.8 í749.1 5
5.07
20304 452.0 681.8 í229.8 í978.9 5
5.23
1
Ratio of assets in the fund at the beginning of the year to expenditures during the year.
2
Figures for 2020 represent actual experience.
3
See footnote 10 of table III.B4.
4
Estimates are hypothetical for 2026 and later under the intermediate assumptions, and for 2024 and later
under the high-cost assumptions, since the HI trust fund would be depleted in those years.
5
Trust fund reserves would be depleted at the beginning of this year.
Note: Totals do not necessarily equal the sums of rounded components.
Because of the price assumptions for these alternative scenarios, the
expenditures presented in these scenarios represent a narrow range of
outcomes, and actual experience could easily fall outside of this range.
For the low-cost scenario, the Trustees assume higher price inflation,
which leads to higher spending. Similarly, under the high-cost
scenario, the Trustees assume lower price inflation, which leads to
lower spending. These price inflation assumptions partially offset the
effects of the other assumptions in the high-cost and low-cost scenarios,
resulting in a narrow range of expenditures. Given the considerable
59
Actuarial Analysis
variation in the factors affecting health care spending, actual Part A
experience could easily fall outside of this range. Because the taxable
payroll assumptions in these scenarios are similarly affected by the
price inflation assumptions, Part A expenditures as a percent of
taxable payroll provide better insight into the variability of spending
than the nominal dollar amounts, as shown in table III.B5.
The Board of Trustees has established an explicit test of short-range
financial adequacy. The requirements of this test are as follows: (i) if
the HI trust fund ratio is at least 100 percent at the beginning of the
projection period, then it must remain at or above 100 percent
throughout the 10-year projection period; (ii) alternatively, if the fund
ratio is initially less than 100 percent, it must reach a level of at least
100 percent within 5 years (with no depletion of the trust fund at any
time during this period) and then remain at or above 100 percent
throughout the rest of the 10-year period. The Trustees apply this test
based on the intermediate projections.
The HI trust fund does not meet this short-range test. Failure of the
trust fund to meet this test is an indication that HI solvency over the
next 10 years is in question and that action is necessary to improve the
short-range financial adequacy of the fund. While the short-range test
is stringent, its purpose is to ensure that health care benefits continue
to be available without interruption to the millions of aged and
disabled Americans who rely on such coverage. Table III.B6 shows the
ratios of assets in the HI trust fund at the beginning of a calendar year
to total expenditures during that year. As table III.B6 shows, the
Trustees project that the trust fund ratio, which was below the
100-percent level at the beginning of 2021, will decrease for the entire
projection period until the fund is depleted in 2026. Accordingly, the
financing for HI is not considered adequate in the short range (2021–
2030).
The projected trust fund depletion date is 2026, the same as estimated
in last year’s report. HI income is projected to be lower than last year’s
estimates due to lower payroll taxes. HI expenditures are projected to
be lower than last year’s estimates because of lower projected provider
payment updates and certain methodological improvements, including
changes to the time-to-death factors used in the projection model.
60
HI Financial Status
Table III.B6.—Ratio of Assets at the Beginning of the Year to Expenditures
during the Year for the HI Trust Fund
Calendar year Ratio
Historical data:
1967 28%
1970 47
1975 79
1980 52
1985 32
1990 128
1995 113
2000 108
2005 147
2010 123
2011 106
2012 92
2013 83
2014 76
2015 71
2016 68
2017 67
2018 66
2019 61
2020 48
Intermediate Estimates:
2021 39
2022 34
2023 32
2024 23
2025 15
2026 5
1
2027
1
2028
1
2029
1
2030
1
Trust fund reserves would be depleted at the beginning of this year.
Figure III.B2 shows the historical trust fund ratios and the projected
ratios under the three sets of assumptions. It also shows the declining
level of assets (as a percentage of expenditures) through 2021 under all
three sets of assumptions. The fund ratio would continue to decline
after 2021 under both the intermediate and the high-cost assumptions.
Only under conditions of robust economic growth and extremely low
health care cost increases, as assumed in the low-cost alternative,
would HI assets grow significantly relative to expenditures under
current law.
61
Actuarial Analysis
Figure III.B2.—HI Trust Fund Balance at the Beginning of the Year as a Percentage
of Annual Expenditures
200%
Historical Estimated
150%
100%
Low-cost
50%
Intermediate
High-cost
0%
1965 1975 1985 1995 2005 2015 2025 2035
Beginning of January
The HI trust fund is projected to be depleted in 2026 under the
intermediate assumptions. Under the low-cost assumptions, trust fund
assets are projected to increase throughout the entire projection period,
while asset depletion would occur in 2024 under the high-cost
assumptions.
3. Long-Range Estimates
This section examines the long-range actuarial status of the trust fund
under the three alternative sets of economic and demographic
assumptions, while section IV.A summarizes the assumptions used in
preparing projections.
The Trustees measure the long-range actuarial status of the HI trust
fund by comparing, on a year-by-year basis, the non-interest income
(from payroll taxes, taxation of OASDI benefits, premiums, general
revenue transfers for uninsured persons, and monies derived from the
fraud and abuse control program) with the corresponding incurred
costs, expressed as percentages of taxable payroll.38 These percentages
are referred to as income rates and cost rates, respectively.
38Taxable payroll is the total amount of wages, salaries, tips, self-employment income,
and other earnings subject to the HI payroll tax.
62
HI Financial Status
Table III.B7 shows historical and projected HI costs and income under
the intermediate assumptions, expressed as percentages of taxable
payroll. The ratio of expenditures to taxable payroll has generally
increased over time; it rose from 1.11 percent in 1967 to 3.46 percent
in 1996—an increase that reflected rapid growth in HI expenditures,
which more than offset growth in average earnings per worker, and
increases in (and eventual elimination of) the maximum taxable wage
base for HI. Cost rates declined significantly during 1997–2000 to
2.65 percent due to favorable economic performance, the impact of
legislation, and efforts to curb fraud and abuse in the Medicare
program. The cost rate increased to 3.17 percent by 2005 as a result of
legislation and, after remaining about level through 2007, increased
rapidly to 3.75 percent in 2010, reflecting the impact of the recession,
which lowered taxable payroll. The resulting deficit in 2010 as a
percentage of taxable payroll was the largest since the program began
(0.55 percent). Cost rates generally decreased from 2011 through 2015
as the economy recovered, while health care cost growth rates were
low. Cost rates remained fairly level until 2020, when there was a
slight increase due to very low growth in taxable payroll as a result of
the pandemic.
63
Actuarial Analysis
Table III.B7.—HI Cost and Income Rates1
Calendar year Cost rates Income rates Difference2
Historical data:
1967 1.11% 1.09% í0.01%
1970 1.35 1.41 +0.07
1975 1.79 1.90 +0.11
1980 2.26 2.16 í0.10
1985 2.68 2.74 +0.06
1990 2.72 2.92 +0.21
1995 3.36 3.05 í0.30
2000 2.65 3.11 +0.46
2005 3.17 3.12 í0.05
2010 3.75 3.20 í0.55
2011 3.75 3.21 í0.54
2012 3.67 3.24 í0.43
2013 3.67 3.33 í0.34
2014 3.50 3.34 í0.15
2015 3.43 3.35 í0.09
2016 3.48 3.35 í0.12
2017 3.45 3.36 í0.10
2018 3.42 3.33 í0.09
2019 3.45 3.35 í0.11
2020 3.52 3.37 í0.15
Intermediate estimates:
2021 3.64 3.38 í0.26
2022 3.67 3.40 í0.27
2023 3.68 3.42 í0.27
2024 3.73 3.43 í0.30
2025 3.81 3.45 í0.35
2026 3.89 3.53 í0.36
2027 3.97 3.56 í0.42
2028 4.06 3.58 í0.48
2029 4.14 3.60 í0.54
2030 4.20 3.63 í0.57
2035 4.61 3.72 í0.88
2040 4.81 3.80 í1.01
2045 4.92 3.86 í1.06
2050 4.92 3.92 í1.01
2055 4.90 3.98 í0.91
2060 4.89 4.05 í0.84
2065 4.92 4.13 í0.80
2070 4.97 4.19 í0.78
2075 5.00 4.26 í0.75
2080 5.00 4.31 í0.70
2085 4.97 4.34 í0.62
2090 4.90 4.37 í0.53
2095 4.81 4.40 í0.42
1
Based on the Trustees’ intermediate assumptions, and expressed as a percentage of taxable payroll.
Taxable payroll includes statutory wage credits for military service for 1957í2001.
2
Difference between the income rates and cost rates. Negative values represent deficits.
The Trustees expect growing deficits through about 2045, as cost rates
grow faster than income rates. The increase in cost rates during this
period is mostly attributable to rising per beneficiary spending and the
impact of demographic shifts—notably, the aging of the baby boom
population. After 2045, the size of the projected deficits decreases as
subsequent demographic shifts reduce the growth in cost rates,
resulting in cost-rate growth that is lower than income-rate growth.
Projected HI expenditures are 4.92 and 4.81 percent of taxable payroll
in 2050 and 2095, respectively. (Under the illustrative alternative
64
HI Financial Status
projections, the HI cost rates for 2050 and 2095 would equal 5.44 and
7.23 percent, respectively.)
Figure III.B3 shows the year-by-year costs as a percentage of taxable
payroll for each of the three sets of assumptions. It also shows the
income rates, but only for the intermediate assumptions in order to
simplify the presentation.
Figure III.B3.—Estimated HI Cost and Income Rates as a Percentage
of Taxable Payroll
16%
Historical Estimated
12%
High-cost
8%
Income rate
Intermediate
Cost rate
4%
Low-cost
0%
1965 1975 1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085 2095
Calendar year
Figure III.B3 shows the remaining projected financial imbalance,
based on the intermediate assumptions. The Trustees project that cost
rates will continue to exceed income rates in all years of the projection
period. By the end of the 75 years, the difference between income rates
and cost rates would be about 0.4 percent of taxable payroll.
Throughout the period, cost rate growth is constrained by the
productivity reductions in provider payments, and income rates
continue to increase as a larger share of earnings becomes subject to
the additional 0.9-percent payroll tax and a larger share of Social
Security benefits becomes subject to income tax that is credited to the
HI trust fund.
Under the more favorable economic and demographic conditions
assumed in the low-cost assumptions, HI costs would be lower than
scheduled income during 2023–2095, and surpluses would steadily
grow throughout the entire 75-year projection period. This very
favorable result is due in large part to HI expenditure growth rates
65
Actuarial Analysis
that would average only about 5 percent per year, reflecting the
combined effects of slower growth in utilization and intensity of
services, and lower Medicare enrollment.
The high-cost projections illustrate the large financial imbalance that
could occur if future economic conditions resemble those of the 1973–
1995 period, if HI expenditure growth accelerates toward pre-1997
levels, and if fertility rates decline.39
The Trustees project costs beyond the initial 25-year period for the
intermediate estimate based on the assumption that average HI
expenditures per beneficiary will increase at a rate determined by the
economic model described in sections II.C and IV.D, less the price
update adjustments based on economy-wide productivity gains. This
net rate is about 0.1 percentage point faster than the increase in Gross
Domestic Product (GDP) per capita in 2045 and declines to about
0.3 percentage point slower than the growth in GDP by 2095. Beyond
the initial 25-year projection period, the low-cost and high-cost
alternatives assume that HI cost increases, relative to taxable payroll
increases, are initially 2 percentage points less rapid and 2 percentage
points more rapid, respectively, than the results under the
intermediate assumptions. The assumed initial 2-percentage-point
differentials decrease gradually until the year 2070, when HI cost
increases (relative to taxable payroll) are assumed to be the same as
under the intermediate assumptions.
Figure III.B3 shows the cost rates over a 75-year valuation period in
order to present fully the future economic and demographic
developments that one may reasonably expect to occur, such as the
impact of the large increase in the number of people over age 65 that
began to take place in 2011. Growth occurs in part because the ratio of
workers to beneficiaries will decrease as persons born during the
period between the end of World War II and the mid-1960s (known as
the baby boom generation) reach eligibility age and begin to receive
benefits.
Figure III.B4 shows the projected ratio of workers per HI beneficiary
from 1980 to 2095. As figure III.B4 indicates, the ratio was about
4 workers per beneficiary from 1980 through 2008. It began to decline
initially due to the recession but then declined further due to the
retirement of the baby boom generation.
39Actual experience during these periods was similar on average to the high-cost
economic and programmatic assumptions for the future.
66
HI Financial Status
Figure III.B4.—Workers per HI Beneficiary
[Based on intermediate assumptions]
5.0
Historical Projected
4.0
3.0
2.0
1.0
0.0
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Calendar year
While every beneficiary in 2020 had about 2.9 workers to pay for his or
her HI benefit, in 2030 under the intermediate demographic
assumptions there would be only about 2.5 workers for each
beneficiary. This ratio would then continue to decline until there were
only 2.2 workers per beneficiary in 2095. This reduction implies an
increase in the HI cost rate of about 30 percent by 2095, relative to its
current level, solely due to this demographic factor.40
While year-by-year comparisons of revenues and costs are necessary to
measure the adequacy of HI financing, the financial status of the trust
fund is often summarized, over a specific valuation period, by a single
measure known as the actuarial balance. The actuarial balance of the
HI trust fund is defined as the difference between the summarized
income rate for the valuation period and the summarized cost rate for
the same period.
The summarized income rates, cost rates, and actuarial balance are
based upon the present values of future income, costs, and taxable
payroll. The Trustees calculate the present values, as of the beginning
of the valuation period, by discounting the future annual amounts of
40In addition to this factor, the projected increase in the HI cost rate reflects greater use
of health care services as the beneficiary population ages and higher average costs per
service due to medical price inflation and technological advances in care. The slower
growth in Medicare payment rates to HI providers substantially offsets these increases.
67
Actuarial Analysis
income and outgo using the projected effective rates of interest credited
to the HI trust fund for the first 10 years and transition to the ultimate
interest rate assumption by year 15. They then determine the
summarized income and cost rates over the projection period by
dividing the present value of income and cost, respectively, by the
present value of taxable payroll. The difference between the
summarized income rate and cost rate over the long-range projection
period (after an adjustment to take into account the fund balance at
the valuation date and a target trust fund balance at the end of the
valuation period) is the actuarial balance.
The summarized cost rate includes the cost of maintaining a trust fund
balance at the end of the period equal to the following year’s estimated
costs. While a zero or positive actuarial balance implies that the end-
of-period trust fund balance is at least as large as the target trust fund
balance, there is no such implication for the trust fund balance at other
times during the projection period.
Table III.B8 shows the actuarial balances based on the Trustees’ three
sets of economic and demographic assumptions, for the next 25, 50, and
75 years. Based on the intermediate set of assumptions, the
summarized income rate for the entire 75-year period is 3.99 percent
of taxable payroll and the summarized cost rate is 4.76 percent. As a
result, the actuarial balance is ï0.77 percent, and the HI trust fund
fails to meet the Trustees’ long-range test of close actuarial balance.41
One can interpret the actuarial balance as the percentage that could
be added to the income rates and/or subtracted from the cost rates
immediately and throughout the entire valuation period in order for
the financing to support HI costs and provide for the targeted trust
fund balance at the end of the projection period. The income rate
increase according to this method is 0.77 percent of taxable payroll.
However, if no such changes occurred until 2026, when the trust fund
would be depleted, then the required increase would be 0.84 percent of
taxable payroll under the intermediate assumptions.42
This test is defined in section V.I.
41
Actuarial balance could also be reached by reducing benefits by 16 percent every year
42
immediately, or by making no change until 2026 and then reducing benefits by
17 percent.
68
HI Financial Status
Table III.B8.—HI Actuarial Balances under Three Sets of Assumptions
Intermediate Alternative
assumptions Low-Cost High-Cost
Valuation periods:1
25 years, 2021–2045:
Summarized income rate 3.73 3.69 3.79
Summarized cost rate 4.54 3.37 6.13
Actuarial balance í0.81 0.32 í2.34
50 years, 2021–2070:
Summarized income rate 3.86 3.84 3.94
Summarized cost rate 4.70 2.91 7.65
Actuarial balance í0.83 0.93 í3.71
75 years, 2021–2095:
Summarized income rate 3.99 3.96 4.07
Summarized cost rate 4.76 2.70 8.32
Actuarial balance í0.77 1.26 í4.25
1
Income rates include beginning trust fund balances, and cost rates include the cost of attaining a trust
fund balance at the end of the period equal to 100 percent of the following year’s estimated expenditures.
Note: Totals do not necessarily equal the sums of rounded components.
The divergence in outcomes among the three sets of assumptions is
apparent both in the estimated operations of the trust fund on a cash
basis (as discussed in section III.B2) and in the 75-year summarized
costs. Under the low-cost economic and demographic assumptions, the
summarized cost rate for the 75-year valuation period is 2.70 percent
of taxable payroll, the summarized income rate is 3.96 percent of
taxable payroll, and the actuarial balance is 1.26 percent of taxable
payroll; accordingly, HI income rates would be adequate under the
highly favorable conditions assumed in the low-cost alternative. Under
the high-cost assumptions, the summarized cost rate for the 75-year
projection period is 8.32 percent of taxable payroll, which is more than
twice the summarized income rate of 4.07 percent of taxable payroll,
resulting in an actuarial balance of ï4.25 percent of taxable payroll.
As suggested earlier, past experience has indicated that economic and
demographic conditions that are as financially adverse as those
assumed under the high-cost alternative can, in fact, occur over many
years. Readers should view all of the alternative sets of economic and
demographic assumptions as plausible. The wide range of results
under the three sets of assumptions is indicative of the uncertainty of
HI’s future cost and its sensitivity to future economic and demographic
conditions. Accordingly, it is important to maintain an adequate
balance in the HI trust fund as a reserve for contingencies and to
promptly address financial imbalances through corrective legislation.
Table III.B9 shows the long-range actuarial balance under the
intermediate projections with its component parts—the present values
of tax income, expenditures, and asset requirement of the HI program
over the next 75 years.
69
Actuarial Analysis
Table III.B9.—Components of 75-Year HI Actuarial Balance
under Intermediate Assumptions (2021–2095)
Present value as of January 1, 2021 (in billions):
a. Payroll tax income ...................................................................................... $22,240
b. Taxation of benefits income ........................................................................ 3,869
c. Fraud and abuse control receipts................................................................ 209
d. Other Income .............................................................................................. 391
e. Total income (a + b + c + d) ........................................................................ 26,710
f. Expenditures ............................................................................................... 31,767
g. Expenditures minus income (f í e).............................................................. 5,057
h. Trust fund assets at start of period.............................................................. 198
i. Open-group unfunded obligation (g í h) ..................................................... 4,859
j. Ending target trust fund1 ............................................................................. 337
k. Present value of actuarial balance (e í f + h í j) ......................................... í5,196
l. Taxable payroll ........................................................................................... 674,821
Percent of taxable payroll:
Actuarial balance (k ÷ l) .................................................................................. í0.77%
1
The calculation of the actuarial balance includes the cost of accumulating a target trust fund balance
equal to 100 percent of annual expenditures by the end of the period.
Note: Totals do not necessarily equal the sums of rounded components.
The present value of future expenditures less future tax income,
decreased by the amount of HI trust fund assets on hand at the
beginning of the projection, amounts to $4.9 trillion. This value is
referred to as the 75-year unfunded obligation for the HI trust fund,
and it is higher than last year’s value of $4.6 trillion. The actuarial
balance is like the unfunded obligation except that (i) it is a measure
of the degree to which the program is funded rather than unfunded and
so is opposite in sign; (ii) it includes the target trust fund balance at
the end of 75 years as a cost; and (iii) it is expressed as a percentage of
taxable payroll. Specifically, the actuarial balance is ï0.77 percent of
taxable payroll and is calculated as the trust fund balance plus the
present value of revenues less the present value of costs (ï$4.9 trillion),
less the present value of the target trust fund balance ($337 billion),
all divided by the present value of future taxable payroll
($674.8 trillion).
Figure III.B5 shows the present values, as of January 1, 2021, of
cumulative HI taxes less expenditures (plus the 2021 trust fund)
through each of the next 75 years. The Trustees estimate these values
under current-law expenditures and tax rates.
70
HI Financial Status
Figure III.B5.—Present Value of Cumulative HI Taxes Less Expenditures
through Year Shown, Evaluated under Current-Law Tax Rates
and Legislated Expenditures
[Present value as of January 1, 2021; in trillions]
$1
$0
-$1
-$2
-$3
-$4
-$5
-$6
2021 2031 2041 2051 2061 2071 2081 2091
Ending year of valuation period
The cumulative annual balance of the trust fund at the beginning of
2021 is about $0.2 trillion. The cumulative present value steadily
declines over the projection period due to the anticipated shortfall of
tax revenues, relative to expenditures, in all years. The projected
depletion date of the trust fund is 2026, at which time cumulative
expenditures would have exceeded cumulative tax revenues by enough
to equal the initial fund assets accumulated with interest. The
continuing downward slope in the line thereafter further illustrates
the difference between the HI expenditures projected under current
law and the financing currently scheduled to support these
expenditures. As noted previously, over the full 75-year period, the
fund has a projected present value unfunded obligation of $4.9 trillion.
This unfunded obligation indicates that if $4.9 trillion were added to
the trust fund at the beginning of 2021, the program would meet the
projected cost of expenditures over the next 75 years. More
realistically, additional annual revenues and/or reductions in
expenditures, with a present value totaling $4.9 trillion, would be
necessary to reach financial balance (but with zero trust fund assets at
the end of 2095).
The estimated unfunded obligation of $4.9 trillion and the closely
associated present value of the actuarial deficit ($5.2 trillion) are
useful indicators of the sizable financial burden facing the American
71
Actuarial Analysis
public. In other words, increases in revenues and/or reductions in
benefit expenditures—equivalent to a lump-sum amount today of
$5.2 trillion—would be necessary to bring the HI trust fund into long-
range financial balance. At the same time, long-range measures
expressed in dollar amounts can be difficult to interpret, even when
calculated as present values, which are sensitive to the underlying
discount rate assumptions. For this reason, the Board of Trustees has
customarily emphasized relative measures, such as the income rate
and cost rate comparisons shown earlier in this section, and
comparisons to the present value of future taxable payroll or GDP.
Figure III.B6 compares the year-by-year HI cost and income rates for
the current annual report with the corresponding projections from the
2020 report.
Figure III.B6.—Comparison of HI Cost and Income Rate Projections:
Current versus Prior Year’s Reports
6%
Historical Estimated
Cost rate
5%
4%
Income rate
3%
2%
Current report
Prior Report
1%
0%
1965 1975 1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085 2095
Calendar year
As figure III.B6 indicates, the intermediate HI cost rate projections
and the projected income rates in this year’s report are very similar to
those in the 2020 report.
The Trustees’ estimate of the 75-year HI actuarial balance under the
intermediate assumptions, ï0.77 percent of taxable payroll, is
0.01 percentage point less favorable than estimated in the 2020 annual
report. The reasons for this change, which are listed in table III.B10,
are explained below:
72
HI Financial Status
(1) Change in valuation period: Updating the valuation period
from 2020–2094 to 2021–2095 results in a decrease to the
actuarial balance of 0.01 percent of taxable payroll.
(2) Updating the projection base: Actual 2019 incurred HI
expenditures were lower than previously estimated (2019
was used as the base for this year’s report), and 2019 taxable
payroll and income from the taxation of Social Security
benefits were about the same. The impact of these base-year
differences is a decrease to the actuarial balance of
0.04 percent of taxable payroll.
(3) Private health plan assumptions: The cost growth
differential for beneficiaries in Medicare Advantage (MA)
plans compared to those in fee-for-service Medicare is
smaller than in last year’s report. The net effect of this and
other minor modifications is a 0.03-percent increase in the
actuarial balance.
(4) Hospital utilization assumptions: There were no significant
changes in hospital utilization assumptions in this year’s
report, and as a result the impact is a 0.01-percent decrease
in the actuarial balance.
(5) Other provider utilization assumptions: There were no
significant changes in other provider utilization
assumptions in this year’s report, and as a result there is no
impact on the actuarial balance.
(6) Methodological changes: Two improvements were made to
the methodology developed last year to incorporate time-to-
death in the calculation of the demographic factors, and both
of these improvements resulted in lower Medicare fee-for-
service spending. First, the population for each hospice time-
to-death category was adjusted to reflect private health plan
beneficiaries as well as those enrolled in fee-for-service
Medicare. This change resulted in a 0.09-percent increase in
the actuarial balance. Second, the method for weighting the
demographic factors together was adjusted to reflect reduced
exposures for part-year enrollees. This change resulted in a
0.08-percent increase in the actuarial balance.
In addition, a change was made to better reflect the
increasing number of ESRD beneficiaries joining private
health plans beginning in 2020. ESRD beneficiaries who
switch from Medicare fee-for-service are assumed to have
lower spending, on average, than ESRD beneficiaries who
remain in Medicare fee-for-service, but higher spending, on
average, than non-ESRD beneficiaries. Prior to this change,
the assumption was that the spending for ESRD
73
Actuarial Analysis
beneficiaries joining private health plans was similar to the
spending for all those enrolled in Medicare fee-for-service.
This change results in lower projected spending in Medicare
fee-for-service and in a 0.07-percent increase in the actuarial
balance.
The combined impact of these improvements, plus several
other minor modifications, is a 0.24-percent increase in the
actuarial balance.
(7) COVID-19 spending assumptions: The inclusion of the
pandemic assumptions in the spending projections has a
negligible impact on the actuarial balance. Deferred care due
to the pandemic and additional care related to the pandemic
result in a very small change in the costs of care in the short
term.
(8) Other economic and demographic assumptions: The net
effect of several adjustments to the economic and
demographic assumptions is a 0.22-percent decrease in the
actuarial balance. The main reasons for this change are
lower taxable payroll and income from taxation of Social
Security benefits due to the pandemic, which are partially
offset by lower payment rate update assumptions through
2023.
Table III.B10.—Change in the 75-Year Actuarial Balance since the 2020 Report
1. Actuarial balance, intermediate assumptions, 2020 report í0.76%
2. Changes:
a. Valuation period í0.01
b. Base estimate í0.04
c. Private health plan assumptions 0.03
d. Hospital utilization assumptions í0.01
e. Other provider utilization assumptions 0.00
f. Methodological changes 0.24
g. COVID-19 spending assumptions 0.00
h. Other economic and demographic assumptions í0.22
Net effect, above changes í0.01
3. Actuarial balance, intermediate assumptions, 2021 report í0.77
4. Long-Range Sensitivity Analysis
The low-cost and high-cost estimates discussed in previous sections
demonstrate the effects of varying all of the principal assumptions
simultaneously in order to portray a generally more optimistic or
pessimistic future for the projected financial status of the HI trust
fund. In contrast, this section presents estimates that illustrate the
sensitivity of the long-range HI cost rate, income rate, and actuarial
balance to changes in selected individual assumptions. In this
sensitivity analysis, the intermediate set of assumptions is the
74
HI Financial Status
reference point, and only one assumption at a time varies within that
alternative. In each case, the Trustees assume that the provisions of
current law remain unchanged throughout the 75-year projection
period.
Each table that follows shows the effects of changing a particular
assumption on the HI summarized income rates, summarized cost
rates, and actuarial balances for 25-year, 50-year, and 75-year
valuation periods. The discussion of the tables generally does not
include the income rate, since it varies only slightly with changes in
assumptions. The change in each of the actuarial balances is
approximately equal to the change in the corresponding cost rate, but
in the opposite direction. For example, a lower projected cost rate
would result in an improvement or increase in the corresponding
projected actuarial balance.
a. Real-Wage Differential
Table III.B11 shows the sensitivity of projected HI income rates, cost
rates, and actuarial balances to the real-wage differential (the
difference between the percent increase in the average wage in covered
employment and the CPI). The ultimate real-wage differential will be
0.53 percentage point (high-cost alternative), 1.15 percentage points
(intermediate projections), and 1.77 percentage points (low-cost
alternative). In each case, the assumed ultimate annual increase in the
CPI is 2.4 percent (as assumed for the intermediate projections),
yielding ultimate percentage increases in nominal average annual
wages in covered employment of 2.93, 3.55, and 4.17 percent under the
three illustrations, respectively.
Projected HI cost rates are fairly sensitive to the assumed growth rates
in real wages. For the 75-year period 2021–2095, the summarized cost
rate decreases from 5.13 percent (for a real-wage differential of
0.53 percentage point) to 4.34 percent (for a differential of
1.77 percentage points). The HI actuarial balance over this period
shows a corresponding improvement for faster rates of growth in real
wages.
75
Actuarial Analysis
Table III.B11—Estimated HI Income Rates, Cost Rates, and Actuarial Balances,
Based on Intermediate Estimates with Various Real-Wage Assumptions
[As a percentage of taxable payroll]
Ultimate percentage increase in wagesíCPI1
Valuation period 2.93í2.40 3.55í2.40 4.17í2.40
Summarized income rate:
25-year: 2021–2045 3.74 3.73 3.72
50-year: 2021–2070 3.83 3.86 3.92
75-year: 2021–2095 3.90 3.99 4.07
Summarized cost rate:
25-year: 2021–2045 4.68 4.54 4.39
50-year: 2021–2070 4.95 4.70 4.41
75-year: 2021–2095 5.13 4.76 4.34
Actuarial balance:
25-year: 2021–2045 í0.93 í0.81 í0.66
50-year: 2021–2070 í1.13 í0.83 í0.49
75-year: 2021–2095 í1.23 í0.77 í0.27
1
The first value in each pair is the assumed ultimate annual percentage increase in average wages in
covered employment. The second value is the assumed ultimate annual percentage increase in the CPI.
The difference between the two values is the real-wage differential.
The sensitivity of the HI actuarial balance to different real-wage
assumptions is significant, but not as substantial as one might
intuitively expect. Higher real-wage differentials immediately increase
both HI expenditures for health care and wages for all workers. Though
there is a full effect on wages and payroll taxes, the effect on benefits
is only partial, since not all health care costs are wage-related. The HI
cost rate decreases with increasing real-wage differentials because the
higher real-wage levels increase the taxable payroll to a greater extent
than they increase HI benefits. In particular, each
0.5-percentage-point increase in the assumed real-wage differential
increases the long-range HI actuarial balance, on average, by about
0.40 percent of taxable payroll.
76
HI Financial Status
b. Consumer Price Index
Table III.B12 shows the sensitivity of projected HI income rates, cost
rates, and actuarial balances to the rate of increase for the CPI. The
ultimate annual increase in the CPI will be 3.0 percent (low-cost
alternative), 2.4 percent (intermediate projections), and 1.8 percent
(high-cost alternative).43 In each case, the assumed ultimate real-wage
differential is 1.15 percent (as assumed for the intermediate
projections), which yields ultimate percentage increases in average
annual wages in covered employment of 4.15, 3.55, and 2.95 percent
under the three illustrations.
Table III.B12.—Estimated HI Income Rates, Cost Rates, and Actuarial Balances,
Based on Intermediate Estimates with Various CPI-Increase Assumptions
[As a percentage of taxable payroll]
Ultimate percentage increase in wagesíCPI1
Valuation period 4.15í3.00 3.55í2.40 2.95í1.80
Summarized income rate:
25-year: 2021–2045 3.78 3.73 3.70
50-year: 2021–2070 4.02 3.86 3.73
75-year: 2021–2095 4.16 3.99 3.77
Summarized cost rate:
25-year: 2021–2045 4.53 4.54 4.57
50-year: 2021–2070 4.69 4.70 4.72
75-year: 2021–2095 4.75 4.76 4.79
Actuarial balance:
25-year: 2021–2045 í0.75 í0.81 í0.87
50-year: 2021–2070 í0.67 í0.83 í0.99
75-year: 2021–2095 í0.59 í0.77 í1.01
1
The first value in each pair is the assumed ultimate annual percentage increase in average wages in
covered employment. The second value is the assumed ultimate annual percentage increase in the CPI.
The variation in the rate of change assumed for the CPI has only a
small impact on the actuarial balance, as the summarized income rates
are slightly affected while the summarized cost rates are virtually
unchanged.
Faster assumed growth in the CPI results in a somewhat larger HI
income rate because the income thresholds for the taxation of Social
Security benefits and for the additional 0.9-percent payroll tax rate are
not indexed. As a result, the share of Social Security benefits subject
to income tax, as well as the share of earnings subject to the additional
tax, increases over time. This impact accelerates under conditions of
faster CPI growth. In contrast, the cost rate remains about the same
with greater assumed rates of increase in the CPI. HI cost rates are
relatively insensitive to the assumed level of general price inflation
43Prior to the 2015 report, the Trustees used the lower CPI growth rate for the low-cost
alternative and the higher CPI growth rate for the high-cost alternative.
77
Actuarial Analysis
because price inflation has about the same proportionate effect on
taxable payroll of workers as it does on medical care costs.
In practice, differing rates of inflation could occur between the economy
in general and the medical-care sector. Readers can judge the effect of
such a difference from the sensitivity analysis shown in section III.B4d
on health care cost factors.
c. Real-Interest Rate
Table III.B13 shows the sensitivity of projected HI income rates, cost
rates, and actuarial balances to the annual real-interest rate for special
public-debt obligations issuable to the trust fund. The ultimate annual
real-interest rate will be 1.8 percent (high-cost alternative),
2.3 percent (intermediate projections), and 2.8 percent (low-cost
alternative). In each case, the assumed ultimate annual increase in the
CPI is 2.4 percent (as assumed for the intermediate projections), which
results in ultimate annual yields of 4.2, 4.8, and 5.3 percent under the
three illustrations.
Table III.B13.—Estimated HI Income Rates, Cost Rates, and Actuarial Balances,
Based on Intermediate Estimates with Various Real-Interest Assumptions
[As a percentage of taxable payroll]
Ultimate annual real-interest rate
Valuation period 1.8 percent 2.3 percent 2.8 percent
Summarized income rate:
25-year: 2021–2045 3.73 3.73 3.73
50-year: 2021–2070 3.87 3.86 3.85
75-year: 2021–2095 4.01 3.99 3.96
Summarized cost rate:
25-year: 2021–2045 4.56 4.54 4.52
50-year: 2021–2070 4.73 4.70 4.66
75-year: 2021–2095 4.79 4.76 4.72
Actuarial balance:
25-year: 2021–2045 í0.83 í0.81 í0.79
50-year: 2021–2070 í0.85 í0.83 í0.81
75-year: 2021–2095 í0.78 í0.77 í0.76
For all periods, the cost rate decreases slightly with increasing real-
interest rates. Over 2021–2095, for example, the summarized HI cost
rate would decline from 4.01 percent (for an ultimate real-interest rate
of 1.8 percent) to 3.96 percent (for an ultimate real-interest rate of
2.8 percent). Accordingly, each 1.0-percentage-point increase in the
assumed real-interest rate increases the long-range actuarial balance,
on average, by about 0.02 percent of taxable payroll.
d. Health Care Cost Factors
Table III.B14 shows the sensitivity of projected HI income rates, cost
rates, and actuarial balances to two variations on the relative annual
78
HI Financial Status
growth rate in the aggregate cost of providing covered health care
services to HI beneficiaries. For this sensitivity analysis, the ratio of
costs to taxable payroll will grow 1 percentage point more slowly than
the intermediate projections, the same as the intermediate projections,
and 1 percentage point faster than the intermediate projections. In
each case, the taxable payroll will be the same as assumed for the
intermediate projections.44
As noted previously, factors such as wage and price increases may
simultaneously affect HI tax income and the costs incurred by
hospitals and other providers of medical care to HI beneficiaries.
(Sections III.B4a and III.B4b evaluate the sensitivity of the trust
fund’s financial status to these factors.) Other factors, such as the
utilization of services by beneficiaries or the relative complexity of the
services provided, can have an impact on provider costs without
affecting HI tax income. The sensitivity analysis shown in table III.B14
illustrates the financial effect of any combination of these factors that
results in the ratio of cost to payroll taxes increasing by 1 percentage
point faster or slower than the intermediate assumptions.
Table III.B14.—Estimated HI Income Rates, Cost Rates, and Actuarial Balances,
Based on Intermediate Estimates
with Various Health Care Cost Growth Rate Assumptions
[As a percentage of taxable payroll]
Annual cost/payroll relative growth rate
Valuation period í1 percentage point 0 percentage point +1 percentage point
Summarized income rate:
25-year: 2021–2045 3.73 3.73 3.73
50-year: 2021–2070 3.86 3.86 3.87
75-year: 2021–2095 3.98 3.99 4.00
Summarized cost rate:
25-year: 2021–2045 3.97 4.54 5.22
50-year: 2021–2070 3.68 4.70 6.11
75-year: 2021–2095 3.38 4.76 6.97
Actuarial balance:
25-year: 2021–2045 í0.24 í0.81 í1.49
50-year: 2021–2070 0.18 í0.83 í2.24
75-year: 2021–2095 0.60 í0.77 í2.98
As illustrated in table III.B14, the financial status of the HI trust fund
is extremely sensitive to the relative growth rates for health care
service costs versus taxable payroll. For the 75-year period, the cost
rate increases from 3.38 percent (for an annual cost/payroll growth
rate of 1 percentage point less than the intermediate assumptions) to
6.97 percent (for an annual cost/payroll growth rate of 1 percentage
point more than the intermediate assumptions). Each
1.0-percentage-point increase in the assumed cost/payroll relative
44These variations in HI cost growth rates are not equivalent to the high- and low-cost
alternative assumptions, which use a different level and pattern of growth differentials
and vary other assumptions in addition to the cost growth factors.
79
Actuarial Analysis
growth rate decreases the long-range actuarial balance, on average, by
about 1.79 percent of taxable payroll.
C. PART B FINANCIAL STATUS
This section presents actual operations of the Part B account in the
SMI trust fund in 2020 and Part B projections for the next 75 years.
Section III.C1 discusses Part B financial results for 2020, and
sections III.C2 and III.C3 discuss the short-range Part B projections
and the long-range projections, respectively. The projections shown in
sections III.C2 and III.C3 assume no changes will occur in the
statutory provisions and regulations under which Part B now operates.
1. Financial Operations in Calendar Year 2020
Table III.C1 presents a statement of the revenue and expenditures of
the Part B account of the SMI trust fund in calendar year 2020, and of
its assets at the beginning and end of the year.
80
Part B Financial Status
Table III.C1.—Statement of Operations of the Part B Account
in the SMI Trust Fund during Calendar Year 2020
[In thousands]
Total assets of the Part B account in the trust fund, beginning of period $99,601,912
Revenue:
Premiums from enrollees:
Enrollees aged 65 and over ......................................................... $97,119,755
Disabled enrollees under age 65 ................................................. 14,080,569
Total premiums ................................................................................ 111,200,324
Premiums collected from Medicare Advantage participants ............. 461,670
Government contributions:
Enrollees aged 65 and over ......................................................... 252,552,876
Disabled enrollees under age 65 ................................................. 53,836,396
Repayment amount1 .................................................................... í2,007,185
Adjustment for exempted amounts1 ............................................. í6,259,778
Transfer for the outstanding balance of the Medicare Accelerated
and Advance Payments (AAP) Program2..................................... 37,843,290
Union activity ............................................................................... 609
Total government contributions ........................................................ 335,966,209
Other ................................................................................................ 30
Interest on investments .................................................................... 1,814,124
Interfund interest receipts & payments3 ............................................ í7,024
ACA Medicare shared savings program receipts ............................. 80,623
Annual fees—branded Rx manufacturers and importers .................. 2,798,554
Total revenue........................................................................................ $452,314,509
Expenditures:
Net Part B benefit payments4 ........................................................... $414,092,004
Administrative expenses:
Transfer to Medicaid5 ................................................................... 1,061,635
Treasury administrative expenses ............................................... 311
Salaries and expenses, CMS6 ..................................................... 2,053,259
Salaries and expenses, Office of the Secretary, HHS .................. 108,994
Salaries and expenses, SSA ....................................................... 1,386,003
Medicare Payment Advisory Commission .................................... 5,018
Railroad Retirement administrative expenses .............................. 12,792
Railroad Retirement administrative expenses, OIG ..................... 1,835
Railroad Retirement administrative expenses, SMAC.................. 15,250
CMS program management—Affordable Care Act ...................... í129,615
ACL State Health Insurance Assistance Program7 ...................... 18,341
MACRA8 ...................................................................................... 7,536
Total administrative expenses .......................................................... 4,541,359
Total expenditures ................................................................................ $418,633,363
Net addition to the trust fund ................................................................. 33,681,146
Total assets of the Part B account in the trust fund, end of period............. $133,283,058
1
The Bipartisan Budget Act of 2015 (BBA 2015) required a transfer of funds from the general fund to cover
the premium income that was lost in 2016 as a result of the hold-harmless provision. BBA 2015 further
requires that, starting in 2016, the Part B premium otherwise determined be increased by $3.00, which is
to be collected and repaid to the general fund of the Treasury. The additional repayment premium amounts
will continue until the balance due (defined as transfer to the Part B account from the general fund plus
forgone income-related premiums) has been repaid. The additional repayment premium is not to be
matched by general revenue contributions; however, since CMS is not able to separate it from the standard
premium, the additional repayment premium is matched. An adjustment for exempted amounts is therefore
necessary to transfer this erroneous Federal matching amount back to the general fund.
2
Represents the amount transferred from the general fund of the Treasury to Part B for the outstanding
balance of the AAP program, as required by the Continuing Appropriations Act, 2021 and Other Extensions
Act. All future recoveries from providers will be transferred to the general fund of the Treasury.
3
Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust
funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from
the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A
positive figure represents a transfer to the Part B account in the SMI trust fund from the other trust funds.
A negative figure represents a transfer from the Part B account of the SMI trust fund to the other funds.
81
Actuarial Analysis
4
Includes net payments of $37.0 billion made through the AAP program: $40.0 billion in payments to
providers and $3.0 billion in repayments.
5
Represents amount transferred from the Part B account in the SMI trust fund to Medicaid to pay the Part B
premium for certain qualified individuals.
6
Includes expenses of the Medicare Administrative Contractors.
7
Reflects amount transferred from the Part B account of the SMI trust fund to the Administration for
Community Living (ACL) for administration of the State Health Insurance Assistance program, as
authorized by the Consolidated Appropriations Act of 2014.
8
Represents amounts transferred from the Part B account of the SMI trust fund for administration of
provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).
Note: Totals do not necessarily equal the sums of rounded components.
The total assets of the account amounted to $99.6 billion on
December 31, 2019. During calendar year 2020, total revenue
amounted to $452.3 billion, and total expenditures were $418.6 billion.
Total assets were $133.3 billion as of December 31, 2020. The asset
level increased during 2020 by approximately $33.7 billion.
a. Revenues
The major sources of revenue for the Part B account are
(i) contributions of the Federal Government that the law authorizes to
be appropriated and transferred from the general fund of the Treasury
and (ii) premiums paid by eligible persons who voluntarily enroll.
Another source of revenue is the annual fees assessed on
manufacturers and importers of brand-name prescription drugs.
Of the total Part B revenue in calendar year 2020, $111.2 billion
represented premium payments by (or on behalf of) enrollees—an
increase of 11.6 percent over the amount of $99.4 billion for the
preceding year.
Government contributions matched the premiums paid for fiscal years
1967 through 1973 dollar for dollar. Beginning July 1973, disabled
persons who are under age 65 and who have met certain other
conditions became eligible to enroll in Medicare, and the calculation of
the premium-matching government contributions was changed. The
amount of government contributions corresponding to premiums paid
is determined by applying a matching rate to the amount of premiums
received.45 By law, a matching rate is determined for each of two groups
of Part B enrollees—one for those aged 65 and older and one for the
disabled. The matching rate is equal to twice the monthly actuarial
45For 2016 through 2025, under the intermediate assumptions, the standard premium
includes an additional amount ($3.00 through 2024 and $0.50 in 2025) to repay the
balance due resulting from general revenue transfers in 2016 and 2021 to the Part B
account of the SMI trust fund, in accordance with the Bipartisan Budget Act of 2015 and
the Continuing Appropriations Act, 2021 and Other Extensions Act. This additional
amount is not included in the determination of the matching rates and is not to be
matched by general revenue contributions.
82
Part B Financial Status
rate applicable to the particular group of enrollees, minus the standard
monthly premium rate, divided by the standard monthly premium
rate.
The Secretary of Health and Human Services (HHS) promulgates
standard monthly premium rates and actuarial rates each year.
Table III.C2 shows past monthly premium rates and actuarial rates
together with the corresponding percentages of Part B costs covered by
the premium rate. Estimated future premium amounts under the
intermediate set of assumptions appear in tables V.E2 and V.E3.
83
Actuarial Analysis
Table III.C2.—Standard Part B Monthly Premium Rates, Actuarial Rates,
and Premium Rates as a Percentage of Part B Cost
Premium rates as a
Monthly actuarial rate percentage of Part B cost
Standard Disabled Disabled
monthly Enrollees aged enrollees Enrollees aged enrollees
premium rate1 65 and over under age 65 65 and over under age 65
July 1966–March 1968 $3.00 — — 50.0% —
April 1968–June 1970 4.00 — — 50.0 —
12-month period ending June 30 of
1975 6.70 $6.70 $18.00 50.0 18.6%
1980 8.70 13.40 25.00 32.5 17.4
Calendar year
1985 15.50 31.00 52.70 25.0 14.7
1990 28.60 57.20 44.10 25.0 32.4
1991 29.90 62.60 56.00 23.9 26.7
1992 31.80 60.80 80.80 26.2 19.7
1993 36.60 70.50 82.90 26.0 22.1
1994 41.10 61.80 76.10 33.3 27.0
1995 46.10 73.10 105.80 31.5 21.8
1996 42.50 84.90 105.10 25.0 20.2
1997 43.80 87.60 110.40 25.0 19.8
1998 43.80 87.90 97.10 24.9 22.6
1999 45.50 92.30 103.00 24.6 22.1
2000 45.50 91.90 121.10 24.8 18.8
2001 50.00 101.00 132.20 24.8 18.9
2002 54.00 109.30 123.10 24.7 21.9
2003 58.70 118.70 141.00 24.7 20.8
2004 66.60 133.20 175.50 25.0 19.0
2005 78.20 156.40 191.80 25.0 20.4
2006 88.50 176.90 203.70 25.0 21.7
2007 93.50 187.00 197.30 25.0 23.7
2008 96.40 192.70 209.70 25.0 23.0
2009 96.40 192.70 224.20 25.0 21.5
2010 110.50 221.00 270.40 25.0 20.4
2011 115.40 230.70 266.30 25.0 21.7
2012 99.90 199.80 192.50 25.0 25.9
2013 104.90 209.80 235.50 25.0 22.3
2014 104.90 209.80 218.90 25.0 24.0
2015 104.90 209.80 254.80 25.0 20.6
2016 121.80 237.60 282.60 25.6 21.5
2017 134.00 261.90 254.20 25.6 26.4
2018 134.00 261.90 295.00 25.6 22.7
2019 135.50 264.90 315.40 25.6 21.5
2020 144.60 283.20 343.60 25.5 21.0
2021 148.50 291.00 349.90 25.5 21.2
1
The amount shown for each year represents the standard Part B premium paid by, or on behalf of, most
Part B enrollees. It does not reflect other amounts that certain beneficiaries must pay, such as the income-
related monthly adjustment amount for beneficiaries with high incomes and the premium surcharge for
beneficiaries who enroll late. In addition, it does not reflect a reduction in premium for beneficiaries covered
by the hold-harmless provision. As a result of this provision, most Part B beneficiaries had their 2010 and
2011 monthly premium held to the 2009 rate of $96.40, had their 2016 monthly premium held to the 2015
rate of $104.90, and had the increase in their 2017 monthly premium limited to about $4.00, on average.
Section V.E describes these amounts in more detail.
Figure III.C1 is a graph of the monthly per capita financing rates in all
financing periods after 1983 for enrollees aged 65 and over and for
disabled individuals under age 65. The graph shows the portion of the
financing contributed by the beneficiaries and by general revenues. As
indicated, general revenue financing is the largest income source for
Part B.
84
Part B Financial Status
Figure III.C1.—Part B Aged and Disabled Monthly Per Capita Trust Fund Income
$600
Beneficiary premium
Aged general revenue contribution
$500 Disabled general revenue contribution
$400
$300
$200
$100
$0
1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Financing period
Note: The amounts shown do not include the catastrophic coverage monthly premium rate for 1989.
In calendar year 2020, contributions received from the general fund of
the Treasury amounted to $336.0 billion, which accounted for
74.3 percent of total revenue. In accordance with the Consolidated
Appropriations Act, 2021 and Other Extensions Act, $37.8 billion of the
general revenue represents a transfer from the general fund of the
Treasury to Part B for the outstanding balance of the Accelerated and
Advance Payments (AAP) Program. The balance of the general revenue
consisted almost entirely of premium matching contributions. The
Bipartisan Budget Act of 2015 and the Consolidated Appropriations
Act, 2021 and Other Extensions Act require that payments be made
from the Part B account of the SMI trust fund to the general fund of
the Treasury, and these amounts totaled $2.0 billion in 2020. Transfers
amounting to $6.3 billion were made from the Part B account to the
general fund of the Treasury in order to adjust for certain transfers
made for exempted amounts.46 The annual fees assessed on
manufacturers and importers of brand-name prescription drugs
amounted to $2.8 billion in revenue.
Another source of Part B revenue is interest received on investments
held by the Part B account. A description of the investment procedures
of the Part B account appears later in this section. In calendar year
See footnote 1 of table III.C1.
46
85
Actuarial Analysis
2020, $1.8 billion of revenue was from interest on the investments of
the account.
b. Expenditures
The account pays expenditures for Part B benefit payments and
administrative expenses. All expenses incurred by the Department of
Health and Human Services, the Social Security Administration, and
the Department of the Treasury in administering Part B are charged
to the account. Such administrative duties include payment of benefits,
fraud and abuse control activities, and experiments and demonstration
projects designed to determine various methods of increasing efficiency
and economy in providing health care services while maintaining the
quality of these services.
In addition, Congress has authorized expenditures from the trust
funds for construction, rental and lease, or purchase contracts of office
buildings and related facilities for use in connection with the
administration of Part B. The account expenditures include such costs.
The net worth of facilities and other fixed capital assets, however, does
not appear in the statement of Part B assets presented in this report,
since the value of fixed capital assets does not represent funds
available for benefit or administrative expenditures and is not,
therefore, pertinent in assessing the actuarial status of the funds.
Of total Part B expenditures, $414.1 billion represented net benefits
paid from the account for health services.47 Included in the 2020 net
benefits were $37.0 billion in payments made through the AAP
program net of amounts repaid. Net benefits increased 13.2 percent
over the corresponding amount of $365.7 billion paid during the
preceding calendar year. This spending growth reflects the AAP
program payments and the net change in both the number of
beneficiaries and the price, volume, and intensity of services.
Additional information on Part B benefits by type of service is available
in section IV.B1.
The remaining $4.5 billion of expenditures was for administrative
expenses and represented 1.1 percent of total Part B expenditures in
2020. Administrative expenses are shown on a net basis, after
adjustments to the preliminary allocation of such costs among the
47Net benefits equal the total gross amounts initially paid from the trust fund during the
year less recoveries of overpayments identified through fraud and abuse control
activities.
86
Part B Financial Status
Social Security and Medicare trust funds and the general fund of the
Treasury.
c. Actual experience versus prior estimates
Table III.C3 compares the actual experience in calendar year
2020 with the estimates presented in the 2019 and 2020 annual
reports. A number of factors can contribute to differences between
estimates and subsequent actual experience. In particular, actual
values for key economic and other variables can differ from assumed
levels, and lawmakers may adopt legislative and regulatory changes
after a report’s preparation. Table III.C3 indicates that actual Part B
benefit payments were somewhat higher than the estimate in the 2020
and 2019 reports, as the AAP program payments more than offset the
lower-than-expected claims during the pandemic. Actual premiums
were slightly lower than the 2020 report estimates and very close to
the 2019 report estimates. Government contributions were greater
than estimated in 2020 and 2019 mostly as a result of the AAP program
transfer.
Table III.C3.—Comparison of Actual and Estimated Operations of the Part B Account
in the SMI Trust Fund, Calendar Year 2020
[Dollar amounts in millions]
Comparison of actual experience with estimates for
calendar year 2020 published in:
2020 report 2019 report
Actual as a Actual as a
Actual Estimated percentage Estimated percentage
1 1
Item amount amount of estimate amount of estimate
Premiums from enrollees $111,200 $114,461 97% $111,702 100%
Government contributions 335,9662 300,725 112 301,325 111
3 4
Benefit payments 414,092 400,191 103 392,362 106
1
Under the intermediate assumptions.
2
See footnote 2 of table III.C1.
3
Benefit payments include (i) additional premiums for Medicare Advantage plans that are deducted from
beneficiaries’ Social Security benefits and (ii) costs of Quality Improvement Organizations.
4
See footnote 4 of table III.C1.
d. Assets
The Department of the Treasury invests the portion of the Part B
account not needed to meet current expenditures for benefits and
administration in interest-bearing obligations of the U.S. Government.
The Social Security Act authorizes the issuance of special public-debt
obligations for purchase exclusively by the account. The law requires
that these special public-debt obligations shall bear interest at a rate
based on the average market yield (computed on the basis of market
quotations as of the end of the calendar month immediately preceding
the date of such issue) for all marketable interest-bearing obligations
87
Actuarial Analysis
of the United States forming a part of the public debt that are not due
or callable until after 4 years from the end of that month. Since the
inception of the SMI trust fund, the Department of the Treasury has
always invested the assets in special public-debt obligations.48
Table V.H10, presented in section V.H, shows the assets of the SMI
trust fund (Parts B and D) at the end of fiscal years 2019 and 2020.
2. 10-Year Actuarial Estimates (2021–2030)
Section III.C2 provides detailed information concerning the short-
range financial status of the Part B account, including projected
annual income, outgo, differences between income and outgo, and trust
fund balances. The projected future operations of the Part B account
are based on the Trustees’ economic and demographic assumptions, as
detailed in the OASDI Trustees Report, as well as other assumptions
unique to Part B. Section IV.B1 presents an explanation of the effects
of these assumptions on the estimates in this report. The Trustees also
assume that financing for future periods will be determined according
to the statutory provisions described in section III.C1a, although
Part B financing rates have been set only through December 31, 2021.
In order to accommodate the financial uncertainty due to the COVID-
19 pandemic, the 2021 Part B premium and associated general revenue
financing needed to be increased. The Consolidated Appropriations
Act, 2021 and Other Extensions Act specified that the 2021 actuarial
rate for enrollees aged 65 and older be determined as the sum of the
2020 actuarial rate for enrollees aged 65 and older and one-fourth of
the difference between the 2020 actuarial rate and the preliminary
2021 actuarial rate (as determined by the Secretary of HHS) for such
enrollees. The Part B premium is equal to one-half of the aged
actuarial rate. This legislative change dampened the 2021 Part B
premium increase that would otherwise have occurred. The legislation
further specified that a transfer be made from the general fund of the
Treasury to Part B for the revenue lost by using the lower premium
(and that this transfer be treated as premium revenue for general
revenue matching purposes).
In 2021 the monthly Part B premium rate is $148.50, which is higher
than the 2020 monthly premium of $144.60. The estimated monthly
premium for 2022 is $158.50. This premium, paid by affected enrollees
and Medicaid and matched by general revenue transfers, would
maintain a contingency reserve at the level necessary to accommodate
48The Department of the Treasury may also make investments in obligations guaranteed
as to both principal and interest by the United States, including certain federally
sponsored agency obligations.
88
Part B Financial Status
typical financial variation, plus the possibility of legislative action that
would raise costs after the establishment of financing rates, plus the
financial variation due to the COVID-19 pandemic. Any impacts from
Medicare coverage of Aduhelm, the recently approved Alzheimer’s
disease drug, have not been considered in these projections.
For determining an individual’s monthly premium rate, there is a hold-
harmless provision in the law that limits the dollar increase in the
premium to the dollar increase in an individual’s Social Security
benefit. This provision applies to most beneficiaries who have their
premiums deducted from their Social Security benefits, or roughly
70 percent of Part B enrollees.49
In 2016, the cost-of-living adjustment (COLA) for Social Security
benefits was 0 percent, and premiums did not increase from the 2015
level for beneficiaries to whom the hold-harmless provision applies.
Without the Bipartisan Budget Act of 2015 (BBA 2015), Part B
premiums for other beneficiaries would have been raised substantially
to offset premiums forgone as a result of the hold-harmless provision.
However, BBA 2015 specified that the Part B premium for 2016 be
determined as if the hold-harmless provision did not apply and that a
transfer be made from the general fund of the Treasury to the Part B
account of the SMI trust fund in the amount of the estimated forgone
premiums (and that the transfer be treated as premiums for matching
purposes).
BBA 2015 further requires that, starting in 2016, the Part B premium
otherwise determined be increased by $3.00, which is to be collected
and repaid to the general fund of the Treasury.
Similarly, as noted previously, the Consolidated Appropriations Act,
2021 and Other Extensions Act specified that the 2021 actuarial rate
for enrollees aged 65 and older be determined as the sum of the 2020
actuarial rate for enrollees aged 65 and older and one-fourth of the
difference between the 2020 actuarial rate and the preliminary 2021
actuarial rate (as determined by the Secretary of HHS) for such
enrollees. The premium revenue lost by using the resulting lower
premium (excluding the forgone income-related premium revenue) was
replaced by a transfer of general revenue from the Treasury, which will
49About 30 percent of Part B enrollees are not eligible for the hold-harmless provision.
This group consists of new enrollees during the year, enrollees who do not receive Social
Security benefit checks, enrollees with high incomes who are subject to the income-
related premium adjustment, and dual Medicare-Medicaid beneficiaries (whose
premiums are paid by State Medicaid programs).
89
Actuarial Analysis
be repaid over time by increasing the balance due and continuing the
additional repayment premium amounts.
The additional repayment premium amounts will continue until the
balance due (defined in BBA 2015 and the Continuing Appropriations
Act, 2021 and Other Extensions Act as the sum of the two transfers to
the Part B account from the general fund plus forgone income-related
premiums) has been repaid.50 The 2021 premium of $148.50 includes
$3.00 for this purpose.
The initial balance due, which includes the amount transferred to the
Part B account in 2016 and the estimated forgone income-related
premiums, was $9.1 billion. The balance due on January 1, 2020 was
$3.7 billion. In 2021, the balance due was increased by $8.8 billion,
which consists of the amount transferred to the Part B account in 2021
plus the estimated forgone income-related premiums. The balance due
on January 1, 2021 was $10.3 billion. The Trustees estimate that the
full amount will be repaid by the end of December 2025.
The Medicare Access and CHIP Reauthorization Act of 2015 and the
Bipartisan Budget Act of 2018 specified physician payment updates for
every future year. The Consolidated Appropriations Act, 2021 and
Other Extensions Act specified that the 2021 physician payment
update be 3.75 percent and that future physician payments not take
into account the increase in 2021. The physician payment updates are
ï3.61 percent for 2022 and 0.0 percent for 2023 through 2025.
Additional payments of $500 million per year for physicians in the
merit-based incentive payment system and 5-percent annual bonuses
for qualified providers in advanced alternative payment models
(advanced APMs) are payable in 2019 through 2024. For 2026 and
later, there will be two payment rates: for qualified providers paid
through an advanced APM, payment rates will be increased by
0.75 percent each year, while payment rates for all other providers will
be increased each year by 0.25 percent.
Projected Part B expenditures are further affected by the sequestration
of Medicare expenditures required by current law. The sequestration
reduces benefit payments by 2 percent from April 1, 2013 through
April 30, 2020, by 2 percent from January 1, 2022 through
September 15, 2030, and by 4 percent from September 16, 2030
through the first half of March 2031. Due to sequestration, non-salary
administrative expenses are reduced by an estimated 5 to 7 percent
In the final repayment year, the additional amount may be less than $3.00 in order to
50
avoid overpayments.
90
Part B Financial Status
from March 1, 2013 through September 30, 2030, excluding May 1,
2020 through December 31, 2021. (See section V.A for recent legislative
changes affecting the sequestration of Medicare expenditures.)
Table III.C4 shows the estimated operations of the Part B account
under the intermediate assumptions on a calendar-year basis through
2030.
Table III.C4.—Operations of the Part B Account in the SMI Trust Fund (Cash Basis)
during Calendar Years 1970–2030
[In billions]
Income Expenditures Account
Interest Adminis- Balance
Calendar Premium General and Benefit trative Net at end
year income revenue1 other2,3 Total 3,4
payments expenses Total change of year5
Historical data:
1970 $1.1 $1.1 $0.0 $2.2 $2.0 $0.2 $2.2 í$0.0 $0.2
1975 1.9 2.6 0.1 4.7 4.3 0.5 4.7 í0.1 1.4
1980 3.0 7.5 0.4 10.9 10.6 0.6 11.2 í0.4 4.5
1985 5.6 18.3 1.2 25.1 22.9 0.9 23.9 1.2 10.9
1990 11.3 33.0 1.6 45.9 42.5 1.5 44.0 1.9 15.5
1995 19.7 39.0 1.6 60.3 65.0 1.6 66.6 í6.3 13.1
2000 20.6 65.9 3.4 89.9 88.96 1.8 90.7 í0.8 44.0
2005 37.5 118.1 1.4 157.0 149.2 3.2 152.4 4.6 24.0
2010 52.07 153.57 3.3 208.8 209.7 3.2 212.9 í4.1 71.4
2011 57.5 170.2 5.9 233.6 221.7 3.6 225.3 8.3 79.7
2012 58.0 163.8 5.2 227.0 236.5 3.9 240.5 í13.5 66.2
2013 63.1 185.8 6.1 255.0 243.8 3.3 247.1 7.9 74.1
2014 65.6 188.5 5.7 259.8 261.9 4.0 265.9 í6.1 68.1
2015 69.47 203.97 5.7 279.0 275.8 3.1 279.0 0.1 68.2
2016 72.17 235.67 5.5 313.2 289.5 3.9 293.4 19.8 88.0
2017 81.5 217.3 6.8 305.6 308.6 5.08 313.7 í8.1 79.9
2018 93.3 253.2 7.1 353.7 333.0 4.2 337.2 16.5 96.3
2019 99.4 268.2 5.9 373.6 365.7 4.6 370.3 3.3 99.6
2020 111.27 336.07,9 5.1 452.3 414.110 4.5 418.6 33.7 133.3
Intermediate estimates:
2021 112.67 316.27 5.7 434.5 414.710 3.5 418.2 16.3 149.6
2022 126.9 307.1 6.3 440.2 448.910 3.6 452.4 í12.2 137.4
2023 140.8 365.2 6.3 512.3 503.0 3.8 506.8 5.4 142.8
2024 154.3 396.8 6.6 557.7 543.6 4.0 547.7 10.1 152.9
2025 166.1 431.1 7.3 604.5 589.1 4.2 593.3 11.2 164.0
7 7
2026 182.7 471.3 8.1 662.1 640.0 4.4 644.4 17.7 181.7
7 7
2027 195.0 498.5 9.1 702.6 692.0 4.6 696.6 6.0 187.6
2028 214.5 541.7 10.2 766.4 748.3 4.8 753.1 13.3 200.9
2029 232.9 583.1 11.3 827.3 809.6 5.1 814.6 12.6 213.5
2030 251.6 623.0 12.4 887.0 866.0 5.4 871.3 15.7 229.2
1
General fund matching payments, plus certain interest-adjustment items.
2
Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of
the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest
earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account.
3
See footnote 2 of table III.B4.
4
Includes costs of Peer Review Organizations from 1983 through 2001 and costs of Quality Improvement
Organizations beginning in 2002.
5
The financial status of Part B depends on both the assets and the liabilities of the trust fund (see
table III.C8).
6
Benefit payments less monies transferred from the HI trust fund for home health agency costs.
7
Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits
when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those
benefits normally due January 3, 2010 actually occurred on December 31, 2009, payment of benefits
normally due January 3, 2016 occurred on December 31, 2015, and payment of benefits normally due
January 3, 2021 occurred on December 31, 2020. Consequently, the Part B premiums withheld from
these benefits and the associated general revenue contributions were added to the Part B account on
91
Actuarial Analysis
December 31, 2009 (about $13.8 billion), December 31, 2015 (about $7.9 billion), and
December 31, 2020 (about $10.0 billion), respectively. Similarly, the payment date for those benefits
normally due on January 3, 2027 will be December 31, 2026. Accordingly an estimated $6.2 billion will be
added to the Part B account on December 31, 2026.
8
Reflects a larger-than-usual upward adjustment of $1.7 billion for prior-year allocations among Part A,
Part B, and Part D.
9
Includes a transfer of $37.8 billion from the general fund of the Treasury to Part B, which occurred in
November of 2020 for the outstanding balance of the Medicare Accelerated and Advance Payments (AAP)
Program, as required by the Continuing Appropriations Act, 2021 and Other Extensions Act. All future
recoveries from providers will be transferred to the general fund of the Treasury.
10
Includes net payments of $37.0 billion made through the AAP program in calendar year 2020 and
subsequent repayments of $19.0 billion and $18.0 billion in calendar years 2021 and 2022, respectively.
Note: Totals do not necessarily equal the sums of rounded components.
As shown in table III.C4, the Part B account would increase by the end
of 2021 to an estimated $149.6 billion. The financing for 2021 was set
to accommodate the financial uncertainty from the COVID-19
pandemic and to maintain Part B assets at a fully sufficient level.
The statutory provisions governing Part B financing have changed
over time. Under current law, the standard Part B premium is set at
the level of about 25 percent of average expenditures for beneficiaries
aged 65 and over. The Bipartisan Budget Act of 2015 and the
Consolidated Appropriations Act, 2021 and Other Extensions Act
specify that the Part B premium otherwise estimated be increased by
$3.00, starting with 2016, until the balance due (which is the sum of
the general revenue amounts transferred in 2016 and 2021 plus the
forgone income-related premium income) is repaid. In addition, Part B
beneficiaries with high incomes pay a higher income-related premium.
Figure III.C2 shows historical and projected ratios of premium income
to Part B expenditures.
92
Part B Financial Status
Figure III.C2.—Premium Income as a Percentage of Part B Expenditures
60%
Historical Estimated
50%
40%
30%
20%
10%
0%
1970 1980 1990 2000 2010 2020 2030
Calendar year
Beneficiary premiums are also affected by fees on the manufacturers
and importers of brand-name prescription drugs that are allocated to
the Part B account of the SMI trust fund. Because of these fees there
is a reduction in the premium margin such that total revenues from
premiums, matching general revenues, and the earmarked fees
relating to brand-name prescription drugs will equal the appropriate
level needed for program financing.
The amount and rate of growth of benefit payments have caused
concern for many years. Table III.C5 shows payment amounts in the
aggregate, on a per capita basis, and relative to the Gross Domestic
Product (GDP). Rates of growth appear historically and for the next
10 years based on the intermediate assumptions.
Aggregate Part B benefit growth has averaged 8.54 percent annually
over the past 5 years. During 2020, Part B benefits, including the
effects of the accelerated and advance payments, grew 13.2 percent on
an aggregate basis and constituted 1.98 percent of GDP.
The Part B expenditures are affected by the sequestration of Medicare
benefits required under current law. Projected Part B costs continue to
increase faster than GDP, as indicated in table III.C5.
93
Actuarial Analysis
Table III.C5.—Growth in Part B Benefits (Cash Basis) through December 31, 2030
Aggregate benefits Percent Per capita Percent Part B benefits as a
Calendar year [billions] change benefits change percentage of GDP
Historical data:
1970 $2.0 5.9% $101 3.5% 0.18%
1975 4.3 28.8 180 24.6 0.25
1980 10.6 22.1 390 19.3 0.37
1985 22.9 16.7 768 14.5 0.53
1990 42.5 10.9 1,304 9.1 0.71
1995 65.0 10.8 1,823 9.2 0.85
2000 90.61 11.4 2,425 10.5 0.88
2005 147.1 9.1 3,699 7.3 1.13
2010 209.7 3.6 4,779 1.3 1.40
2011 221.7 5.7 4,936 3.3 1.43
2012 236.5 6.7 5,089 3.1 1.46
2013 243.8 3.1 5,084 í0.1 1.45
2014 261.9 7.4 5,301 4.3 1.49
2015 275.8 5.3 5,434 2.5 1.51
2016 289.5 5.0 5,557 2.3 1.54
2017 308.6 6.6 5,775 3.9 1.58
2018 333.0 7.9 6,091 5.5 1.62
2019 365.7 9.8 6,528 7.2 1.71
2020 414.12 13.2 7,227 10.7 1.98
Intermediate estimates:
2021 414.72 0.1 7,101 í1.7 1.85
2022 448.92 8.2 7,502 5.6 1.89
2023 503.0 12.1 8,193 9.2 2.03
2024 543.6 8.1 8,646 5.5 2.10
2025 589.1 8.4 9,149 5.8 2.18
2026 640.0 8.6 9,707 6.1 2.27
2027 692.0 8.1 10,269 5.8 2.36
2028 748.3 8.1 10,880 5.9 2.45
2029 809.6 8.2 11,550 6.2 2.54
2030 866.0 7.0 12,151 5.2 2.61
1
See footnote 6 of table III.C4.
2
See footnote 10 of table III.C4.
Note: Percentages are affected by economic cycles.
The Trustees have prepared the estimates shown throughout the
report using the intermediate set of assumptions. They have also
prepared estimates using two alternative sets of assumptions.
Table III.C6 summarizes the estimated operations of the Part B
account for all three alternatives. Section IV.B1 presents in
substantial detail the assumptions underlying the intermediate
estimates, as well as the assumptions used in preparing estimates
under the low-cost and high-cost alternatives.
94
Part B Financial Status
Table III.C6.—Estimated Operations of the Part B Account in the SMI Trust Fund
during Calendar Years 2020–2030, under Alternative Sets of Assumptions
[Dollar amounts in billions]
Premiums Expenditures as
Calendar from Other Total Balance in fund a percentage
year enrollees income1 Total income expenditures at end of year of GDP
Intermediate:
20202 $111.23 $341.13,4 $452.3 $418.65 $133.3 2.00%
2021 112.63 321.93 434.5 418.25 149.6 1.87
2022 126.9 313.3 440.2 452.45 137.4 1.91
2023 140.8 371.4 512.3 506.8 142.8 2.04
2024 154.3 403.4 557.7 547.7 152.9 2.11
2025 166.1 438.4 604.5 593.3 164.0 2.19
2026 182.73 479.43 662.1 644.4 181.7 2.29
2027 195.03 507.63 702.6 696.6 187.6 2.37
2028 214.5 551.9 766.4 753.1 200.9 2.46
2029 232.9 594.4 827.3 814.6 213.5 2.56
2030 251.6 635.4 887.0 871.3 229.2 2.63
Low-cost:
20202 111.23 341.13,4 452.3 418.65 133.3 2.00
2021 112.63 322.03 434.6 419.55 148.4 1.83
2022 126.9 313.5 440.4 452.85 135.9 1.83
2023 139.7 368.6 508.4 502.7 141.6 1.92
2024 152.0 397.7 549.7 540.5 150.8 1.95
2025 162.3 429.1 591.4 581.3 160.9 1.98
2026 177.13 465.73 642.9 626.9 176.9 2.03
2027 187.83 489.93 677.6 672.8 181.8 2.06
2028 204.8 528.6 733.4 722.0 193.2 2.10
2029 220.8 565.4 786.2 775.3 204.1 2.14
2030 237.0 600.3 837.2 823.0 218.3 2.15
High-cost:
20202 111.23 341.13,4 452.3 418.65 133.3 2.00
2021 112.63 321.93 434.5 412.25 155.6 1.91
5
2022 123.7 301.6 425.2 431.8 149.0 1.98
2023 135.8 358.5 494.4 490.0 153.4 2.17
2024 149.4 391.6 541.0 536.4 158.1 2.29
2025 164.0 433.1 597.1 587.9 167.3 2.42
2026 182.93 480.33 663.1 647.2 183.2 2.57
2027 199.33 518.03 717.3 709.4 191.2 2.72
2028 221.5 569.1 790.6 775.8 205.9 2.88
2029 242.4 617.3 859.7 845.8 219.8 3.05
2030 264.0 665.2 929.2 911.3 237.7 3.20
1
Other income contains government contributions, fees on manufacturers and importers of brand-name
prescription drugs, and interest.
2
Figures for 2020 represent actual experience.
3
See footnote 7 of table III.C4.
4
See footnote 9 of table III.C4.
5
See footnote 10 of table III.C4.
Notes: 1. Totals do not necessarily equal the sums of rounded components.
2. Percentages are affected by economic cycles.
Because of the price assumptions for these alternative scenarios, the
expenditures presented in these scenarios represent a narrow range of
outcomes, and actual experience could easily fall outside of this range.
For the low-cost scenario, the Trustees assume higher price inflation,
which leads to higher spending. Similarly, under the high-cost
scenario, the Trustees assume lower price inflation, which leads to
lower spending. These price inflation assumptions partially offset the
effects of the other assumptions in the high-cost and low-cost scenarios,
resulting in a narrow range of expenditures. Given the considerable
95
Actuarial Analysis
variation in the factors affecting health care spending, actual Part B
experience could easily fall outside of this range. Because the GDP
assumptions in these scenarios are similarly affected by the price
inflation assumptions, Part B expenditures as a percent of GDP
provide better insight into the variability of spending than the nominal
dollar amounts, as shown in table III.C6.
The alternative projections shown in table III.C6 illustrate two
important aspects of the financial operations of the Part B account:
• Despite the differing assumptions underlying the three
alternatives, the balance between Part B income and expenditures
remains relatively stable. This result occurs because the Secretary
of HHS annually reestablishes the premiums and general revenue
contributions underlying Part B financing to cover each year’s
anticipated incurred benefit costs and other expenditures and then
increases these amounts by a margin that reflects the uncertainty
of the projection. Thus, Part B income automatically tracks Part B
expenditures fairly closely, regardless of the specific economic and
other conditions.
• As a result of the close matching of income and expenditures
described above, projected account assets show similar, stable
patterns of change under all three sets of assumptions.
Adequacy of Part B Financing Established for Calendar Year 2021
The traditional concept of financial adequacy, as it applies to Part B,
is closely related to the concept as it applies to many private group
insurance plans. Part B is somewhat similar to private yearly
renewable term insurance, with financing established each year based
on estimated costs for the year. For Part B, premium income paid by
the enrollees and general revenues contributed by the Federal
Government provide financing. As with private plans, the income
during a 12-month period for which financing is being established
should be sufficient to cover the costs of services expected to be
rendered during that period (including associated administrative
costs), even though payment for some of these services will not occur
until after the period closes. The portion of income required to cover
those benefits not paid until after the end of the year is added to the
account; thus assets in the account at any time should not be less than
the costs of the benefits and the administrative expenses incurred but
not yet paid.
96
Part B Financial Status
Since the Secretary of HHS establishes the income per enrollee
(premium plus government contribution) prospectively each year, it is
subject to projection error. Additionally, legislation enacted after the
financing has been established, but effective for the period for which
financing has been set, may affect costs. Account assets, therefore,
need to be maintained at a level that is adequate to cover not only the
value of incurred-but-unpaid expenses but also a reasonable degree of
variation between actual and projected costs (in case actual costs
exceed projected).
The Trustees traditionally evaluate the actuarial status or financial
adequacy of the Part B account over the period for which the enrollee
premium rates and level of general revenue financing have been
established. The primary tests are that (i) the assets and income for
years for which financing has been established should be sufficient to
meet the projected benefits and associated administrative expenses
incurred for that period; and (ii) the assets should be sufficient to cover
projected liabilities for benefits that have not yet been paid as of the
end of the period. If Part B does not meet these adequacy tests, it can
still continue to operate if the account remains at a level adequate to
permit the payment of claims as presented. However, to protect against
the possibility that costs will be higher than assumed, assets should be
sufficient to include contingency levels that cover a reasonable degree
of variation between actual and projected costs.
As noted above, the tests of financial adequacy for Part B rely on the
incurred experience of the account, including a liability for the costs of
services performed in a particular year but not yet paid in that year.
Table III.C7 shows the estimated transactions of the account on an
incurred basis. Readers should view the incurred experience as an
estimate, even for historical years.51
51Part B experience is more difficult to determine on an incurred basis than on a cash
basis. For some services, reporting of payment occurs only on a cash basis, and it is
necessary to infer the incurred experience from the cash payment information. Moreover,
for recent time periods the tabulations of bills are incomplete due to normal processing
time lags.
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Actuarial Analysis
Table III.C7.—Estimated Part B Income and Expenditures (Incurred Basis)
for Financing Periods through December 31, 2021
[In millions]
Income Expenditures
Adminis- Net
Financing Premium General Interest Benefit trative operations
period income revenue and other Total payments expenses Total in year
Historical data:
12-month period ending June 30,
1970 $936 $936 $12 $1,884 $1,928 $213 $2,141 í$257
1975 1,887 2,396 105 4,388 3,957 438 4,395 í7
1980 2,823 6,627 421 9,871 9,840 645 10,485 í614
Calendar year
1985 5,613 18,243 1,248 25,104 22,750 986 23,736 1,368
1990 11,320 33,035 1,558 45,913 42,577 1,541 44,118 1,795
1995 19,717 45,743 1,739 67,199 64,923 1,607 66,531 668
2000 20,555 65,898 3,450 89,903 91,0591 1,770 92,828 í2,925
2005 37,535 118,091 1,365 156,992 151,430 3,185 154,615 2,376
2010 55,580 163,660 3,281 222,520 212,093 3,153 215,246 7,275
2011 57,514 170,224 5,867 233,605 223,525 3,609 227,134 6,471
2012 58,024 163,827 5,164 227,015 238,219 3,947 242,166 í15,150
2013 63,085 185,894 6,068 255,046 247,334 3,280 250,614 4,432
2014 65,644 188,398 5,706 259,747 265,992 3,954 269,945 í10,198
2015 67,515 197,931 5,727 271,172 280,190 3,145 283,335 í12,163
2016 73,986 241,582 5,496 321,064 292,354 3,909 296,263 24,801
2017 81,522 217,253 6,796 305,571 308,923 5,014 313,938 í8,366
2018 93,312 253,237 7,147 353,697 335,683 4,203 339,885 13,812
2019 99,413 268,241 5,919 373,573 366,032 4,628 370,660 2,913
2020 108,746 328,446 5,148 442,340 379,056 4,541 383,598 58,742
Intermediate estimates:
2021 115,062 323,768 5,658 444,488 438,793 3,543 442,336 2,152
1
See footnote 6 of table III.C4.
Estimates of the liability amounts for benefits incurred but unpaid as
of the end of each financing period, and of the administrative expenses
related to processing these benefits, appear in table III.C8. In some
years, account assets have not been as large as liabilities. Nonetheless,
the fund has remained positive, which has allowed payment of all
claims.
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Part B Financial Status
Table III.C8.—Summary of Estimated Part B Assets and Liabilities
as of the End of the Financing Period, for Periods through December 31, 2021
[Dollar amounts in millions]
General
revenue Benefits Administrative Excess of
Balance in due but Total incurred costs incurred assets over
1
trust fund unpaid assets but unpaid but unpaid Liabilities liabilities Ratio2
Historical data:
As of June 30,
1970 $57 $15 $72 $567 — $567 í$495 í0.21
1975 1,424 67 1,491 1,257 $14 1,271 — 0.04
1980 4,657 — 4,657 2,621 188 2,809 1,848 0.15
As of December 31,
1985 10,924 — 10,924 3,142 í38 3,104 7,820 0.28
1990 15,482 — 15,482 4,060 20 4,080 11,402 0.24
1995 13,130 6,8933 20,023 4,298 í214 4,084 15,939 0.23
2000 44,027 — 44,027 8,715 í285 8,430 35,597 0.35
2005 24,008 — 24,008 13,556 — 13,556 10,452 0.06
2010 71,435 — 71,435 18,394 — 18,394 53,041 0.23
2011 79,693 — 79,693 20,282 — 20,282 59,411 0.25
2012 66,226 — 66,226 23,567 — 23,567 42,659 0.19
2013 74,125 — 74,125 25,452 — 25,452 48,673 0.18
2014 68,074 — 68,074 29,460 — 29,460 38,614 0.14
2015 68,157 — 68,157 33,953 — 33,953 34,205 0.12
2016 87,964 — 87,964 36,858 — 36,858 51,106 0.16
2017 79,882 — 79,882 37,060 — 37,060 42,821 0.13
2018 96,343 — 96,343 39,710 — 39,710 56,633 0.15
2019 99,602 — 99,602 40,032 — 40,032 59,570 0.16
2020 133,283 — 133,283 42,000 — 42,000 91,283 0.21
Intermediate estimates:
2021 149,574 — 149,574 47,153 — 47,153 102,421 0.22
1
These amounts include only items incurred but not paid. They do not include the amounts that are to be
paid back to the general fund of the Treasury over time or the AAP amounts paid to providers that are to
be paid back to the trust fund over time.
2
Ratio of the excess of assets over liabilities to the following year’s total incurred expenditures.
3
This amount includes both the principal of $6,736 million and the accumulated interest through
December 31, 1995 for the shortfall in the fiscal year 1995 appropriation for government contributions.
Normally, this transfer would have occurred on December 31, 1995, and the trust fund balance would have
reflected it. However, due to absence of funding, there was a delay in the transfer of the principal and the
appropriate interest until March 1, 1996.
The amount of assets minus liabilities, compared with the estimated
incurred expenditures for the following calendar year, forms a relative
measure of the Part B account’s financial status. The last column in
table III.C8 shows such ratios for past years and the estimated ratio at
the end of 2021. Actuarial analysis has indicated that a ratio of roughly
15 to 20 percent is sufficient to protect against unforeseen
contingencies, such as unusually large increases in Part B
expenditures.
The Secretary of HHS established Part B financing through
December 31, 2021. Estimated income exceeds estimated incurred
expenditures in 2021, as shown in table III.C7. The excess of assets
over liabilities increases by an estimated $11.1 billion by the end of
December 2021, as indicated in table III.C8. This increase occurs
because the 2021 Part B financing was set to accommodate the
99
Actuarial Analysis
uncertainty associated with the COVID-19 pandemic and to maintain
the contingency reserve at a fully adequate level.
Since the financing rates are set prospectively, variations between
assumed cost increases and subsequent actual experience could affect
the actuarial status of the Part B account. To test the status of the
account under varying assumptions, the Trustees prepared a lower-
growth-range projection and an upper-growth-range projection by
varying the key assumptions for 2020 and 2021. These two alternative
sets of assumptions provide a range of financial outcomes within which
one might reasonably expect the actual experience of Part B to fall. The
Trustees determined the values for the lower- and upper-growth-range
assumptions from a statistical analysis of the historical variation in
the respective increase factors.
The methods underlying this sensitivity analysis are fundamentally
different from the methods underlying the low-cost and high-cost
projections discussed previously in this section. This sensitivity
analysis is based on stochastic modeling and is shown for the period for
which the financing has been established (through 2021 for this
report), whereas the low-cost and high-cost projections illustrate the
financial impact of slower or faster growth trends throughout the
entire short-range (10-year) projection period.
Table III.C9 indicates that, under the lower-growth-range scenario,
account assets would exceed liabilities at the end of December 2021 by
a margin equivalent to 28.1 percent of the following year’s incurred
expenditures. Under the upper-growth-range scenario, account assets
would still exceed liabilities, but by a margin of 17.2 percent of
incurred expenditures in 2021. Figure III.C3 shows the reserve ratio
for historical years and for 2021 under the three cost-growth scenarios.
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Part B Financial Status
Table III.C9.—Actuarial Status of the Part B Account in the SMI Trust Fund
under Three Cost Sensitivity Scenarios for Financing Periods
through December 31, 2021
As of December 31, 2019 2020 2021
Intermediate scenario:
Actuarial status (in millions)
Assets $99,602 $133,283 $149,574
Liabilities 40,032 42,000 47,153
Assets less liabilities 59,570 91,283 102,421
Ratio1 15.5% 20.6% 21.8%
Lower-range scenario:
Actuarial status (in millions)
Assets $99,602 $133,283 $164,673
Liabilities 40,032 41,108 45,434
Assets less liabilities 59,570 92,176 119,239
Ratio1 15.9% 22.1% 28.1%
Upper-range scenario:
Actuarial status (in millions)
Assets $96,343 $133,283 $137,335
Liabilities 40,032 42,919 48,556
Assets less liabilities 59,570 90,364 88,780
Ratio1 15.2% 19.4% 17.2%
1
Ratio of assets less liabilities at the end of the year to the total incurred expenditures during the following
year, expressed as a percent.
Figure III.C3.—Actuarial Status of the Part B Account in the SMI Trust Fund
through Calendar Year 2021
50%
Historical Estimated
45%
40%
35%
30% Lower growth
range
25%
20% Intermediate
15% Upper growth
range
10%
5%
0%
1975 1985 1995 2005 2015 2025
End of calendar year
Note: The Trustees measure the actuarial status of the Part B account in the SMI trust fund by the ratio of
(i) assets minus liabilities at the end of the year to (ii) the following year’s incurred expenditures.
Based on the test described above, the Trustees conclude that the
financing established for the Part B account for calendar year 2021 is
adequate to cover 2021 expected expenditures.
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Actuarial Analysis
3. Long-Range Estimates
Section III.C2 presented the expected operations of the Part B account
over the next 10 years. This section examines the long-range
expenditures of the account under the intermediate assumptions. Due
to its automatic financing provisions, the Trustees expect the Part B
account to be adequately financed into the indefinite future and so
have not conducted a long-range analysis using high-cost and low-cost
assumptions.
Table III.C10 shows the estimated Part B incurred expenditures under
the intermediate assumptions expressed as a percentage of GDP for
selected years over the calendar-year period 2020–2095.52 (The
intermediate assumptions are discussed in sections II.C and IV.D.)
Table III.C10.—Part B Expenditures (Incurred Basis) as a Percentage
of the Gross Domestic Product1
Calendar year Part B expenditures as a percentage of GDP
2020 1.83%
2021 1.98
2022 1.99
2023 2.05
2024 2.12
2025 2.20
2026 2.30
2027 2.38
2028 2.47
2029 2.57
2030 2.63
2035 3.07
2040 3.28
2045 3.33
2050 3.35
2055 3.40
2060 3.46
2065 3.52
2070 3.57
2075 3.61
2080 3.63
2085 3.62
2090 3.59
2095 3.57
1
Expenditures are the sum of benefit payments and administrative expenses.
Note: Percentages are affected by economic cycles.
Under the intermediate assumptions, incurred Part B expenditures as
a percentage of GDP increase from 1.83 percent in 2020 to 3.63 percent
in 2080 before declining to 3.57 percent in 2095. (Part B expenditures
These estimated incurred expenditures are for benefit payments and administrative
52
expenses combined, unlike the values in table III.C5, which express only benefit
payments on a cash basis as a percentage of GDP.
102
Part B Financial Status
instead increase to 4.64 percent in 2095 under the illustrative
alternative scenario.)
Figure III.C4 compares the year-by-year Part B expenditures as a
percentage of GDP for the 2021 report with the projections from the
2020 report. Both reports show a projected decline in the share of
Part B spending as a percentage of GDP due to legislated updates,
including those for physician payments. The expenditures as a
percentage of GDP in this year’s report are slightly higher than last
year’s estimates, with slightly lower GDP assumptions and slightly
faster projected spending growth for outpatient hospital services and
for physician-administered drugs contributing to the difference.
Figure III.C4.—Comparison of Part B Projections as a Percentage
of the Gross Domestic Product: Current versus Prior Year’s Reports
4.0%
Historical Estimated
3.5%
3.0%
2.5%
Current report
2.0%
Prior report
1.5%
1.0%
0.5%
0.0%
1967 1982 1997 2012 2027 2042 2057 2072 2087
Calendar year
Note: Percentages are affected by economic cycles.
103
Actuarial Analysis
D. PART D FINANCIAL STATUS
This section presents actual operations of the Part D account in the
SMI trust fund in 2020 and Part D projections for the next 75 years.
Section III.D1 discusses Part D financial results for 2020, and
sections III.D2 and III.D3 discuss the short-range Part D projections
and the long-range projections, respectively. The projections shown in
sections III.D2 and III.D3 assume no changes will occur in the
statutory provisions and regulations under which Part D currently
operates.
1. Financial Operations in Calendar Year 2020
The total assets of the account amounted to approximately $9.2 billion
on December 31, 2019. During calendar year 2020, total Part D
expenditures were approximately $105.0 billion. General revenue was
provided on an as-needed basis to cover the portion of expenditures
that Medicare subsidies support. Total Part D receipts were
$105.8 billion. As a result, total assets in the Part D account increased
to $10.0 billion as of December 31, 2020.
Table III.D1 presents a statement of the revenue and expenditures of
the Part D account of the SMI trust fund in calendar year 2020, and of
its assets at the beginning and end of the calendar year.
104
Part D Financial Status
Table III.D1—Statement of Operations of the Part D Account
in the SMI Trust Fund during Calendar Year 2020
[In thousands]
Total assets of the Part D account in the trust fund, beginning of period $9,174,419
Revenue:
Premiums from enrollees:
Premiums deducted from Social Security benefits ................. $5,407,345
Premiums paid directly to plans1............................................ 10,426,534
Total premiums .......................................................................... 15,833,879
Government contributions:
Prescription drug benefits ...................................................... 76,739,053
Prescription drug administrative expenses ............................ 975,411
Total government contributions .................................................. 77,714,463
Payments from States ................................................................ 11,563,609
Interest on investments .............................................................. 40,394
DOJ/OIG/MA settlements2.......................................................... 676,266
Total revenue ................................................................................. $105,828,611
Expenditures:
Part D benefit payments1 ........................................................... $104,564,683
Part D administrative expenses .................................................. 424,333
Total expenditures .......................................................................... $104,989,016
Net addition to the trust fund........................................................... 839,595
Total assets of the Part D account in the trust fund, end of period....... $10,014,014
1
Premiums paid directly to plans are not displayed on Treasury statement and are estimated. These
premiums have been added to the benefit payments reported on the Treasury statement to obtain an
estimate of total Part D benefits. Direct data on such benefit amounts are not yet available.
2
Reflects amounts transferred to the Part D account for settlements related to Department of Justice (DOJ)
civil and criminal court cases, Office of the Inspector General (OIG) civil monetary penalties, and Medicare
Advantage (MA) civil monetary penalties.
Note: Totals do not necessarily equal the sums of rounded components.
a. Revenues
The major sources of revenue for the Part D account are
(i) contributions of the Federal Government authorized to be
apportioned and transferred from the general fund of the Treasury;
(ii) premiums paid by eligible persons who voluntarily enroll; and
(iii) contributions from the States.
Of the total Part D revenue in 2020, $5.4 billion represented premium
amounts withheld from Social Security benefits or other Federal
benefit payments. Total premium payments, including those paid
directly to the Part D plans, amounted to an estimated $15.9 billion or
15.0 percent of total revenue.
In calendar year 2020, contributions received from the general fund of
the Treasury amounted to $77.7 billion, which accounted for
73.4 percent of total revenue. The payments from the States were
$11.6 billion.
Another source of Part D revenue is interest received on investments
held by the Part D account. Since this account holds a very low amount
105
Actuarial Analysis
of assets, and only for brief periods of time, the interest on the
investments of the account in calendar year 2020 was negligible.
Finally, law enforcement and other settlements amounting to
$676 million were attributable to the program and deposited into the
Part D account.
b. Expenditures
Part D expenditures include both the costs of prescription drug benefits
provided by Part D plans to enrollees and Medicare payments to retiree
drug subsidy (RDS) plans on behalf of beneficiaries who obtain their
primary drug coverage through such plans. Unlike Parts A and B of
Medicare, the Part D account in the SMI trust fund does not directly
support all Part D expenditures. In particular, enrollee premiums that
are paid directly to Part D plans, and thus do not flow through the
Part D account, finance a portion of these expenditures. However,
these premium amounts are included in the Part D account operations
(both income and expenditures) presented in this report. Total
expenditures are characterized as either benefits (representing the
gross cost of enrollees’ prescription drug coverage plus RDS amounts)
or Federal administrative expenses.
All expenses incurred by the Department of Health and Human
Services, the Social Security Administration, and the Department of
the Treasury in administering Part D are charged to the account.
These administrative duties include making payments to Part D plans,
fraud and abuse control activities, and experiments and demonstration
projects designed to improve the quality, efficiency, and economy of
health care services.
In addition, Congress has authorized expenditures from the trust
funds for construction, rental and lease, or purchase contracts of office
buildings and related facilities for use in connection with the
administration of Part D. The account expenditures include such costs.
However, the statement of Part D assets presented in this report does
not carry the net worth of facilities and other fixed capital assets,
because the value of fixed capital assets does not represent funds
available for benefit or administrative expenditures and is not,
therefore, pertinent in assessing the actuarial status of the funds.
Of the $105.0 billion in total Part D expenditures in 2020,
$104.6 billion represented benefits, as defined above, and the
remaining $0.4 billion reflected Federal administrative expenses. The
Medicare direct premium subsidy payments and enrollee premiums
implicitly cover administrative expenses incurred by Part D plans.
106
Part D Financial Status
c. Actual experience versus prior estimates
Table III.D2 compares the actual experience in calendar year
2020 with the estimates presented in the 2019 and 2020 annual
reports. A number of factors can contribute to differences between
estimates and subsequent actual experience. In particular, actual
values for key economic variables can differ from assumed levels,
lawmakers may adopt legislative and regulatory changes after a
report’s preparation, and new, high-impact drugs can enter the
market.
Compared to the 2020 report, the benefit payments for calendar year
2020 were lower than projected mainly because the actual coverage gap
discounts received in calendar year 2020 for the claims incurred in
calendar year 2019 were higher than projected and the net advanced
payments for calendar year 2020 were lower than projected. Premiums
from enrollees were slightly lower than projected primarily because
fewer beneficiaries paid the income-related premium amounts than
were expected to do so. Actual State transfers were lower than
projected last year due to legislation that temporarily increased the
Federal medical assistance percentage (FMAP) and suspended the
sequestration from May 1, 2020 to December 31, 2021. These actions
also contributed to the higher-than-projected government
contributions in calendar year 2020.
Compared to the 2019 report, the actual premiums, government
contributions, and benefit payments for 2020 were all significantly
lower than projected primarily for three reasons: (i) the 2019 actual
low-income cost-sharing subsidy was lower than previously projected,
which resulted in a smaller reconciliation payment to plans in 2020;
(ii) the 2020 bid amounts were lower than previously expected; and
(iii) there were faster enrollment shifts into lower-cost Medicare
Advantage Prescription Drug Plans (MA-PDs). The State transfers
were lower than projected mainly due to (i) the temporary FMAP
increase, as mentioned above, and (ii) the slower-than-projected per
capita rate increases due to the FMAP increases for some States.
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Actuarial Analysis
Table III.D2.—Comparison of Actual and Estimated Operations
of the Part D Account in the SMI Trust Fund, Calendar Year 2020
[Dollar amounts in millions]
Comparison of actual experience with estimates for
calendar year 2020 published in:
2020 report 2019 report
Actual as a Actual as a
Actual Estimated percentage Estimated percentage
Item amount amount1 of estimate amount1 of estimate
Premiums from enrollees $15,834 $16,096 98% $16,889 94%
State transfers 11,564 12,583 92 13,266 87
Government contributions 77,714 76,361 102 80,774 96
Benefit payments 104,565 106,256 98 109,850 95
1
Under the intermediate assumptions.
d. Assets
The Department of the Treasury invests the portion of the Part D
account not needed to meet current expenditures for benefits and
administration in interest-bearing obligations of the U.S. Government.
The Social Security Act authorizes the issuance of special public-debt
obligations for purchase exclusively by the account. The law requires
that these special public-debt obligations shall bear interest at a rate
based on the average market yield (computed on the basis of market
quotations as of the end of the calendar month immediately preceding
the date of such issue) for all marketable interest-bearing obligations
of the United States forming a part of the public debt that are not due
or callable until after 4 years from the end of that month. Since the
inception of the SMI trust fund, the Department of the Treasury has
always invested the assets in special public-debt obligations.53
Table V.H10, presented in section V.H, shows the assets of the SMI
trust fund (Parts B and D) at the end of fiscal years 2019 and 2020.
As explained in section III.D2, the flexible apportionment of general
revenues for Part D eliminates the need to maintain a contingency
reserve. As a result, Part D assets are very low and are held only briefly
in anticipation of immediate expenditures.
2. 10-Year Actuarial Estimates (2021–2030)
This section provides detailed information concerning the short-range
financial status of the Part D account, including projected annual
income, outgo, differences between income and outgo, and trust fund
balances. The projected future operations of the Part D account are
based on the Trustees’ economic and demographic assumptions, as
53The Department of the Treasury may also make investments in obligations guaranteed
for both principal and interest by the United States, including certain federally
sponsored agency obligations.
108
Part D Financial Status
detailed in the OASDI Trustees Report, as well as other assumptions
unique to Part D. Section IV.B2 presents an explanation of the effects
of the Trustees’ intermediate assumptions and other assumptions
unique to Part D on the estimates in this report.
Generally, the income to the Part D account includes the beneficiary
premiums described previously and transfers from the general fund of
the Treasury to cover each year’s incurred benefit costs and other
expenditures. The language that has been included in the Part D
appropriation provides, without further Congressional action,
resources for benefit payments under the Part D drug benefit program
on an as-needed basis. The transfers from the Treasury reflect the
direct premium subsidy payments, amounts of reinsurance payments,
RDS amounts, low-income subsidies, net risk-sharing payments,
administrative expenses, and advanced discount payments. This
income requirement is reduced by the State transfers for the full-
benefit dually eligible beneficiaries who were covered under Medicaid
prior to the implementation of Part D.
Until 2015, actual cash transfers from the Treasury were made on the
day the benefit payments to plans were due, typically the first business
day of a month, causing the Part D account balance at the end of a
month to include only a modest amount from the State transfers to the
account after the benefit payments were made. Then in 2015 a policy
was implemented to transfer amounts from the Treasury into the
account 5 business days before the benefit payments to the plans, and
therefore the Part D account now includes a more substantial balance
at the end of most months.
The beneficiary premiums and direct subsidy rate are calculated based
on the national average bid amounts and defined prior to each year’s
operations. The base beneficiary premium constitutes 25.5 percent of
the expected total plan costs for basic Part D coverage. The actual
premium a beneficiary pays is calculated as the difference between the
plan bid and the national average bid, which is then applied to the base
beneficiary premium. Beginning in 2011, beneficiaries with modified
adjusted gross incomes exceeding a specified threshold pay income-
related premiums in addition to the premiums charged by the plans in
which the individuals have enrolled. The extra premiums are credited
to the Part D trust fund account and reduce the financing amounts
from the general fund. Starting in 2011, the drug manufacturers
provide a 50-percent ingredient cost discount for brand-name drugs in
the coverage gap that reduces beneficiary out-of-pocket expenses.
Starting in 2019, the Bipartisan Budget Act of 2018 increases the
brand-name drug discount in the coverage gap to 70 percent, with a
109
Actuarial Analysis
corresponding decrease in plan benefits. Medicare Part D pays
advanced discount payments prospectively to the non-employer Part D
plans and will be reimbursed for these amounts once the plans receive
the discounts from the drug manufacturers.
Expenditures from the account include the premiums withheld from
beneficiaries’ Social Security benefits and transferred to the private
drug plans, the direct premium subsidy payments, reinsurance
payments, RDS amounts, low-income subsidy payments, net risk-
sharing payments, administrative expenses, and advanced discount
payments. As noted previously, the Trustees supplement these
expenditures to include the amount of enrollee premiums paid directly
to Part D plans, thereby providing an estimate of total Part D benefit
payments and other expenditures.
Part D expenditures on direct premium subsidy payments, RDS
amounts, advanced discount payments, and administrative expenses
are affected by the sequestration of Medicare expenditures required by
current law. The sequestration reduces benefit payments by 2 percent
from April 1, 2013 through April 30, 2020, by 2 percent again from
January 1, 2022 through September 15, 2030, and by 4 percent from
September 16, 2030 through the first half of March 2031. Reinsurance,
the low-income cost-sharing subsidy, and net risk-sharing payments
are not affected by sequestration. (See section V.A for recent legislative
changes affecting the sequestration of Medicare expenditures.)
Table III.D3 shows the estimated operations of the Part D account
under the intermediate assumptions on a calendar-year basis through
2030.
110
Part D Financial Status
Table III.D3.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis)
during Calendar Years 2004–2030
[In billions]
Income Expenditures Account
Transfers Interest Adminis- Balance
Calendar Premium General from and Benefit trative Net at end
year income1 revenue2 States3 other Total payments4 expense Total change of year5
Historical data:
2004 — $0.4 — — $0.4 $0.4 — $0.4 — —
2005 — 1.1 — — 1.1 1.1 — 1.1 — —
2006 $3.5 39.2 $5.5 $0.0 48.2 47.1 $0.3 47.4 $0.8 $0.8
2007 4.1 38.8 6.9 0.0 49.7 48.8 0.9 49.7 0.0 0.8
2008 5.0 37.3 7.1 0.0 49.4 49.0 0.3 49.3 0.1 0.9
2009 6.36 47.1 7.6 0.0 61.0 60.5 0.3 60.8 0.1 1.1
2010 6.56 51.1 4.0 0.0 61.7 61.7 0.4 62.1 í0.4 0.7
2011 7.7 52.6 7.1 0.0 67.4 66.7 0.4 67.1 0.3 1.0
2012 8.3 50.1 8.4 0.0 66.9 66.5 0.4 66.9 0.0 1.0
2013 9.9 51.0 8.8 0.0 69.7 69.3 0.4 69.7 í0.0 1.0
2014 11.4 58.1 8.7 0.0 78.2 77.7 0.4 78.1 0.1 1.1
2015 12.76 68.4 8.9 0.0 90.0 89.4 0.3 89.8 0.3 1.3
2016 13.86 82.4 10.0 0.0 106.2 99.5 0.5 99.9 6.3 7.6
2017 15.5 73.2 11.4 0.1 100.2 100.1 í0.17 100.0 0.2 7.8
2018 15.9 67.8 11.7 0.1 95.4 94.7 0.5 95.2 0.2 8.0
2019 15.7 70.2 12.3 0.5 98.7 97.1 0.5 97.5 1.2 9.2
2020 15.86 77.7 11.6 0.7 105.8 104.6 0.4 105.0 0.8 10.0
Intermediate estimates:
2021 17.16 80.5 11.3 0.5 109.4 110.5 0.6 111.1 í1.7 8.3
2022 17.9 87.9 14.0 0.6 120.3 118.9 0.6 119.5 0.9 9.2
2023 19.4 89.2 15.5 0.6 124.8 123.4 0.6 124.1 0.7 9.9
2024 21.0 95.6 16.7 0.7 134.1 132.7 0.7 133.4 0.7 10.7
2025 22.5 100.2 18.1 0.8 141.5 140.2 0.7 140.8 0.6 11.3
2026 24.46 106.8 19.3 0.9 151.4 149.9 0.7 150.6 0.8 12.1
2027 25.76 114.0 20.6 0.9 161.2 159.7 0.7 160.4 0.8 12.9
2028 27.8 120.4 22.0 1.0 171.2 169.7 0.8 170.4 0.8 13.7
2029 29.7 127.7 23.5 1.1 182.0 180.3 0.8 181.1 0.9 14.6
2030 31.7 134.9 25.1 1.2 192.9 191.2 0.8 192.0 0.9 15.5
1
Premiums include both amounts withheld from Social Security benefits or other Federal payments and
those paid directly to Part D plans.
2
Includes, net of transfers from States, all government transfers required to fund benefit payments,
administrative expenses, and State expenses for making low-income eligibility determinations.
3
Payments from States with respect to the Federal assumption of Medicaid responsibility for drug
expenditures for full-benefit dually eligible individuals.
4
Includes payments to Part D plans, payments to retiree drug subsidy plans, payments to States for making
low-income eligibility determinations, Part D drug premiums collected from beneficiaries, and transfers to
Medicare Advantage plans and private drug plans. Includes amounts for the Transitional Assistance
program of $0.4, $1.0, and $0.1 billion in 2004–2006, respectively.
5
See text concerning nature of general revenue appropriations process and implications for contingency
reserve assets.
6
Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits
when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those
benefits normally due January 3, 2010 actually occurred on December 31, 2009, payment of benefits
normally due January 3, 2016 occurred on December 31, 2015, and payment of benefits normally due
January 3, 2021 occurred on December 31, 2020. Consequently, the Part D premiums withheld from
these benefits were added to the Part D account on December 31, 2009 (about $0.2 billion),
December 31, 2015 (about $0.2 billion), and December 31, 2020 (about $0.1 billion), respectively.
Similarly, the expected payment date for those benefits normally due January 3, 2027 is December 31,
2026. Accordingly, an estimated $0.2 billion will be added to the Part D account on December 31, 2026.
7
Reflects a larger-than-usual downward adjustment of $0.3 billion for prior-year allocations among Part A,
Part B, and Part D.
Note: Totals do not necessarily equal the sums of rounded components.
Table III.D4 shows prescription drug payment amounts in the
aggregate, on a per capita basis, and relative to the Gross Domestic
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Actuarial Analysis
Product (GDP). The benefit amounts are shown on a cash basis and
reflect net reconciliation payments that are made to adjust for prior-
year differences between prospective payments made to plans and
actual prescription drug expenditures. These payments can cause a
volatile pattern of annual growth rates. For example, drug spending
exceeded plan bids in 2014 and 2015 due to increased spending on high-
cost hepatitis C drugs, resulting in significant reconciliation payments
made to plans in 2015 and 2016. For 2018, per capita benefits
decreased sharply as the Part D program received reconciliation
payments from the plans for their experience in 2017. The 2019 per
capita benefits were about the same as those in 2018 primarily because
the plan bids assumed higher direct and indirect remuneration (DIR)54
and slow reinsurance growth. The 2019 incurred reinsurance spending
was higher than in the plan bids, leading to significant reconciliation
payments to plans in 2020 and, in turn, to substantial increases in the
per capita benefits for 2020.
Table III.D4.—Growth in Part D Benefits (Cash Basis) through December 31, 2030
Aggregate benefits Percent Per capita Percent Part D benefits as a
Calendar year [billions] change benefits change percentage of GDP
Historical data:
2004 $0.4 — $362 — 0.00%
2005 1.1 — 596 — 0.01
2006 47.1 — 1,708 — 0.34
2007 48.8 3.7% 1,556 í8.9% 0.34
2008 49.0 0.4 1,504 í3.3 0.33
2009 60.5 23.4 1,798 19.6 0.42
2010 61.7 2.0 1,775 í1.3 0.41
2011 66.7 8.1 1,868 5.3 0.43
2012 66.5 í0.4 1,776 í5.0 0.41
2013 69.3 4.2 1,772 í0.2 0.41
2014 77.7 12.1 1,919 8.3 0.44
2015 89.4 15.1 2,140 11.5 0.49
2016 99.5 11.2 2,302 7.6 0.53
2017 100.1 0.7 2,251 í2.2 0.51
2018 94.7 í5.4 2,068 í8.1 0.46
2019 97.1 2.5 2,057 í0.5 0.45
2020 104.6 7.7 2,148 4.4 0.50
Intermediate estimates:
2021 110.5 5.6 2,213 3.0 0.49
2022 118.9 7.6 2,315 4.6 0.50
2023 123.4 3.8 2,335 0.9 0.50
2024 132.7 7.5 2,445 4.7 0.51
2025 140.2 5.6 2,517 3.0 0.52
2026 149.9 6.9 2,624 4.3 0.53
2027 159.7 6.5 2,735 4.2 0.54
2028 169.7 6.3 2,846 4.1 0.55
2029 180.3 6.3 2,968 4.3 0.57
2030 191.2 6.0 3,094 4.2 0.58
Note: Percentages are affected by economic cycles.
54DIR primarily consists of drug manufacturer rebates and pharmacy rebates that
Part D plans negotiate. Higher DIR results in lower benefit payments (and vice versa).
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Part D Financial Status
Part D benefit payments have experienced an erratic growth pattern
throughout the history of the program. Expenditures have been
increasing substantially, reflecting not only rapid growth in enrollment
but also multiple prescription drug cost and utilization trends that
have varying effects on underlying costs. For example, while drug costs
have been increasing more rapidly than other categories of medical
spending, there has been a substantial increase in the proportion of
prescriptions filled with low-cost generic drugs that has helped
constrain cost growth and, at the same time, a significant increase in
the cost of specialty drugs that has increased cost growth. Additionally,
DIR has dramatically increased as a percentage of gross drug
spending, a factor that has significantly slowed Part D spending
growth.
In the future, the average per capita drug benefit growth rate is
expected to exceed the rate of increase in other categories of medical
spending. The faster projected aggregate benefit growth rate reflects
two assumptions: that increases in the generic dispensing rate will
likely slow and that increases in specialty drug cost growth will likely
continue. Over the next 10 years, aggregate benefits are projected to
increase at 6.2 percent annually, on average, while the average per
capita rate of growth is projected to be 3.7 percent.
Legislation and policy changes also contribute to the volatility of the
annual growth rates. For example, the coverage gap gradually closed
from 2012 through 2020, a factor that increased plan benefits and
resulted in higher Part D expenditures and premiums. In addition, the
policy to pay advanced reinsurance amounts to the employer/union-
only group waiver plans, beginning in 2017, affects the timing of the
reinsurance payments, which were previously provided exclusively
through the reconciliation process.
The Trustees have also prepared estimates using two alternative sets
of assumptions. Table III.D5 summarizes the estimated operations of
the Part D account under the intermediate assumptions and under the
two alternative sets of assumptions. Section IV.B2 presents the
assumptions underlying the intermediate estimates in substantial
detail, and it outlines the assumptions used in preparing estimates
under the low-cost and high-cost alternatives.
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Actuarial Analysis
Table III.D5.—Estimated Operations of the Part D Account in the SMI Trust Fund
during Calendar Years 2020–2030, under Alternative Sets of Assumptions
[Dollar amounts in billions]
Premiums Balance in Expenditures as
Calendar from Other Total account at a percentage
year enrollees income1 Total income expenditures end of year of GDP
Intermediate:
20202 $15.83 $90.0 $105.8 $105.0 $10.0 0.50%
2021 17.13 92.3 109.4 111.1 8.3 0.50
2022 17.9 102.5 120.3 119.5 9.2 0.50
2023 19.4 105.3 124.8 124.1 9.9 0.50
2024 21.0 113.1 134.1 133.4 10.7 0.52
2025 22.5 119.0 141.5 140.8 11.3 0.52
2026 24.43 127.0 151.4 150.6 12.1 0.53
2027 25.73 135.5 161.2 160.4 12.9 0.55
2028 27.8 143.5 171.2 170.4 13.7 0.56
2029 29.7 152.3 182.0 181.1 14.6 0.57
2030 31.7 161.2 192.9 192.0 15.5 0.58
Low-cost:
20202 15.83 90.0 105.8 105.0 10.0 0.50
2021 17.13 88.0 105.1 106.8 8.3 0.47
2022 16.2 90.9 107.1 106.9 8.6 0.43
2023 17.2 94.6 111.9 111.5 9.0 0.43
2024 18.5 100.4 118.9 118.4 9.5 0.43
2025 19.6 103.7 123.3 122.9 9.9 0.42
2026 21.13 108.7 129.8 129.2 10.4 0.42
2027 22.13 114.0 136.0 135.5 11.0 0.42
2028 23.6 118.5 142.1 141.6 11.5 0.41
2029 25.1 123.6 148.7 148.1 12.0 0.41
2030 26.6 128.5 155.0 154.5 12.6 0.40
High-cost:
20202 15.83 90.0 105.8 105.0 10.0 0.50
2021 17.13 97.2 114.3 116.0 8.3 0.54
2022 18.8 110.2 129.0 127.8 9.5 0.59
2023 21.2 113.0 134.2 133.1 10.6 0.59
2024 23.3 123.6 147.0 145.9 11.6 0.62
2025 25.2 132.9 158.2 157.3 12.5 0.65
2026 27.73 145.7 173.4 172.2 13.7 0.68
2027 29.73 159.4 189.1 187.8 15.0 0.72
2028 32.5 172.7 205.2 203.9 16.2 0.76
2029 35.0 187.1 222.1 220.8 17.6 0.80
2030 37.8 201.9 239.7 238.3 19.0 0.84
1
Other income contains Federal and State government contributions and interest.
2
Figures for 2020 represent actual experience.
3
See footnote 6 of table III.D3.
Notes: 1. Totals do not necessarily equal the sums of rounded components.
2. Percentages are affected by economic cycles.
Because of the price assumptions for these alternative scenarios, the
expenditures presented in these scenarios represent a narrow range of
outcomes, and actual experience could easily fall outside of this range.
For the low-cost scenario, the Trustees assume higher price inflation,
which leads to higher spending. Similarly, under the high-cost
scenario, the Trustees assume lower price inflation, which leads to
lower spending. These price inflation assumptions partially offset the
effects of the other assumptions in the high-cost and low-cost scenarios,
resulting in a narrow range of expenditures. Given the considerable
variation in the factors affecting health care spending, actual Part D
experience could easily fall outside of this range. Because the GDP
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Part D Financial Status
assumptions in these scenarios are similarly affected by the price
inflation assumptions, Part D expenditures as a percent of GDP
provide better insight into the variability of spending than the nominal
dollar amounts, as shown in table III.D5.
The alternative projections shown in table III.D5 illustrate two
important aspects of the financial operations of the Part D account:
• Despite the differing assumptions underlying the three
alternatives, the balance between Part D income and expenditures
remains relatively stable. This result occurs because the premiums
and general revenue contributions underlying the Part D financing
are reestablished annually. Thus, Part D income automatically
tracks Part D expenditures fairly closely, regardless of the specific
economic and other conditions.
• As a result of the close matching of income and expenditures
described above, together with anticipated continuing flexibility in
the apportionment of general revenues, the need for a contingency
reserve to handle unanticipated fluctuations is minimal.
Adequacy of Part D Financing Established for Calendar Year 2021
As noted previously, the Part D account in the SMI trust fund will be
in financial balance indefinitely because the premiums paid by
enrollees and the amounts apportioned from the general fund of the
Treasury are determined each year so as to adequately finance Part D
expenditures. Moreover, the appropriation for Part D general revenues
has included an indefinite authority provision allowing for amounts to
be transferred to the Part D account on an as-needed basis. This
provision allows previously apportioned amounts to change without
additional Congressional action if those amounts are later determined
to be insufficient. Consequently, once an appropriation with this
provision has been made, no deficit will occur in the Part D account,
and no contingency fund will be necessary to cover deficits.55
As described in section III.C on the financial status of the Part B
account, it is important to maintain an appropriate level of assets to
cover the liability for claims that have been incurred but not yet
reported or paid. In the case of Part D, however, most such claims are
the responsibility of the prescription drug plans rather than the Part D
program. Accordingly, the Part D account is generally not at risk for
The indefinite authority applies to all Part D outlays other than Federal administrative
55
expenses. Those amounts are specifically appropriated each year.
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Actuarial Analysis
incurred-but-unreported claim amounts, and no asset reserve is
necessary for this purpose.
Another potential Part D liability exists to the extent that Part D
reinsurance payments and low-income cost-sharing subsidy payments
are based on plan estimates.56 Since actual Part D costs, as
subsequently determined, will generally differ from plan bids, payment
adjustments are made after the close of the year as needed to reconcile
the accounts. When plan bids have been below actual costs, Medicare
has made reconciliation payments to the plans from the following
year’s appropriated general revenues; thus, creation of a reserve for
payment of such settlement amounts is not required.
For these reasons, the Trustees have concluded that maintenance of
Part D account assets for contingency or liability purposes is
unnecessary at this time. Accordingly, evaluation of the adequacy of
Part D assets is also unnecessary, and the Part D account is considered
to be in satisfactory financial condition for 2021 and all future years as
a consequence of its basis for financing.
3. Long-Range Estimates
Section III.D2 presented the expected operations of the Part D account
over the next 10 years. This section describes the long-range
expenditures of the account under the intermediate assumptions. Due
to its automatic financing provisions, the Trustees expect adequate
financing of the Part D account into the indefinite future and so have
not conducted a long-range analysis using high-cost and low-cost
assumptions.
Table III.D6 shows the estimated Part D incurred expenditures under
the intermediate assumptions expressed as a percentage of GDP, for
selected years over the calendar-year period 2020–2095.57
These estimates are subject to actuarial review by the CMS Office of the Actuary.
56
These estimated incurred expenditures are for benefit payments and administrative
57
expenses combined, unlike the values in table III.D4, which express only benefit
payments on a cash basis as a percentage of GDP.
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Part D Financial Status
Table III.D6.—Part D Expenditures (Incurred Basis) as a Percentage
of the Gross Domestic Product1
Calendar year Part D expenditures as a percentage of GDP
2020 0.50%
2021 0.48
2022 0.49
2023 0.50
2024 0.51
2025 0.52
2026 0.53
2027 0.55
2028 0.56
2029 0.57
2030 0.58
2035 0.62
2040 0.64
2045 0.65
2050 0.67
2055 0.70
2060 0.73
2065 0.76
2070 0.79
2075 0.82
2080 0.84
2085 0.85
2090 0.86
2095 0.88
1
Expenditures are the sum of benefit payments and administrative expenses.
Note: Percentages are affected by economic cycles.
The Trustees assume that increases in Part D costs per enrollee during
the initial 25-year period will decline gradually to the growth rates
described in sections II.C and IV.D. Based on these assumptions and
projected demographic changes, incurred Part D expenditures as a
percentage of GDP would increase from 0.50 percent in 2020 to
0.88 percent in 2095.
Figure III.D1 compares the year-by-year Part D expenditures as a
percentage of GDP for the current annual report with the
corresponding projections from 2020. For all years beginning in 2022,
the Part D expenditure projections for the current report are lower
than last year’s projections primarily because of higher direct and
indirect remuneration (DIR) and the continuing enrollment shift from
Prescription Drug Plans (PDPs) to Medicare Advantage Prescription
Drug Plans (MA-PDs), which more than offset the higher gross drug
prices assumed in this year’s report.58
The average cost per enrollee in MA-PDs is lower than in PDPs.
58
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Actuarial Analysis
Figure III.D1.—Comparison of Part D Projections as a Percentage
of the Gross Domestic Product: Current versus Prior Year’s Reports
2.0%
Historical Estimated
1.5%
1.0%
Current report
0.5%
Prior report
0.0%
1997 2007 2017 2027 2037 2047 2057 2067 2077 2087
Calendar year
Note: Percentages are affected by economic cycles.
118
IV. ACTUARIAL METHODOLOGY AND PRINCIPAL
ASSUMPTIONS FOR COST ESTIMATES FOR THE HOSPITAL
INSURANCE AND SUPPLEMENTARY MEDICAL INSURANCE
TRUST FUNDS
This section describes the basic methodology and assumptions used in
the estimates for the HI and SMI trust funds under the intermediate
assumptions and presents projections of HI and SMI costs under two
alternative sets of assumptions.
The economic and demographic assumptions underlying the
projections of HI and SMI costs shown in this report are consistent with
those in the 2021 Annual Report of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and Federal Disability Insurance
Trust Funds. That report describes these assumptions in more detail.
A. HOSPITAL INSURANCE
1. Cost Projection Methodology
The principal steps involved in projecting future HI costs are
(i) establishing the present cost of services provided to beneficiaries, by
type of service, to serve as a projection base; (ii) projecting increases in
HI payments for inpatient hospital services; (iii) projecting increases
in HI payments for skilled nursing, home health, and hospice services
covered; (iv) projecting increases in payments to private health plans;
and (v) projecting increases in administrative costs.
a. Projection Base
To establish a suitable base from which to project future HI costs, the
incurred payments for services provided must be constructed for the
most recent period for which a reliable determination can be made.
Accordingly, payments to providers must be attributed to dates of
service, rather than to payment dates; in addition, the nonrecurring
effects of any changes in regulations, legislation, or administration,
and of any items affecting only the timing and flow of payments to
providers, must be eliminated. As a result, the rates of increase in the
HI incurred costs differ from the increases in cash expenditures shown
in the tables in section III.B.
For those expenses still reimbursed on a reasonable-cost basis, the
costs for covered services are determined on the basis of provider cost
reports. Due to the time required to obtain cost reports from providers,
to verify these reports, and to perform audits (where appropriate), final
settlements have lagged behind the original costs by as much as
119
Actuarial Methodology
several years for some providers. Additional complications arise from
legislative, regulatory, and administrative changes, the effects of
which cannot always be determined precisely.
The process of allocating the various types of HI payments made to the
proper incurred period—using incomplete data and estimates of the
impact of administrative actions—presents difficult problems, and the
solutions to these problems can be only approximate. Under the
circumstances, the best that one can expect is that the actual HI
incurred cost for a recent period can be estimated within a few percent.
This process increases the projection error directly by incorporating
any error in estimating the base year into all future years.
b. Fee-for-Service Payments for Inpatient Hospital Costs
Payment for almost all inpatient hospital services for fee-for-service
beneficiaries occurs under a prospective payment system. The law
stipulates that the annual increase in the payment rate for each
admission relate to a hospital input price index (also known as the
hospital market basket), which measures the increase in prices for
goods and services purchased by hospitals for use in providing care to
hospital inpatients. For fiscal year 2021, the prospective payment rates
have already been determined. For fiscal years 2022 and later, the
statute mandates that the annual increase in the payment rate per
admission equal the annual increase in the hospital input price index
(for those hospitals submitting required quality measure data), minus
a specified percentage. For this report, the Trustees assume that all
hospitals will submit these data.
Increases in aggregate payments for inpatient hospital care covered
under HI can be analyzed in five broad categories, presented in
table IV.A1:
(1) Hospital input price index—the increase in prices for goods
and services purchased by the hospital;
(2) Unit input intensity allowance—an amount added to or
subtracted from the input price index (generally called for in
legislation) to yield the prospective payment update factor;
(3) Volume of services—the increase in total output of units of
service (as measured by covered HI hospital admissions);
(4) Case mix—the financial effect of changes in the average
complexity of hospital admissions; and
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Hospital Insurance
(5) Other sources—a residual category reflecting all other
factors affecting hospital cost increases (such as enacted
legislative changes).
Table IV.A1 shows the estimated historical values of these principal
components, as well as the projected trends used in the estimates. The
sequestration impact in April 1, 2013 through the first half of March
2031, with the exception of May 1, 2020 through December 31, 2021
when it was suspended, is reflected in the table. Unless otherwise
indicated, the following discussions apply to projections under the
intermediate assumptions.
Table IV.A1.—Components of Historical and Projected Increases
in HI Inpatient Hospital Payments1
Volume of services
Input Unit input Managed HI inpatient
Calendar price intensity HI care shift Admission Other hospital
year index allowance2 enrollment effect incidence Case mix sources payments
Historical data:
2011 2.7% í0.5% 2.5% í1.1% í1.6% 0.0% í0.5% 1.5%
2012 2.9 í1.0 4.1 í1.8 í4.9 0.7 2.0 1.7
2013 2.6 í0.8 3.2 í2.2 í4.2 1.4 1.8 1.7
2014 2.6 í0.8 3.1 í2.5 í3.0 1.5 í0.7 0.1
2015 2.8 í0.7 2.7 í2.1 í0.8 0.5 í2.5 í0.2
2016 2.5 í0.8 2.7 í1.1 í1.9 3.1 í0.3 4.1
2017 2.7 í1.1 2.8 í2.2 í0.7 0.4 í0.9 0.9
2018 2.8 í1.4 2.3 í2.7 í2.0 1.8 0.4 1.0
2019 2.9 í1.3 2.5 í2.7 í2.7 1.0 1.2 0.8
2020 2.9 í0.3 1.7 í4.4 í13.8 3.8 6.3 í5.2
Intermediate estimates:
2021 2.4 í0.2 1.7 í5.1 8.6 2.9 í1.9 8.2
2022 2.5 í0.6 2.3 í3.2 6.2 í3.3 0.8 4.5
2023 2.7 í0.5 2.5 í1.2 í3.0 0.5 0.7 1.6
2024 3.1 í0.5 2.4 í1.2 í1.1 0.5 0.3 3.5
2025 3.2 í0.5 2.4 í1.1 í0.3 0.5 0.2 4.4
2026 3.2 í0.6 2.4 í1.0 í0.3 0.5 0.2 4.4
2027 3.2 í0.6 2.1 í1.0 í0.1 0.5 0.2 4.3
2028 3.2 í0.6 2.0 í1.0 í0.1 0.5 0.1 4.3
2029 3.3 í0.7 1.9 í0.9 0.0 0.5 0.2 4.3
2030 3.3 í0.9 1.6 í0.9 0.2 0.5 í0.4 3.4
1
Percent increase in year indicated over previous year, on an incurred basis.
2
Reflects the allowances provided for in the prospective payment update factors. Also reflects (i) the
downward adjustments to price updates based on the 10-year moving average of economy-wide
productivity growth in 2012 and later and (ii) additional decreases in updates ranging from 0.1 percentage
point to 0.75 percentage point from 2010 through 2019.
The input price index is a weighted average of the price proxies (prices
of specific inputs) used in delivery of HI inpatient services. In the first
2 years of the projection period, the methodology used to determine the
increases in the input price index is based on the methodology
underlying the regulatory updates. Thereafter, the methodology
utilizes least-squares regression models for each price proxy to project
this index. The process begins by regressing the historical time series
for each price proxy on one of three independent variables: average
hourly compensation, GDP deflator, and CPI. The regression results
121
Actuarial Methodology
are then applied to the projected independent variables to produce
projections for each detailed price proxy, which are weighted together
to produce the aggregate input price index.
The unit input intensity allowance is generally a downward
adjustment provided for by law in the prospective payment update
factor; that is, it is the amount subtracted from the input price index
to yield the update factor.59 Beginning in fiscal year 2004, the law
provides that increases in payments to prospective payment system
hospitals for covered admissions will equal the increase in the hospital
input price index for those hospitals that submit the required quality
measure data. For other hospitals, the increase will be slightly smaller.
For this report, the Trustees assume that all hospitals will submit
these data. Beginning in fiscal year 2010, the law mandates amounts
to be subtracted from the input price index, including the increase in
economy-wide productivity in 2012 and later, and amounts ranging
from 0.1 percentage point to 0.75 percentage point for 2011 through
2020. As a result of these adjustments, the unit input intensity
allowance, as indicated in table IV.A1, is negative throughout the first
10-year projection period.
Increases in payments for inpatient hospital services also reflect
growth in the number of inpatient hospital admissions covered under
HI fee-for-service. As shown in table IV.A1, increases in admissions are
attributable to growth in both HI enrollment and admission incidence
(admissions per beneficiary).60 A very large decrease in admissions
occurred in 2020 due to the pandemic, and a number of these
admissions are expected to return over the next few years. The
historical and projected growth in enrollment reflects a more rapid
increase in the population aged 65 and over than in the total population
of the United States, as well as trends in the number of disabled
beneficiaries and persons with end-stage renal disease. Growth in
enrollment is expected to continue and to mirror the ongoing
demographic shift into categories of the population eligible for HI
59The update factors are generally prescribed on a fiscal-year basis, while table IV.A1 is
on a calendar-year basis. Calculations have therefore been performed to estimate the
unit input intensity allowance on the basis of calendar years. The sum of the input price
index and the unit input intensity allowance generally reflects the prescribed prospective
payment update factor, but on a calendar-year, rather than a fiscal-year, basis.
60This factor has recently been negative and is projected to remain that way through
2028, reflecting the influx of beneficiaries aged 65 (and the resulting reduction in the
average age of beneficiaries) due to the retirement of the baby boom generation. By the
end of the projection period, the aging of this group is expected to increase the incidence
of admissions.
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Hospital Insurance
benefits and reduced by an increasing proportion of beneficiaries
enrolling in private health plans.
The choice of more beneficiaries to join private health plans has been
an offsetting factor to the HI enrollment growth, as shown in the
“Managed care shift effect” column of table IV.A1. In other words,
greater enrollment in private health plans reduced the number of
beneficiaries with fee-for-service Medicare coverage and thereby
reduced hospital admissions paid through fee-for-service. Private
Medicare health plan membership is projected to continue to grow for
most of the projection period.
Since the beginning of the prospective payment system (PPS),
inpatient hospital payments have varied based on the complexity of
admissions. These variations are primarily due to (i) the changes in
diagnosis-related group (DRG) coding as hospitals continue to adjust
to the PPS and (ii) the trend toward treating less complicated (and thus
less expensive) cases in outpatient settings, which results in an
increase in the average prospective payment per admission.
The average complexity of hospital admissions (case mix) is expected
to increase in fiscal year 2021, decrease in fiscal year 2022, and then
increase by 0.5 percent annually in fiscal years 2023 through 2030 as
a result of an assumed continuation of the current trend toward
treating less complicated cases in outpatient settings, ongoing changes
in DRG coding, and the overall impact of new technology. The early
years are affected by the COVID-19 pandemic.
Hospital payments are also affected by other factors, as reflected in the
“Other sources” column of table IV.A1. For example, statutory budget
neutrality adjustments offset costs from significant increases in case
mix that occurred when the new Medicare severity diagnosis-related
group (MS-DRG) system was introduced in 2008. Although the law
limited the size of these adjustments in 2008 and 2009, it allows
subsequent recovery of any extra payments that resulted. The “Other
sources” column reflects all of these actual and anticipated effects and
adjustments. In addition, one can attribute part of the increase from
“other sources” to the increase in payments for certain costs, not
included in the DRG payment, that are generally growing at a rate
slower than the input price index. These other costs include capital,
medical education (both direct and indirect), disproportionate share
hospital (DSH) payments, and payments to hospitals not included in
the PPS. A particularly important change affecting these costs is the
reduction in Medicare DSH payments. This change reflects the major
coverage expansions that began in 2014 and that continue to result in
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significantly fewer uninsured hospital patients. In 2019, however, the
elimination of the individual mandate increased the number of
uninsured, resulting in an increase in this factor. The “Other sources”
column also reflects the impact of the 20-percent add-on for COVID-19
admissions during the public health emergency.
Additional possible sources of changes in payments include (i) a shift
to higher-cost or lower-cost admissions due to changes in the
demographic characteristics of the covered population; (ii) changes in
medical practice patterns; and (iii) adjustments in the relative
payment levels for various DRGs, or addition/deletion of DRGs, in
response to changes in technology.
The “Other sources” column reflects, as appropriate, the impact of
certain enacted legislation, including the sequestration process. Also
reflected in this column is the impact of the estimated bonus payments
and penalties for hospitals due to the health information technology
incentives.
The increases in the input price index (less any intensity allowance
specified in the law), units of service, and other sources are
compounded to calculate the total increase in payments for inpatient
hospital services. The last column of table IV.A1 shows these overall
increases.
c. Fee-for-Service Payments for Skilled Nursing Facility,
Home Health Agency, and Hospice Services
To project fee-for-service payments for skilled nursing facilities (SNFs),
a method similar to that for inpatient hospitals is used. First, the
number of covered days is determined, and then the average
reimbursement per day is calculated. Historically, the number of days
of care covered in SNFs under HI has varied widely. This extremely
volatile experience has resulted, in part, from legislative and
regulatory changes and from judicial decisions affecting the scope of
coverage. During 2010 and 2011, the number of covered SNF days
leveled off. Since 2012, there have been significant decreases in
utilization as a negative underlying trend more than offset the positive
growth and aging of the population. The intermediate projections
assume that changes in covered SNF days will continue to reflect the
positive growth and aging of the population, but the underlying trend
will be 0 percent in 2021 and beyond. The impacts of the pandemic are
also incorporated in these projections, including the waiver of the 3-day
prior-stay requirement during the public health emergency.
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The methodology used to develop the market basket increases for SNFs
is consistent with the methodology used to develop the hospital market
basket increases. These market basket increases are reduced by the
increase in economy-wide productivity beginning in 2012. Cost per day
also increases by a case mix increase. The implementation of a new
RUG system caused a very large increase in case mix in 2011, and a
reduction of about 12.6 percent was applied in 2012 to match payments
from the prior system. Subsequently, case mix increases dropped from
2.0 percent in 2013 to 1.1 percent in 2020. For the projection, the case
mix increases are assumed to gradually increase to a level of
1.5 percent annually by 2022. The required reduction in costs due to
sequestration is also reflected in the projected expenditures. These
assumed trends result in projected rates of increase in cost per day that
are assumed to decline to a level slightly higher than increases in
general earnings throughout the projection period.
Table IV.A2 shows the resulting increases in fee-for-service
expenditures for SNF and other types of services. The sequestration
impact is reflected in the table.
Table IV.A2.—Relationship between Increases in HI Expenditures
and Increases in Taxable Payroll1
Skilled Home HI admin- HI HI Growth
Calendar Inpatient nursing health Private Weighted istrative expendi- taxable rate
2 3
year hospital facility agency Hospice plans average costs tures payroll differential4
3
Historical data:
2011 1.5% 11.7% í5.0% 6.6% 6.6% 4.1% 7.0% 4.1% 4.1% 0.0%
2012 1.7 í9.5 í1.4 8.4 8.9 2.4 7.9 2.5 4.9 í2.2
2013 1.7 1.6 í0.0 í0.2 4.7 2.3 8.4 2.4 2.5 í0.1
2014 0.1 1.4 í1.1 í0.0 0.0 0.2 4.8 0.2 5.1 í4.7
2015 í0.2 1.9 4.3 5.2 8.0 2.7 20.8 3.1 5.0 í1.8
2016 4.1 í2.2 í1.0 6.1 7.2 4.3 í9.1 4.0 2.7 1.3
2017 0.9 í1.2 í0.5 6.5 10.6 3.9 4.2 3.9 4.6 í0.7
2018 1.0 í1.5 í0.5 7.3 9.3 3.8 4.4 3.8 4.9 í1.0
2019 0.8 í1.8 í2.1 6.5 15.3 5.8 3.0 5.7 4.6 1.0
2020 í5.2 4.6 í12.3 2.2 16.8 4.0 í18.2 3.6 1.6 2.0
Intermediate estimates:
2021 8.2 3.0 12.3 5.0 14.2 10.1 4.7 10.0 6.4 3.4
2022 4.5 í3.3 3.6 4.5 10.7 6.5 í2.7 6.4 5.6 0.7
2023 1.6 4.5 13.3 6.0 7.5 4.9 5.1 4.9 4.5 0.4
2024 3.5 4.8 6.3 6.7 7.3 5.5 4.7 5.5 4.2 1.3
2025 4.4 5.9 6.8 7.5 8.0 6.4 4.9 6.4 4.3 2.0
2026 4.4 6.0 6.9 7.8 7.8 6.3 5.0 6.3 4.1 2.1
2027 4.3 6.2 7.0 8.2 7.7 6.3 4.7 6.3 4.0 2.2
2028 4.3 6.2 7.0 8.6 7.6 6.3 4.8 6.3 4.0 2.2
2029 4.3 6.1 6.9 8.7 7.1 6.1 4.7 6.1 4.0 2.0
2030 3.4 5.2 5.8 8.7 6.2 5.3 5.9 5.3 3.9 1.3
1
Percent increase in year indicated over previous year.
2
Includes the declining share of costs drawn from HI for coverage of certain home health services
transferred from HI to SMI Part B.
3
Includes costs of Quality Improvement Organizations.
4
The ratio of the increase in HI costs to the increase in taxable payroll. This ratio is equivalent to the
percent increase in the ratio of HI expenditures to taxable payroll (the cost rate).
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A similar methodology is used to project home health agency (HHA)
payments. For most historical years, HI experience with HHA
payments had shown an upward trend, frequently with sharp
increases in the number of visits from year to year. There were large
decreases in utilization in 2011 and 2012 followed by a rebound in 2013
through 2015. There were decreases again for 2016 through 2019, and
then utilization dropped significantly in 2020 due to the pandemic.
Beginning in 2021 and throughout the rest of the short-range
projection period, utilization increases are assumed to be equal to the
growth and aging of the population plus 1 percent annually, plus an
additional factor to include the impact of COVID-19 (as utilization
rebounds from the very low levels that occurred during the pandemic).
Reimbursement per episode of care61 is assumed to increase at a
slightly higher rate than increases in general earnings, but
adjustments to reflect statutory limits on HHA reimbursement per
episode are included where appropriate. As with other services, a least-
squares regression model was used to develop market basket increases,
which are reduced by the increase in economy-wide productivity
beginning in 2015. Costs also increase by a case mix increase factor.
Case mix increases have been modest, decreasing in 2011 and 2012
before rebounding in 2013 through 2020. Beginning in 2021, case mix
increases are projected to grow at a rate of 1.5 percent annually. CMS
adjusted HHA payment levels from 2008 through 2013 to gradually
offset the financial effect of the unduly high mix of services in the first
and subsequent years. HHA payment rates were rebased starting in
2014, and an estimated 14-percent reduction in payments was phased
in over a 4-year period. Projected HHA costs reflect these regulatory
adjustments. Table IV.A2 shows the resulting increases in fee-for-
service expenditures for HHA services.
HI covers certain hospice care for terminally ill beneficiaries. Hospice
payments were originally very small relative to total HI benefit
payments, but they have grown rapidly in most years and now
substantially exceed the level of HI home health expenditures. This
growth rate is composed of two factors: (i) the price update, which is a
function of the hospital market basket with an adjustment for
economy-wide productivity, and (ii) a residual, which includes all other
factors. This residual grew at a rate of about 5 percent annually from
2008 through 2013, became negative in 2014, and rebounded in 2015
through 2019. For 2022 and the remainder of the short-range
projection period, it is expected to increase at the 2008–2013 rate.
61Under the HHA prospective payment system, Medicare payments are made for each
episode of care, rather than for each individual home health visit.
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Estimates for hospice benefit payment increases are based on
mandated daily payment rates and annual payment caps, and these
estimates assume a deceleration in the growth in the number of
covered days.
d. Private Health Plan Costs
HI payments to private health plans have generally increased
significantly from the time that such plans began to participate in the
Medicare program in the 1970s. Most of the growth in expenditures
has been attributable to the increasing numbers of beneficiaries who
have enrolled in these plans. Section IV.C of this report contains a
description of the private health plan assumptions and methodology.
e. Administrative Expenses
Historically, the cost of administering the HI trust fund has remained
relatively small in comparison with benefit amounts. The ratio of
administrative expenses to benefit payments has generally fallen
within the range of 1 to 3 percent. The short-range projection of
administrative cost is based on estimates of workloads and approved
budgets for Medicare Administrative Contractors and CMS. In
addition, due to the sequester, the administrative costs reflect an
estimated 5- to 7-percent reduction for the period April 1, 2013 through
September 30, 2030, with the exception of May 1, 2020 through
December 31, 2021 when it was suspended. In the long range,
administrative cost increases are based on assumed increases in
workloads, primarily due to growth and aging of the population, and
on assumed unit cost increases equal to the increases in average
annual covered wages.
2. Summary of Aggregate Reimbursement Amounts on an
Incurred Basis under the Intermediate Assumptions
Table IV.A3 shows aggregate historical and projected reimbursement
amounts by type of service on an incurred basis under the intermediate
assumptions. The sequestration impact is reflected in the table.
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Table IV.A3.—Aggregate Part A Reimbursement Amounts on an Incurred Basis
[In millions]
Skilled
Calendar Inpatient nursing Home health Private
year hospital facility agency Hospice Total FFS health plans Total Part A
Historical data:
2011 $135,274 $31,104 $6,916 $13,991 $187,285 $64,682 $251,967
2012 137,541 28,162 6,816 15,168 187,688 70,454 258,142
2013 139,791 28,603 6,813 15,131 190,337 73,738 264,076
2014 139,726 28,994 6,735 15,125 190,580 73,755 264,334
2015 139,420 29,556 7,027 15,918 191,922 79,626 271,548
2016 145,080 28,894 6,956 16,888 197,817 85,332 283,149
2017 146,324 28,542 6,918 17,978 199,762 94,339 294,101
2018 147,697 28,100 6,882 19,291 201,971 103,083 305,053
2019 149,368 27,593 6,741 20,546 204,249 118,877 323,126
2020 140,192 28,859 5,913 20,988 195,952 138,872 334,825
Intermediate estimates:
2021 151,650 29,720 6,642 22,044 210,056 158,526 368,582
2022 158,421 28,746 6,882 23,035 217,084 175,517 392,601
2023 160,920 30,049 7,795 24,407 223,170 188,646 411,817
2024 166,486 31,485 8,283 26,030 232,284 202,387 434,671
2025 173,793 33,343 8,848 27,978 243,962 218,523 462,485
2026 181,409 35,350 9,455 30,147 256,361 235,487 491,848
2027 189,232 37,529 10,113 32,633 269,508 253,608 523,116
2028 197,351 39,855 10,819 35,437 283,461 272,909 556,370
2029 205,754 42,275 11,560 38,522 298,111 292,376 590,488
2030 212,810 44,470 12,226 41,874 311,380 310,412 621,792
3. Financing Analysis Methodology
Because payroll taxes are the primary basis for financing the HI trust
fund, HI costs can be compared on a year-by-year basis with the
taxable payroll in order to analyze costs and evaluate the financing.
a. Taxable Payroll
Taxable payroll increases occur as a result of increases in both average
covered earnings and the number of covered workers. The taxable
payroll projection used in this report is based on the same economic
assumptions used in the 2021 Annual Report of the Board of Trustees
of the Federal Old-Age and Survivors Insurance and Federal Disability
Insurance Trust Funds (OASDI). Table IV.A2 shows the projected
increases in taxable payroll for this report, under the intermediate
assumptions.
b. Relationship between HI Costs and Taxable Payroll
The most meaningful measure of HI cost increases, with regard to the
financing of the system, is the relationship between cost increases and
taxable payroll increases. If costs increase more rapidly than taxable
payroll, either income rates must be increased or costs reduced (or
some combination thereof) to finance the system in the future.
Table IV.A4 shows the projected increases in HI costs relative to
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taxable payroll over the 10-year projection period. For the intermediate
assumption, these relative increases start at 3.4 percent per year in
2021, decrease to 0.4 percent in 2023, increase to 2.0 percent in 2029,
and decrease to 1.3 percent in 2030 due to the sequester reductions.
The result of these relative growth rates is a steady increase in the
year-by-year ratios of HI expenditures to taxable payroll, as shown in
table IV.A4. The sequestration impact is reflected in the table.
Table IV.A4.—Summary of HI Alternative Projections
Changes in the relationship between
expenditures and payroll1
Ratio of
Calendar HI Taxable expenditures HI effective Nominal interest
2,3
year expenditures payroll to payroll interest rate4 rate4
Intermediate estimates:
2021 10.0% 6.4% 3.4% 1.935% 1.531%
2022 6.4 5.6 0.7 2.170 1.823
2023 4.9 4.5 0.4 2.182 2.021
2024 5.5 4.2 1.3 2.304 2.396
2025 6.4 4.3 2.0 2.456 3.010
2026 6.3 4.1 2.1 3.750 3.729
2027 6.3 4.0 2.2 4.375 4.365
2028 6.3 4.0 2.2 4.625 4.583
2029 6.1 4.0 2.0 4.625 4.625
2030 5.3 3.9 1.3 4.750 4.698
Low-cost:
2021 9.6 8.8 0.7 1.913 1.583
2022 5.9 7.8 í1.8 2.248 2.135
2023 2.7 5.5 í2.6 2.332 2.635
2024 4.9 5.8 í0.8 2.576 3.281
2025 5.7 5.6 0.1 2.905 4.063
2026 5.6 5.5 0.1 3.398 4.792
2027 5.6 5.4 0.2 3.966 5.448
2028 5.6 5.4 0.2 4.462 5.667
2029 5.4 5.4 0.0 4.895 5.750
2030 4.6 5.3 í0.7 5.247 5.802
High-cost:
2021 12.0 4.7 6.9 1.967 1.292
2022 4.3 í1.2 5.6 2.192 1.500
2023 4.9 3.7 1.2 2.363 1.917
2024 7.0 3.8 3.1 2.375 2.354
2025 7.8 3.7 4.0 3.000 3.000
2026 7.9 3.7 4.0 3.500 3.542
2027 7.8 3.6 4.1 3.625 3.625
2028 7.6 3.3 4.1 3.750 3.677
2029 7.0 2.8 4.1 3.625 3.625
2030 6.0 2.6 3.3 3.625 3.604
1
Percent increase for the year indicated over the previous year.
2
On an incurred basis.
3
Includes hospital, SNF, HHA, private health plan, and hospice expenditures; administrative costs; and
costs of Quality Improvement Organizations.
4
The Trustees calculate present values by discounting the future annual amounts of income and outgo
using the projected effective rates of interest credited to the HI trust fund for the first 10 years and grade
to the ultimate nominal interest rate assumption by year 15. The ultimate nominal interest rates for the
intermediate, low-cost, and high-cost projections are 4.7, 5.8, and 3.6 percent, respectively.
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4. Projections under Alternative Assumptions
Projected HI expenditures under current law are subject to
considerable uncertainty. To illustrate this uncertainty, HI costs have
been projected under three alternative sets of assumptions.
Under the low-cost alternative over the 10-year projection period,
increases in HI expenditures relative to increases in taxable payroll
follow a pattern similar to that for the intermediate assumption, but
at a somewhat lower rate; annually, the rate for expenditures in
relation to taxable payroll becomes 0.7 percent more by 2021, decreases
to 2.6 percent less by 2023, increases to 0.0 percent in 2029, and
decreases to 0.7 percent less in 2030 due to the sequester reductions.
Under the high-cost alternative, the ratio of expenditures to payroll
decreases from 6.9 percent in 2021 to 1.2 percent in 2023 and then
increases to 4.1 percent in 2029 before becoming 3.3 percent in 2030
due to the sequester reductions, as shown in table IV.A4.
Beyond the first 25-year projection period, HI costs under the
intermediate assumptions are based on the assumption that average
per beneficiary expenditures (excluding demographic impacts) will
increase at the baseline rates determined by the economic model
described in sections II.C and IV.D less the economy-wide productivity
adjustments. This rate is assumed to be about 0.1 percentage point
faster than the increase in the Gross Domestic Product (GDP) per
capita in 2045 but would decelerate to 0.3 percentage point slower than
GDP per capita by 2095. HI expenditures, which were 3.5 percent of
taxable payroll in 2020, increase to 4.9 percent by 2045 and remain at
roughly 4.8 percent until 2095 under the intermediate assumptions.
Accordingly, if all of the projection assumptions were realized over
time, the HI income rates (3.99 percent of taxable payroll summarized
over 75 years) would be inadequate to support the HI cost.
For the HI low-cost and high-cost projections, Medicare expenditures
are determined by changing the assumption for the ratio of aggregate
costs to taxable payroll (the cost rate). These changes are intended to
provide an indication of how Medicare expenditures could vary in the
future as a result of different economic, demographic, and health care
trends. During the first 25-year projection period, the low-cost and
high-cost alternatives contain assumptions that result in HI costs
increasing, relative to taxable payroll increases, approximately
2 percentage points less rapidly and 2 percentage points more rapidly,
respectively, than the results under the intermediate assumptions.
Costs beyond the first 25-year projection period assume that the
2-percentage-point differential gradually decreases until 2070, when
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HI cost increases relative to taxable payroll are approximately the
same as under the intermediate assumptions.
Assumptions regarding income to the HI trust fund—including payroll
taxes, income from the taxation of benefits, interest, and other income
items—and assumptions regarding administrative costs are consistent
with those underlying the OASDI report.
B. SUPPLEMENTARY MEDICAL INSURANCE
SMI consists of Part B and, since 2004, Part D. The benefits provided
by each part are quite different. The actuarial methodologies used to
produce the estimates for each part reflect these differences and thus
appear in separate sections (IV.B1 and IV.B2).
1. Part B
a. Cost Projection Methodology
Estimates under the intermediate assumptions are calculated
separately for each category of enrollee and for each type of service.
The estimates are prepared by establishing the allowed charges or
costs incurred per enrollee for a recent year (to serve as a projection
base) and then projecting these charges through the estimation period.
The per enrollee charges are then converted to reimbursement
amounts by subtracting the per enrollee values of the deductible and
coinsurance. Aggregate reimbursement amounts are calculated by
multiplying the per enrollee reimbursement amounts by the projected
enrollment. In order to estimate cash expenditures, an allowance is
made for the delay between receipt of, and payment for, the service.
(1) Projection Base
To establish a suitable base from which to project the future Part B
costs, the incurred payments for services provided must be constructed
for the most recent period for which a reliable determination can be
made. Accordingly, payments to providers must be attributed to dates
of service, rather than to payment dates; in addition, the nonrecurring
effects of any changes in regulations, legislation, or administration,
and of any items affecting only the timing and flow of payments to
providers, must be eliminated. As a result, the rates of increase in the
Part B incurred cost differ from the increases in cash expenditures. As
a check on the validity of the projection base, incurred reimbursement
amounts are compared with cash expenditures.
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(a) Practitioner Services
Private contractors acting for the Centers for Medicare & Medicaid
Services (CMS) pay reimbursement amounts for services billed by
practitioners, including physician services, durable medical equipment
(DME), laboratory tests performed in physician offices and
independent laboratories, and other services (such as physician-
administered drugs, free-standing ambulatory surgical center facility
services, ambulance services, and supplies). These Medicare
Administrative Contractors (MACs) use CMS guidelines to determine
whether Part B covers billed services, establish the allowed charges for
covered services, and transmit to CMS a record of the allowed charges,
the applicable deductible and coinsurance, and the amount reimbursed
after reduction for coinsurance and the deductible.
(b) Institutional Services
The same MACs also pay reimbursement amounts for institutional
services covered under Part B. These include outpatient hospital
services, home health agency services, laboratory services performed
in hospital outpatient departments, and such services as renal dialysis
performed in free-standing dialysis facilities, services in outpatient
rehabilitation facilities, and services in rural health clinics.
Separate payment systems exist for almost all the Part B institutional
services. For these systems, the MACs determine whether Part B
covers billed services, establish the allowed payment for covered
services, and send to CMS a record of the allowed payment, the
applicable deductible and coinsurance, and the amount reimbursed
after reduction for coinsurance and the deductible.
For those services still reimbursed on a reasonable-cost basis, the costs
for covered services are determined on the basis of provider cost
reports. Reimbursement for these services occurs in two stages. First,
bills are submitted by providers to the MACs, and interim payments
are made on the basis of these bills. The second stage takes place at
the close of a provider’s accounting period, when a cost report is
submitted and lump-sum payments or recoveries are made to correct
for the difference between interim payments and final settlement
amounts for providing covered services (net of coinsurance and
deductible amounts). Tabulations of the bills are prepared by date of
service, and the lump-sum settlements, which are reported only on a
cash basis, are adjusted (using approximations) to allocate them to the
time of service.
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(c) Private Health Plan Services
Private health plans with contracts to provide Part B services to
Medicare beneficiaries are reimbursed directly by CMS on either a
reasonable-cost or capitation basis. Section IV.C of this report contains
a description of the assumptions and methodology used to estimate
payments to private plans.
(2) Projected Fee-for-Service Payments for Aged Enrollees and
Disabled Enrollees without End-Stage Renal Disease (ESRD)
Part B enrollees with ESRD have per enrollee costs that are
substantially higher and quite different in nature from those of most
other beneficiaries. Accordingly, the analysis in this section excludes
their Part B costs. Those costs, as well as costs associated with
beneficiaries enrolled in private health plans, are discussed later in
this section.
(a) Practitioner Services
i. Physician Services
Medicare payments for physician services are based on a fee schedule,
which reflects the relative level of resources required for each service.
The fee schedule amount is equal to the product of the procedure’s
relative value, a conversion factor, and a geographic adjustment factor.
Payments are based on the lower of the actual charge and the fee
schedule amount.
The physician fee schedule updates are specified by law for every
future year. Prior to enactment of the Consolidated Appropriations Act,
2021, the update for 2021 through 2025 was statutorily set at
0 percent. However, this legislation put a 3.75-percent update in place
for 2021 and further stipulated that the update for 2022 be determined
as if the 3.75-percent update had not occurred; therefore, the update
for 2022 will be ï3.61 percent. For 2023 through 2025, the updates
continue to be 0 percent. Starting in 2026, the annual update for
qualified physicians in advanced alternative payment models
(advanced APMs) will be 0.75 percent, and, for all other physicians, the
update each year will be 0.25 percent.
Per capita physician charges have also changed each year as a result
of a number of other factors besides fee increases, including more
physician visits and related services per enrollee, the demographic
changes of the Medicare population, greater use of specialists and more
expensive techniques, and certain administrative actions.
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Table IV.B1 shows increases in total allowed charges per fee-for-
service enrollee for the physician fee schedule and practitioner
services. The sequestration of Medicare benefits in April 1, 2013
through the first half of March 2031, with the exception of May 1, 2020
through December 31, 2021 when it was suspended, does not affect
allowed charges and therefore is not reflected in table IV.B1; rather,
that impact is included in table IV.B2.
Table IV.B1.—Increases in Total Allowed Charges
per Fee-for-Service Enrollee for Practitioner Services
[In percent]
Physician fee Physician-
Calendar year schedule DME Lab administered drugs Other
Aged:
2011 3.1% í3.7% í3.1% 8.1% 1.5%
2012 í0.4 0.7 6.6 2.0 5.9
2013 0.1 í10.3 0.4 7.2 í2.2
2014 1.0 í14.5 6.7 5.8 í0.1
2015 í0.7 5.7 í2.7 14.2 0.8
2016 í0.7 í7.5 í5.7 9.1 í0.4
2017 1.2 í5.6 3.9 6.7 4.3
2018 1.6 18.01 11.32,3 12.2 2.2
2019 4.14 7.5 4.5 11.2 2.5
2020 í11.3 2.3 7.4 4.2 í0.4
2021 22.2 4.5 7.4 15.1 8.0
2022 í0.3 0.7 í5.9 11.5 2.9
2023 1.5 4.6 7.1 8.3 3.7
2024 1.0 4.8 4.3 6.1 0.2
2025 1.2 5.1 5.0 8.0 4.1
2026 2.8 5.1 19.8 8.0 4.1
2027 2.9 4.9 5.1 8.1 4.3
2028 2.9 4.9 5.1 8.1 4.1
2029 2.9 5.0 12.8 8.1 4.1
2030 3.0 5.0 5.2 8.1 4.5
Disabled (excluding ESRD):
2011 3.2 í2.8 1.8 5.3 2.1
2012 0.7 1.0 24.3 2.4 2.1
2013 1.1 í9.5 10.1 0.7 1.3
2014 2.1 í11.3 12.6 6.7 1.7
2015 í0.6 6.0 5.6 8.4 4.8
2016 í0.7 í6.4 í23.0 10.4 0.0
2017 í0.8 0.6 í2.1 4.0 8.6
2018 1.8 16.11 6.32,3 10.4 4.3
2019 3.24 3.1 8.2 9.3 3.5
2020 í8.4 í0.7 í8.1 9.1 8.1
2021 25.1 4.6 8.0 18.2 11.3
2022 0.0 0.8 í6.2 11.9 3.4
2023 1.2 4.4 6.5 7.9 3.4
2024 1.4 5.2 4.7 6.5 0.6
2025 1.3 5.2 5.1 8.1 4.2
2026 2.7 5.0 19.7 7.9 3.9
2027 2.8 5.0 5.0 8.0 4.0
2028 2.6 4.9 4.8 7.8 3.8
2029 3.1 5.3 13.0 8.3 4.3
2030 2.9 5.1 5.0 8.1 4.0
1
Reflects a significant increase in the utilization of certain orthotic braces beginning in 2018. This allegedly
fraudulent utilization was stopped early in 2019.
2
Beginning in 2018, payments under the laboratory fee schedule no longer include an adjustment for
economy-wide productivity. Instead, payments reflect a survey of private sector lab payments and are
updated every 3 years.
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3
Reflects a significant increase in the utilization of genetic cancer testing services in 2018 and 2019. This
allegedly fraudulent utilization was stopped late in 2019.
4
For 2019–2024, qualified physicians in an advanced APM will receive an incentive payment amounting
to 5 percent of their Medicare payments for the year. For those same years, a total of $500 million is
available for additional payment adjustment under the merit-based incentive payment system (MIPS) for
certain high-performing physicians.
Based on the increases in table IV.B1, and incorporating the
sequestration of Medicare expenditures, table IV.B2 shows the
estimates of the average incurred reimbursement for practitioner
services per fee-for-service enrollee.
Table IV.B2.—Incurred Reimbursement Amounts per Fee-for-Service Enrollee
for Practitioner Services
Fee-for-service Physician-
enrollment Physician fee administered
Calendar year [millions] schedule DME Lab drugs Other
Aged:
2011 26.592 $2,141.63 $221.24 $140.43 $295.52 $268.12
2012 26.900 2,155.27 223.55 149.67 301.96 284.67
2013 27.108 2,124.63 197.49 147.92 319.07 274.10
2014 27.224 2,145.79 168.75 157.11 336.93 272.64
2015 27.441 2,123.68 178.52 152.86 389.75 275.57
2016 27.987 2,090.92 164.46 144.10 423.17 274.26
2017 28.057 2,103.33 155.15 149.78 450.73 286.28
2018 28.102 2,138.06 183.70 166.82 505.51 292.43
2019 28.195 2,245.38 197.28 174.44 561.57 298.96
2020 27.824 2,013.34 204.80 187.35 592.44 302.32
2021 27.034 2,529.10 212.76 204.10 711.63 328.49
2022 27.004 2,461.71 209.81 189.37 827.93 330.94
2023 27.537 2,489.07 219.44 202.86 890.84 343.06
2024 28.108 2,502.56 229.78 211.61 937.78 343.33
2025 28.668 2,515.09 241.47 222.28 1,000.86 357.38
2026 29.230 2,579.65 253.63 266.39 1,070.53 371.83
2027 29.726 2,649.76 266.01 279.95 1,143.95 387.61
2028 30.196 2,715.54 278.95 294.12 1,222.48 403.38
2029 30.621 2,786.37 292.72 331.88 1,309.75 419.85
2030 30.952 2,844.71 305.41 346.96 1,401.00 435.66
Disabled (excluding ESRD):
2011 5.736 1,731.68 361.26 161.15 271.99 253.45
2012 5.779 1,770.01 366.28 200.28 278.87 259.45
2013 5.790 1,763.81 326.89 217.17 276.38 258.59
2014 5.732 1,821.52 289.34 243.28 294.61 261.89
2015 5.610 1,804.21 306.90 256.87 320.44 274.53
2016 5.503 1,775.41 286.30 197.72 353.69 274.38
2017 5.362 1,748.02 287.79 193.54 367.31 302.69
2018 5.029 1,778.59 334.18 205.61 404.59 315.13
2019 4.666 1,848.78 344.27 222.65 441.36 325.09
2020 4.193 1,713.78 346.03 204.61 486.79 359.68
2021 3.725 2,212.82 357.44 223.99 608.10 402.60
2022 3.385 2,162.54 348.86 207.28 721.94 407.70
2023 3.232 2,179.74 364.03 220.86 775.19 421.56
2024 2.998 2,199.95 382.78 231.17 821.41 423.87
2025 2.785 2,214.23 402.68 242.86 877.82 441.43
2026 2.607 2,270.06 422.80 290.71 938.62 458.75
2027 2.444 2,330.80 444.03 305.17 1,000.44 476.97
2028 2.292 2,382.76 465.76 319.81 1,063.82 495.22
2029 2.157 2,448.56 490.41 361.52 1,138.38 516.26
2030 2.051 2,498.87 512.32 377.65 1,215.87 533.60
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Actuarial Methodology
Starting in 2019, qualified physicians who are part of an advanced
APM receive payments that are different from those received by other
physicians. For 2019 through 2024, qualified physicians in an
advanced APM will receive an annual incentive payment equal to
5 percent of their Medicare payments. Most physicians who are not
qualified physicians in an advanced APM will instead be under the
merit-based incentive payment system (MIPS) and will receive a
payment adjustment according to their performance. The performance
adjustment ranges from ï7 percent to 0 percent in 2021, and it could
range from ï9 percent to 27 percent for 2022 and later. For 2020
through 2024, MIPS physicians could receive an additional payment
adjustment for high performance. For 2021, the largest additional
payment adjustment for a physician is 1.79 percent. For 2022 through
2024, it could be as much as 10 percent. The total of all additional
payment adjustments made to MIPS physicians in a year must not
exceed $500 million. For 2026 and later, qualified physicians in an
advanced APM will receive an update of 0.75 percent while other
physicians will receive a 0.25-percent update. Based on these payment
mechanisms, the existing demonstration and payment models, and the
requirements for becoming an advanced APM qualified physician, the
Trustees assume that physician participation in advanced APMs will
grow from 13.5 percent of spending in 2020 to 100 percent by 2065.
ii. Durable Medical Equipment (DME), Laboratory,
Physician-Administered Drugs, and Other Practitioner
Services
Unique fee schedules or reimbursement mechanisms have been
established not only for physician services but also for virtually all
other non-physician practitioner services. Table IV.B1 shows the
increases in the allowed charges per fee-for-service enrollee for DME,
laboratory services, and other services. As noted previously, allowed
charges are not affected by the sequestration of Medicare expenditures.
Based on the increases in table IV.B1, table IV.B2 shows the
corresponding estimates of the average incurred reimbursement
amounts for these services per fee-for-service enrollee; these amounts
are affected by the sequestration.
Prior to 2011, DME items and laboratory services were updated by
increases in the CPI, together with any applicable legislated limits on
payment updates. Beginning in 2011, these items and services were
updated by the increase in the CPI minus the increase in the 10-year
moving average of economy-wide productivity.
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Supplementary Medical Insurance
A competitive-bidding process was implemented in 2011 to determine
Medicare payment for a certain portion of DME items, and as a result
this portion is no longer statutorily updated by the CPI or affected by
the annual productivity adjustments. However, CPI growth is used as
a proxy for the updates for these services.
Beginning in 2018, Medicare payments for laboratory services are
linked to private payment rates, and consequently these services are
no longer updated by the CPI minus the productivity adjustments.62
For laboratory services, as is the case with DME services, growth in
the CPI is used as a proxy for updating the private payment rates, a
process that occurs roughly every 3 years.
For DME and laboratory services, spending growth from 2018 to 2019
was driven by volume increases for orthotic braces and genetic cancer
testing. The majority of the increase in spending is thought to have
been for fraudulent services billed through various telemarketing
schemes. In response to the high utilization growth, CMS took
administrative actions against the providers and medical professionals
involved in the alleged fraud. As a result, spending for these services
decreased during the second half of 2019. COVID-19 tests have been a
significant source of laboratory services costs during the pandemic.
Medicare pays average sales price plus 6 percent for most physician-
administered drugs. Per capita charges for these expenditure
categories have also grown as a result of other factors, including
increased number of services provided, demographic change, more
expensive services, and certain administrative actions. This
expenditure growth is projected based on recent past trends in growth
per enrollee.
(b) Institutional Services
Over the years, legislation has established new payment systems for
virtually all Part B institutional services, including a fee schedule for
tests performed in laboratories in hospital outpatient departments. A
prospective payment system (PPS) was implemented on
August 1, 2000 for services performed in the outpatient department of
a hospital. Similarly, a PPS for home health agency services was
implemented on October 1, 2000. Table IV.B3 shows the historical and
62Under the Protecting Access to Medicare Act of 2014, these changes were to be effective
in 2017; however, CMS delayed implementation until 2018. These changes also apply to
outpatient hospital laboratory services.
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Actuarial Methodology
projected increases in charges and costs per fee-for-service enrollee for
institutional services, excluding the impact of sequestration.
Table IV.B3.—Increases in Costs per Fee-for-Service Enrollee
for Institutional Services
[In percent]
Home health
Calendar year Outpatient hospital agency Outpatient lab Other
Aged:
2011 7.1% í6.2% 4.5% 4.3%
2012 7.2 í3.7 3.9 5.4
2013 7.2 í1.3 í0.8 í0.9
2014 12.61 í0.7 í29.11 4.5
2015 7.4 1.3 2.3 5.0
2016 5.2 í1.1 3.0 2.4
2017 7.4 í1.9 1.1 4.7
2018 8.4 1.5 í1.02 7.5
2019 5.4 0.9 í3.5 5.7
2020 í7.8 í11.0 10.4 í5.2
2021 24.9 17.2 6.5 5.9
2022 9.1 4.1 í6.8 5.5
2023 7.5 11.6 2.7 4.3
2024 9.4 4.7 í0.5 8.5
2025 7.8 5.3 3.0 9.1
2026 7.7 5.3 11.6 5.2
2027 7.7 5.6 2.9 5.2
2028 7.7 5.7 2.9 5.1
2029 7.7 5.7 7.4 5.1
2030 7.7 4.9 3.0 5.1
Disabled (excluding ESRD):
2011 6.3 í11.4 6.1 4.3
2012 7.4 í3.5 4.3 8.4
2013 6.5 í1.4 í1.9 1.6
2014 14.81 í1.3 í36.01 7.0
2015 7.0 í1.5 0.2 9.3
2016 4.8 í3.5 3.1 6.1
2017 4.8 í3.3 í1.7 6.8
2018 7.2 3.2 1.12 7.3
2019 4.4 1.9 í1.7 8.9
2020 í9.0 í11.1 9.9 0.2
2021 25.5 23.1 10.0 27.8
2022 9.8 7.9 í7.0 7.2
2023 7.4 13.1 2.2 4.9
2024 10.1 6.8 í0.1 8.5
2025 8.0 7.1 3.0 8.4
2026 7.8 6.9 11.5 5.2
2027 7.9 7.1 3.0 5.4
2028 7.8 7.3 2.8 5.1
2029 8.2 7.4 7.8 5.7
2030 7.9 6.4 3.0 5.3
1
Effective January 1, 2014, a large portion of outpatient laboratory services were bundled into the
outpatient prospective payment system.
2
See footnote 2 of table IV.B1.
Based on the increases in table IV.B3, table IV.B4 shows the estimates
of the incurred reimbursement for the various institutional services
per fee-for-service enrollee. Each of these expenditure categories is
projected on the basis of recent trends in growth per enrollee, along
with applicable legislated limits on payment updates. The
sequestration impact is reflected in the table.
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Supplementary Medical Insurance
Table IV.B4.—Incurred Reimbursement Amounts per Fee-for-Service Enrollee
for Institutional Services
Fee-for-service
enrollment Outpatient Home health
Calendar year [millions] hospital agency Outpatient lab Other
Aged:
2011 26.592 $901.62 $374.03 $111.90 $417.03
2012 26.900 971.82 360.09 116.30 439.20
2013 27.108 1,034.14 355.41 113.61 426.74
2014 27.224 1,178.911 352.91 80.181 442.89
2015 27.441 1,283.38 357.44 82.05 463.90
2016 27.987 1,350.89 353.53 84.54 471.41
2017 28.057 1,460.04 346.92 85.45 490.89
2018 28.102 1,585.21 352.25 84.58 527.35
2019 28.195 1,683.64 355.55 81.66 555.77
2020 27.824 1,583.13 316.39 91.48 533.67
2021 27.034 1,993.90 370.81 98.00 564.50
2022 27.004 2,136.36 385.88 89.50 581.30
2023 27.537 2,299.55 430.47 91.90 605.05
2024 28.108 2,519.87 450.82 91.42 657.33
2025 28.668 2,718.74 474.83 94.14 719.64
2026 29.230 2,931.83 500.03 105.05 756.01
2027 29.726 3,161.19 528.15 108.09 794.60
2028 30.196 3,408.28 558.35 111.20 834.78
2029 30.621 3,676.35 590.29 119.47 876.84
2030 30.952 3,940.52 619.02 122.38 914.88
Disabled (excluding ESRD):
2011 5.736 1,071.98 281.61 136.04 264.12
2012 5.779 1,157.92 271.78 141.83 286.49
2013 5.790 1,224.96 268.11 137.03 284.41
2014 5.732 1,416.591 264.54 87.301 302.56
2015 5.610 1,533.96 260.58 87.44 331.24
2016 5.503 1,621.49 251.41 90.13 349.11
2017 5.362 1,711.47 243.01 88.62 372.68
2018 5.029 1,840.18 250.87 89.60 399.07
2019 4.666 1,926.25 255.63 88.07 434.53
2020 4.193 1,796.91 227.15 98.17 444.78
2021 3.725 2,274.44 279.58 108.60 581.62
2022 3.385 2,452.41 301.62 98.96 609.14
2023 3.232 2,638.87 341.08 101.12 638.27
2024 2.998 2,908.92 364.23 100.97 693.56
2025 2.785 3,145.98 390.22 104.04 754.04
2026 2.607 3,395.98 417.20 116.00 792.64
2027 2.444 3,669.93 446.94 119.42 834.29
2028 2.292 3,961.21 479.72 122.74 876.32
2029 2.157 4,292.67 515.34 132.28 925.06
2030 2.051 4,612.82 548.26 135.54 967.63
1
See footnote 1 of table IV.B3.
Assumed growth rates for home health expenditures reflect growth in
the number of beneficiaries, payment rates, utilization of services, and
legislated changes affecting future payments.
(3) Projected Fee-for-Service Payments for Persons with End-
Stage Renal Disease (ESRD)
Most persons with ESRD are eligible to enroll for Part B coverage. For
analytical purposes, this section includes two groups of enrollees:
(i) those who qualify for Medicare due to ESRD alone and (ii) those who
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Actuarial Methodology
qualify not only because they have ESRD but also because they are
disabled. Enrollees in this latter group, who are eligible as Disability
Insurance beneficiaries, are included in this section because their per
enrollee costs are both higher and different in nature from those of
most other disabled persons. Specifically, most of the Part B
reimbursements for both groups are related to kidney transplants and
renal dialysis.
The estimates under the intermediate assumptions reflect the
payment mechanism for reimbursing ESRD services. Payment for
dialysis services occurs through a bundled payment system, which
began in 2011. The bundled payment rate is updated annually by an
annual ESRD market basket less the increase in economy-wide
productivity. Starting in 2021, eligible individuals with ESRD may
enroll in a Medicare private health plan to obtain their Part A and
Part B coverage. Table IV.B5 shows the historical and projected
enrollment and costs for Part B benefits. The sequestration impact is
reflected in the table.
Table IV.B5.—Fee-for-Service Enrollment and Incurred Reimbursement
for Beneficiaries under Age 65 with End-Stage Renal Disease1
Average enrollment [thousands] Reimbursement [millions]
Calendar year Disabled Non-disabled Disabled Non-disabled
2011 145 61 $5,830 $1,910
2012 146 63 6,096 2,093
2013 142 69 5,966 2,302
2014 133 80 5,816 2,549
2015 125 87 5,546 2,712
2016 130 82 5,790 2,567
2017 130 82 5,846 2,550
2018 128 82 6,344 2,753
2019 125 82 6,362 2,809
2020 120 83 5,913 2,737
2021 104 84 4,993 2,821
2022 96 84 4,800 2,939
2023 95 84 4,876 3,034
2024 91 83 4,902 3,178
2025 88 83 5,395 3,633
2026 86 83 5,485 3,779
2027 85 83 5,599 3,921
2028 83 83 5,722 4,071
2029 82 83 5,873 4,237
2030 81 83 6,010 4,374
1
The historical enrollment and reimbursement amounts for 2011 and later were revised to reflect a
correction to the methodology used to categorize beneficiaries with ESRD in the Medicare claim systems.
This revision results in an inconsistency with the amounts prior to 2011.
(4) Projected Payments for Persons with Immunosuppressive
Drug Coverage Only
The Consolidated Appropriations Act, 2021 and Other Extensions Act
specifies that, beginning in 2023, Part B will provide coverage of
immunosuppressive drug costs for individuals who previously were
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Supplementary Medical Insurance
covered by Medicare Part B due to having permanent kidney failure
and who received a kidney transplant that functioned for 3 years,
resulting in a loss of Part B coverage. These individuals will pay a
premium that is 15 percent of twice the aged actuarial rate instead of
the standard Part B premium (which is 25 percent of twice the aged
actuarial rate plus a repayment amount, if applicable). Transfers from
the general fund of the Treasury will be made to Part B to make up the
difference between the immunosuppressive drug premium and the
standard Part B premium. (These transfers will be treated as premium
income for general revenue matching purposes.) In 2023, an estimated
40,000 immunosuppressive drug coverage enrollees are estimated to
have roughly $120 million in Part B benefits.
(5) Private Health Plan Costs
Part B payments to private health plans have generally increased
significantly from the time that such plans began to participate in the
Medicare program in the 1970s. Most of the growth in expenditures
has been due to the increasing numbers of beneficiaries who have
enrolled in these plans. Section IV.C of this report contains a
description of the assumptions and methodology for the private health
plans that provide coverage of Part B services for certain enrollees.
(6) Administrative Expenses
The ratio of Part B administrative expenses to total expenditures was
1.1 percent in 2020. Projections of administrative costs are based on
estimates of changes in average annual wages, fee-for-service
enrollment, and an estimated 5- to 7-percent reduction in expenditures
due to sequestration for the period April 1, 2013 through
September 30, 2030, with the exception of May 1, 2020 through
December 31, 2021 when it was suspended.
b. Summary of Aggregate Reimbursement Amounts on an
Incurred Basis under the Intermediate Assumptions
Table IV.B6 shows aggregate historical and projected reimbursement
amounts by type of service on an incurred basis under the intermediate
assumptions.
141
142
Table IV.B6.—Aggregate Part B Reimbursement Amounts on an Incurred Basis
[In millions]
Practitioner Institutional
Physician Physician- Home Private
Calendar fee administered health health Total
year schedule DME Lab drugs Other Total Hospital Lab agency Other Total Total FFS plans Part B
Historical data:
2011 $68,555 $8,115 $4,705 $9,611 $8,934 $99,920 $30,850 $3,835 $11,700 $16,980 $63,366 $163,286 $59,086 $222,372
2012 69,941 8,290 5,234 9,911 9,523 102,900 33,650 4,031 11,390 18,140 67,211 170,111 66,114 236,225
2013 69,536 7,382 5,315 10,417 9,296 101,945 35,964 3,953 11,318 17,984 69,219 171,165 73,386 244,550
2014 70,639 6,371 5,722 11,026 9,280 103,038 41,087 2,728 11,254 18,639 73,707 176,746 85,756 262,502
Actuarial Methodology
2015 70,150 6,744 5,686 12,658 9,412 104,650 44,712 2,789 11,397 19,384 78,281 182,931 95,077 278,008
2016 70,032 6,298 5,167 13,951 9,483 104,931 47,644 2,911 11,396 20,024 81,975 186,906 103,612 290,518
2017 70,063 6,017 5,290 14,783 9,964 106,116 51,126 2,923 11,150 20,693 85,893 192,009 114,962 306,972
2018 70,702 6,978 5,791 16,433 10,127 110,030 54,834 2,882 11,275 22,331 91,322 201,352 132,928 334,280
2019 73,630 7,313 6,046 18,094 10,285 115,368 57,466 2,768 11,332 23,228 94,794 210,162 154,520 364,681
2020 64,813 7,291 6,189 18,731 10,270 107,295 52,496 3,017 9,854 21,867 87,234 194,529 183,280 377,809
Intermediate estimates:
2021 78,325 7,206 6,468 21,717 10,705 124,421 63,373 3,110 11,176 21,606 99,266 223,687 211,328 435,015
2022 75,388 6,961 5,919 25,034 10,629 123,930 67,002 2,801 11,546 22,011 103,360 227,290 236,564 463,854
2023 77,183 7,338 6,410 27,285 11,129 129,345 72,922 2,908 13,070 23,033 111,934 241,279 260,633 501,912
2024 78,511 7,728 6,753 29,079 11,233 133,304 80,692 2,921 13,880 24,977 122,471 255,775 286,406 542,180
2025 79,824 8,168 7,164 31,408 11,793 138,357 87,907 3,038 14,818 28,023 133,787 272,144 315,608 587,752
2026 82,900 8,645 8,682 34,026 12,391 146,643 95,832 3,428 15,827 29,539 144,626 291,269 347,624 638,893
2027 86,069 9,127 9,210 36,756 13,023 154,185 104,303 3,561 16,920 31,135 155,919 310,104 380,490 690,595
2028 89,091 9,630 9,762 39,676 13,660 161,820 113,446 3,696 18,092 32,798 168,033 329,852 416,906 746,759
2029 92,265 10,166 11,108 42,905 14,325 170,769 123,381 4,004 19,325 34,547 181,257 352,027 455,899 807,925
2030 94,868 10,654 11,686 46,225 14,945 178,378 133,077 4,128 20,428 36,096 193,730 372,108 490,790 862,898
Supplementary Medical Insurance
The estimated Medicare costs for the COVID-19 vaccines and their
administration are included in the “Physician-administered drugs”
category and “Physician fee schedule” category, respectively, of tables
IV.B2 and IV.B6. Based on the Trustees’ assessment of statements
from pharmaceutical companies, historical price patterns, and
statements from market analysts, the price of the vaccine is estimated
to be approximately $60 in 2021. Since a large number of doses have
already been funded through Operation Warp Speed, the price paid by
Medicare is $0 until those doses run out. Medicare pays the cost for the
administration of the vaccine, which is estimated to be $40 in 2021.
Roughly 87 percent of the Medicare population is expected to receive
the COVID-19 vaccine in 2021, and the costs for about half of the
population are being billed through Medicare. The vaccination rate is
expected to decrease somewhat over time, reflecting both the
possibility that immunity will last longer than a year and the
possibility that the prevalence or the seriousness of COVID-19 will
decrease. On average, those vaccinated are estimated to receive
1.9 doses in 2021, as most of those who have gotten the vaccine have
required 2 doses. In addition, it is possible that individuals vaccinated
early in 2021 will receive another dose before the end of the year. The
number of doses per persons receiving a vaccine in a year is estimated
to decrease over time to 1.2 due to the expectations that single-dose
vaccines may become more likely and that only one dose will be
required for a booster shot. It should be noted that there is an
unusually large degree of uncertainty with this estimate and that the
projection could change significantly as more information becomes
available.
c. Projections under Alternative Assumptions
Projections of Part B cash expenditures under the low-cost and
high-cost alternatives were developed by modifying the growth rates
estimated under the intermediate assumptions. Beginning in calendar
year 2021, the low-cost and high-cost alternatives contain assumptions
that result in benefits increasing, relative to the Gross Domestic
Product (GDP), 2 percent less rapidly and 2 percent more rapidly,
respectively, than the results under the intermediate assumptions.
Administrative expenses under the low-cost and high-cost alternatives
are projected on the basis of their respective wage series growth.
2. Part D
Part D is a voluntary Medicare prescription drug benefit that offers
beneficiaries a choice of private drug insurance plans. Low-income
143
Actuarial Methodology
beneficiaries can receive additional assistance on the cost sharing and
premiums. Each year drug plan sponsors submit bids that include
estimated total plan costs, reinsurance payments, and low-income cost-
sharing subsidies for the coming year. Upon approval of these bids, a
national average bid amount is calculated, and the result is used to
determine the base beneficiary premium. The individual plan premium
is calculated as the difference between the plan bid and the national
average bid, which is then applied to the base beneficiary premium.
Each drug plan receives monthly risk-adjusted direct subsidies,
prospective reinsurance payments, and prospective low-income cost-
sharing subsidies from Medicare, as well as premiums from the
beneficiaries and premium subsidies from Medicare on behalf of low-
income enrollees. At the end of the year, the prospective reinsurance
and low-income cost-sharing subsidy payments are reconciled to match
the plan’s actual experience. During the annual reconciliation process,
if actual experience differs from the plan’s bid beyond specified risk
corridors, Medicare shares in the plan’s gain or loss.
Expenditures for this voluntary prescription drug benefit were
determined by combining estimated Part D enrollment with
projections of per capita spending. Estimates of Part D spending
categories for 2020 were used as the base experience and were
supplemented with information included in Part D plan 2021 bids. In
addition, Medicare pays special subsidies on behalf of beneficiaries
retaining primary drug coverage through retiree drug subsidy (RDS)
plans.
General revenues primarily finance the various Medicare drug
subsidies. Since Medicaid is no longer the primary payer of drug costs
for full-benefit dually eligible beneficiaries, States are subject to a
contribution requirement and must pay the Part D account in the SMI
trust fund a portion of their estimated forgone drug costs for this
population. From 2006 through 2015, the percentage of estimated costs
paid by States was phased down from 90 percent to 75 percent.
Beneficiaries can choose to have their drug insurance premiums
withheld from their Social Security benefits and then forwarded to the
drug plans on their behalf.63 In 2020, around 25 percent of the non-low-
income enrollees in Part D drug plans exercised this option.
63The Part D income-related premium adjustment amount for each beneficiary is
deposited into the Part D account.
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Supplementary Medical Insurance
a. Participation Rates
All individuals entitled to Medicare Part A or enrolled in Part B are
eligible to enroll in the voluntary prescription drug benefit.
(1) Employer-Sponsored Plans
There are two ways that employer-sponsored plans can benefit from
the Part D program. One way is the retiree drug subsidy (RDS), in
which, for qualifying employer-sponsored plans, Medicare subsidizes a
portion of their qualifying retiree drug expenses. As a result of tax
deduction changes, RDS program participation has declined
significantly since 2012 and is assumed to decline further over the next
several years. The Trustees expect that the majority of the retirees
losing drug coverage through RDS plans will participate in other
Part D plans.
The other way that an employer-sponsored plan can benefit from
Part D is to enroll in an employer/union-only group waiver plan
(EGWP) by either wrapping around an existing Part D plan or
becoming a prescription drug plan itself. The subsidies for these types
of arrangements are generally calculated in the same way as for other
Part D plans. The Trustees expect that such plans will offer additional
benefits beyond the standard Part D benefit package. Between 2012
and 2014, EGWP enrollment increased significantly coinciding with
the decrease in RDS coverage. In 2015 and 2016, EGWP enrollment
did not change considerably because of the termination of certain
EGWPs, which counteracted the continued shift from RDS plans to
EGWPs. Since 2016, steady participation increases in EGWPs have
returned, but, due to some plan terminations, the participation rate is
slightly lower than for the total Part D program. The vast majority of
the enrollment increases have occurred in Medicare Advantage
Prescription Drug Plans (MA-PDs). MA-PD EGWP enrollment has
grown from approximately 2.0 million in 2016 to a projected 2.8 million
in 2021; for Prescription Drug Plans (PDPs), on the other hand, the
number of enrollees has hovered between 4.5 million and 4.6 million
over the same time period. Future EGWP enrollment is projected to
increase more slowly than overall enrollment through 2025, primarily
due to the assumption that some plan terminations will continue.
Beyond 2025, the Trustees assume that EGWP participation will
increase at a rate similar to that for overall Part D enrollment.
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Actuarial Methodology
(2) Low-Income Subsidy
Qualifying low-income beneficiaries can receive various degrees of
additional Part D subsidies based on their resource levels to help
finance premium and cost-sharing payments. Since 2016, low-income
subsidy enrollment in MA-PDs has increased while enrollment in
PDPs has declined. This pattern is primarily due to continued and
substantial growth in the number of enrollees in Medicare Advantage
Special Needs Plans (SNPs). Overall, the number of low-income
enrollees constitutes about 26 percent of total Part D beneficiaries in
2021 and is assumed to grow at the same rate as that for Medicare
beneficiaries who are enrolled in Part B.
(3) Other Part D Beneficiaries
Medicare beneficiaries not covered by employer-sponsored plans and
not qualified for the low-income subsidy have the option to enroll in a
Part D plan. Once enrolled, they pay for premiums and any applicable
deductible, coinsurance, and/or copayment. In 2021, about 67 percent
of non-employer and non-low-income Medicare beneficiaries64 have
opted to enroll in a Part D plan. Based on recent experience, the
participation rate for non-employer and non-low-income beneficiaries
is projected to gradually grow to 70 percent throughout the short-range
projection period.
(4) MA-PD versus PDP Beneficiaries
Enrollment in MA-PDs has been increasing more rapidly than in PDPs
every year except 2013. In 2011, MA-PD beneficiaries accounted for
36.7 percent of the enrollment in Part D plans. This ratio grew to
47.0 percent in 2020 and is projected to increase to 50.6 percent in 2021
before reaching 57.6 percent by 2030.
Table IV.B7 provides a summary of the estimated average enrollment
in Part D, by category.
64A significant portion of the remaining eligible beneficiaries who do not participate in
Part D plans receive creditable coverage through another source (such as the Federal
Employees Health Benefits Program, TRICARE for Life, the Department of Veterans
Affairs, and the Indian Health Service).
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Table IV.B7.—Part D Enrollment
[In millions]
Low-income subsidy
Medicaid Other,
Retiree full-benefit Other, with MA-PD
Calendar drug dual with full partial share of
year subsidy1 EGWP eligible subsidy subsidy Total All others Total Part D2
Historical data:
2011 6.2 2.8 6.6 3.7 0.3 10.6 16.0 35.7 36.7
2012 5.6 3.6 6.9 3.7 0.3 11.0 17.2 37.4 37.5
2013 3.3 5.9 7.2 4.0 0.3 11.5 18.4 39.1 36.5
2014 2.7 6.5 7.4 4.1 0.3 11.8 19.5 40.5 38.0
2015 2.3 6.5 7.6 4.2 0.3 12.1 20.9 41.8 39.1
2016 1.9 6.6 7.8 4.3 0.3 12.4 22.3 43.2 39.8
2017 1.7 6.7 8.0 4.4 0.3 12.7 23.4 44.5 41.0
2018 1.6 6.9 8.1 4.5 0.3 12.9 24.5 45.8 42.3
2019 1.3 7.0 8.2 4.5 0.3 13.1 25.8 47.2 44.3
2020 1.2 7.1 8.2 4.7 0.3 13.1 27.2 48.7 47.0
Intermediate estimates:
2021 1.1 7.3 8.1 4.7 0.2 13.1 28.5 49.9 50.6
2022 1.0 7.4 8.3 4.9 0.2 13.4 29.6 51.3 52.8
2023 0.9 7.5 8.5 5.0 0.3 13.8 30.7 52.9 53.4
2024 0.8 7.6 8.7 5.1 0.3 14.1 31.7 54.3 54.1
2025 0.8 7.7 8.9 5.2 0.3 14.4 32.8 55.7 54.8
2026 0.8 7.9 9.1 5.4 0.3 14.8 33.6 57.1 55.4
2027 0.8 8.1 9.3 5.5 0.3 15.1 34.4 58.4 55.9
2028 0.9 8.2 9.5 5.6 0.3 15.4 35.1 59.6 56.5
2029 0.9 8.4 9.7 5.7 0.3 15.7 35.8 60.8 57.0
2030 0.9 8.5 9.9 5.8 0.3 16.0 36.4 61.8 57.6
1
Excludes Federal Government and military retirees covered by either the Federal Employees Health
Benefit Program or the TRICARE for Life program. Such programs qualify for the retiree drug subsidy, but
the subsidy will not be paid since it would amount to the Federal Government subsidizing itself.
2
This calculation does not include retiree drug subsidy beneficiaries but does include EGWP, low-income
subsidy, and all other beneficiaries.
b. Cost Projection Methodology on an Incurred Basis
(1) Drug Benefit Categories
Projected drug expenses are allocated to the beneficiary premium,
direct subsidy, and reinsurance subsidy by the Part D premium
formula based on the benefit formula specifications. Meanwhile, the
additional premium and cost-sharing subsidies are projected for low-
income beneficiaries.
The statute specifies that the base beneficiary premium is equal to
25.5 percent of the sum of the national average monthly bid amount
and the estimated catastrophic reinsurance. The average premium
amount per enrollee is estimated using the base beneficiary premium
with an adjustment to reflect enrollees’ tendency to select plans with
below-average premiums. Moreover, Part D collects income-related
premiums for individuals whose modified adjusted gross income
exceeds a specified threshold. The amount of the income-related
premium depends upon the individual’s income level. Before 2019, the
extra premium amount was the difference between 35, 50, 65, or
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Actuarial Methodology
80 percent and 25.5 percent applied to the national average monthly
bid amount adjusted for reinsurance. Starting in 2019, the Bipartisan
Budget Act of 2018 requires a portion of the beneficiaries currently in
the 80-percent group to pay the difference between 85 percent and
25.5 percent.
(2) Projections
The projections are based in part on actual Part D spending data
through 2020. These data include amounts for total prescription drug
costs, costs above the catastrophic threshold, plan payments, and low-
income cost-sharing payments.
The estimates under the intermediate assumptions are calculated by
establishing the total prescription drug costs for 2020 and then
projecting these costs with both Part D expenditure and enrollment
growth rates through the estimation period. The growth rate
assumptions for Part D costs are based on a Part D-specific short-term
trend model and the national health expenditure (NHE) growth rate
assumptions.65 This short-term model provides the 2021 and 2022
drug-specific and therapeutic-class-specific growth rate projections. A
transition factor is applied for 2023 and 2024 to converge to the NHE
projected growth rates in 2025, which are then used for the remainder
of the short-range projection period. The growth in expensive specialty
drugs has been a major factor driving the gross drug trend rates, which
in turn have resulted in fast-growing reinsurance in recent years.
Therefore, the trend rates for the catastrophic portion of the Part D
benefits are also assumed to generally grow slightly more rapidly than
the overall growth rates. Table IV.B8 shows the historical and
projected Part D per capita growth rates along with the NHE trends.
To determine the estimated benefits for Part D, the total per capita
drug benefits are adjusted for two key factors: (i) the projected total
amount of direct and indirect remuneration and (ii) the administrative
costs that plans are projected to incur related to plan operations and
profits. Table IV.B8 displays these key factors affecting Part D
expenditure estimates.
Based on Recommendation II-28 of the 2010–2011 Medicare Technical Review Panel.
65
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Supplementary Medical Insurance
Table IV.B8.—Key Factors for Part D Expenditure Estimates1
National health Plan administrative
expenditure (NHE) Part D per capita Direct and indirect expenses and
Calendar year drug trend2 cost trend remuneration3 profits4
Historical data:
2011 0.7% 3.7% 11.6% 13.1%
2012 í0.3 í1.8 11.7 12.1
2013 1.4 2.6 12.9 12.2
2014 12.4 10.9 14.3 11.9
2015 7.7 8.3 18.3 11.7
2016 0.9 1.9 19.9 11.4
2017 0.7 2.2 21.9 10.3
2018 1.9 4.9 25.0 10.7
2019 2.5 5.2 26.5 9.3
Intermediate estimates:
2020 3.0 4.7 28.3 9.5
2021 4.0 5.6 30.3 8.3
2022 5.0 4.9 31.1 8.5
2023 5.0 5.7 31.7 8.4
2024 5.1 5.1 31.9 8.4
5
2025 5.0 3.5 32.2 8.4
2026 5.2 4.9 32.5 8.4
2027 5.2 4.9 32.7 8.4
2028 5.1 4.8 33.0 8.4
2029 5.1 4.9 33.3 8.3
2030 5.1 5.0 33.5 8.3
1
These factors do not reflect the impact of the sequestration for 2013–2030.
2
On March 24, 2020, the CMS Office of the Actuary published the NHE projections through calendar year
2028; for 2029 and 2030, the drug trend is the same as was used in 2028.
3
Expressed as a percentage of total drug costs.
4
Expressed as a percentage of total gross plan benefit payments, which include plan benefits and
administrative expenses with profits.
5
Certain drugs to treat beneficiaries with ESRD will be transferred from Part D to Part B in 2025.
(3) Direct and Indirect Remuneration
Direct and indirect remuneration (DIR) primarily consists of drug
manufacturer rebates and pharmacy rebates that PDPs and MA-PDs
negotiate. The average projected DIR from plan bids, which EGWPs
are not required to submit, has increased substantially in recent years,
and plans have continued to increase their projected DIR significantly
for years 2020 and 2021. Actual DIR for 2019 was slightly lower than
the plans estimated in their corresponding bid submissions for plan
year 2019. Primarily based on these 2019 results, the Trustees
estimate that actual DIR will be marginally lower than the assumed
level in plan bids for 2020 but about the same as projected in the plan
bids for 2021. Utilizing the most recent historical data, the Trustees
project modest increases to future DIR from the 2021 level throughout
the projection period. This upward revision to projected DIR is a major
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Actuarial Methodology
reason for decreases in overall Part D spending when compared to the
2020 Trustees Report. Projected DIR is shown in table IV.B8.66
(4) Administrative Expenses
Administrative costs and profit margins are estimated from the 2021
plan bids. Administrative expenses are projected to grow at the same
rate as wages, while profit margins are projected to grow at the same
rate as per capita benefits. Since drug expenses grow faster than
administrative costs, the administrative expenses as a percentage of
benefits slowly decrease over time, as shown in table IV.B8. Beginning
in 2014, the law assessed an annual insurer fee on health insurance
plans, which was subsequently suspended in 2017 and 2019. Collection
of these fees has been terminated starting in 2021.
(5) Incurred Per Capita Reimbursements
Table IV.B9 shows estimated enrollments and average per capita
reimbursements for beneficiaries in private plans, low-income
beneficiaries, and beneficiaries in RDS plans. The direct subsidy and
retiree drug subsidy are affected by the sequestration of Medicare
benefit expenditures, which applies from April 1, 2013 through the first
half of March 2031, with the exception of May 1, 2020 through
December 31, 2021 when it was suspended. Under the sequestration,
Medicare administrative expenses are reduced by an estimated 5 to
7 percent for the period April 1, 2013 through September 30, 2030, with
the exception of May 1, 2020 through December 31, 2021 when it was
suspended.
66These are average DIR percentages across all prescription drugs—including for EGWP
plans, which do not submit bids. Generic drugs, which represent about 88 percent of all
Part D drugs dispensed and 19 percent of drug spending in 2020, typically carry little to
no rebates, while many brand-name prescription drugs carry substantial rebates.
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Table IV.B9.—Incurred Reimbursement Amounts per Enrollee
for Part D Expenditures
Private plans (PDPs and MA-PDs)
All beneficiaries Low-income subsidy Retiree drug subsidy
Calendar Enrollment Direct Reinsur- Risk sharing Enrollment Subsidy Enrollment Subsidy
year (millions) subsidy ance and other (millions) amount (millions) amount
Historical data:
2011 29.5 $681 $465 í$31 10.6 $2,093 6.2 $577
2012 31.8 654 486 í35 11.0 2,045 5.6 536
2013 35.8 567 535 í20 11.5 2,023 3.3 514
2014 37.8 492 718 í1 11.8 2,052 2.7 505
2015 39.5 485 841 í28 12.1 2,112 2.3 502
2016 41.2 441 861 í27 12.4 2,128 1.9 505
2017 42.8 352 878 í11 12.7 2,158 1.7 493
2018 44.3 305 917 í1 12.9 2,205 1.6 483
2019 45.8 247 1,007 10 13.1 2,274 1.3 478
2020 47.5 201 1,006 15 13.1 2,516 1.2 492
Intermediate estimates:
2021 48.8 120 1,042 19 13.1 2,625 1.1 516
2022 50.4 149 1,067 5 13.4 2,768 1.0 533
2023 52.0 149 1,124 3 13.8 2,907 0.9 557
2024 53.5 152 1,178 3 14.1 3,046 0.8 580
2025 54.9 154 1,216 3 14.4 3,142 0.8 593
2026 56.3 156 1,273 3 14.8 3,279 0.8 616
2027 57.5 158 1,330 3 15.1 3,424 0.8 641
2028 58.8 161 1,388 3 15.4 3,571 0.9 666
2029 59.9 163 1,451 3 15.7 3,726 0.9 692
2030 60.9 164 1,519 3 16.0 3,890 0.9 715
(6) Incurred Aggregate Reimbursements
Table IV.B10 shows the projected incurred aggregate reimbursements
to plans and employers by type of payment.
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Actuarial Methodology
Table IV.B10.—Aggregate Part D Reimbursement Amounts on an Incurred Basis
[In billions]
Calendar Direct Low-income Retiree drug Risk sharing
year Premiums1 subsidy Reinsurance subsidy subsidy and other2 Total
Historical data:
2011 $7.3 $20.1 $13.7 $22.2 $3.6 í$0.9 $66.0
2012 7.8 20.8 15.5 22.5 3.0 í1.1 68.5
2013 9.3 20.3 19.2 23.2 1.7 í0.7 72.9
2014 10.5 18.6 27.2 24.3 1.3 í0.1 81.8
2015 11.5 19.2 33.2 25.6 1.1 í1.1 89.6
2016 12.7 18.2 35.5 26.4 1.0 í1.1 92.7
2017 14.0 15.1 37.6 27.3 0.8 í0.5 94.4
2018 14.2 13.5 40.6 28.5 0.7 í0.0 97.4
2019 13.8 11.3 46.1 29.7 0.6 0.5 102.1
2020 13.6 9.5 47.8 33.1 0.6 0.7 105.3
Intermediate estimates:
2021 14.9 5.9 50.9 34.3 0.6 1.0 107.5
2022 15.3 7.5 53.8 37.1 0.5 0.3 114.5
2023 16.6 7.7 58.4 40.0 0.5 0.2 123.4
2024 17.8 8.1 63.0 42.9 0.5 0.2 132.5
2025 18.8 8.4 66.8 45.3 0.5 0.2 140.0
2026 20.1 8.8 71.6 48.5 0.5 0.2 149.7
2027 21.4 9.1 76.5 51.7 0.5 0.2 159.5
2028 22.8 9.5 81.6 55.0 0.6 0.2 169.6
2029 24.2 9.8 86.9 58.5 0.6 0.2 180.2
2030 25.6 10.0 92.5 62.1 0.6 0.2 191.0
1
Total premiums paid to Part D plans by enrollees (directly, or indirectly through premium withholding from
Social Security benefits).
2
Positive amounts represent net loss-sharing payments to plans, and negative amounts are net gain-
sharing receipts from plans. Other payments are one-time in nature. The amount in 2010 includes the
$250 rebate to the beneficiaries spending more than the initial coverage limit.
d. Projections under Alternative Assumptions
Part D expenditures for the low-cost and high-cost alternatives were
developed by modifying the estimates under the intermediate
assumptions. Separate modifications were applied to the assumptions
for the 2020 base projection and to the assumptions for the projected
years 2021–2030.
The 2020 base modifications include the following adjustments, since
final data for 2020 will not be available until later in 2021:
• ±2 percent to account for the uncertainty of the completeness of
the actual spending in 2020. The high-cost scenario increases the
spending by 2 percent, and the low-cost scenario decreases the
spending by 2 percent.
• ±2 percent for the average rebate that drug plans negotiate. The
high-cost scenario decreases the average rebate by 2 percent, and
the low-cost scenario increases the average rebate by 2 percent.
For the projections beyond 2020, the per capita drug costs for the high-
cost and low-cost scenarios are increased, relative to GDP, 2 percent
more rapidly and 2 percent less rapidly, respectively, than under the
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intermediate assumptions. The 2-percent base-year modification to
rebate percentage is also maintained throughout the short-range
projection period. In addition, for RDS participation, participation in
the low-income subsidies, and the participation rate for Part D-eligible
individuals who do not qualify for the low-income subsidy or receive
coverage through employer-sponsored plans, assumptions vary in the
alternative scenarios. Table IV.B11 compares these varying
assumptions.
Table IV.B11.—Part D Assumptions under Alternative Scenarios
for Calendar Years 2020–2030
Alternatives
Calendar year Intermediate assumptions Low-cost High-cost
Participation of retiree drug subsidy beneficiaries as a percentage of Part D enrollees
2020 2.5% 2.5% 2.5%
2021 2.1 2.1 2.1
2022 1.9 2.2 1.5
2023 1.7 2.2 0.7
2024 1.5 2.2 0.2
2025 1.4 2.2 —
2026 1.4 2.2 —
2027 1.4 2.2 —
2028 1.4 2.2 —
2029 1.4 2.2 —
2030 1.4 2.2 —
Participation of low-income beneficiaries as a percentage of Part D enrollees
2020 27.0 27.0 27.0
2021 26.2 26.2 26.2
2022 26.1 26.1 26.2
2023 26.0 25.9 26.2
2024 26.0 25.4 26.6
2025 25.9 24.9 27.0
2026 25.9 24.4 27.5
2027 25.9 23.9 28.0
2028 25.9 23.5 28.6
2029 25.8 23.0 29.1
2030 25.8 22.6 29.7
Part D participation rate of the non-employer and non-low-income Part D-eligible individuals
2020 66.2 66.2 66.2
2021 67.4 67.4 67.4
2022 68.2 66.2 70.2
2023 68.8 64.8 72.8
2024 69.2 65.2 73.2
2025 69.5 65.5 73.5
2026 69.7 65.7 73.7
2027 69.8 65.8 73.8
2028 69.9 65.9 73.9
2029 70.0 66.0 73.9
2030 70.0 66.0 74.0
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Actuarial Methodology
C. PRIVATE HEALTH PLANS
Dating back to the 1970s, some Medicare beneficiaries have chosen to
receive their coverage for Part A and Part B services through private
health plans. Over time, numerous changes have been made to these
plans that have increased or decreased the attractiveness of private
plan coverage.
The foundation of the current program was established in 2003, when
most of the private plans were renamed as Medicare Advantage (MA)
plans and all private health insurance coverage options available
through Medicare were formally designated as Part C.67 Since then,
there has been a continuous increase in the prevalence of MA
enrollment.
Beginning in 2006, payments are based on competitive bids and their
relationship to corresponding benchmarks, which are based on an
annually developed ratebook. Also, rebates were introduced and are
used to provide additional benefits not covered under Medicare, reduce
cost sharing, and/or reduce Part B or Part D premiums. From 2006
through 2011, rebates were calculated as 75 percent of the difference,
if any, between the benchmark and the bid.
In addition to the plan types that already existed, regional preferred
provider organizations (RPPOs) and special needs plans (SNPs) were
established in 2006. Unlike other MA plans, which define their own
service areas, RPPOs operate in pre-defined service areas referred to
as regions and have special rules for capitation payment benchmarks,
and they received special incentives.
SNPs are products designed for, and marketed to, these special
population groups: Medicaid dual-eligible beneficiaries, individuals
with specialized chronic conditions, and institutionalized beneficiaries.
The statutory authority for SNPs, which had been extended several
times previously, was permanently extended under the Bipartisan
Budget Act of 2018.
Beginning in 2012, the MA county-level benchmarks are based on a
multiple of estimated fee-for-service costs in the county. The factor
applied for a given county is based on the ranking of its fee-for-service
cost relative to that for other counties. The 25 percent, or quartile, of
67Of Medicare beneficiaries enrolled in private plans, about 97 percent are in MA plans.
The remainder are in certain holdover plans reimbursed on a cost basis rather than
through capitation payments, in Program of All-Inclusive Care for the Elderly (PACE)
plans, or in Medicare-Medicaid Plans (MMPs).
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Private Health Plans
counties with the highest fee-for-service costs have a factor of
95 percent of county fee-for-service costs; the second quartile,
100 percent; the third quartile, 107.5 percent; and the lowest quartile,
115 percent. Prior to 2012, most county benchmarks were in the range
of 100 to 140 percent of local fee-for-service costs.
Plans are eligible to receive specified increases to their benchmark
based on their quality rating scores. The statutory provisions call for a
bonus of 5 percent for plans with at least a 4-star rating. The bonuses
are doubled for health plans in a qualifying county, defined as a county
in which (i) per capita spending in original Medicare is lower than
average; (ii) 25 percent or more of eligible68 beneficiaries were enrolled
in Medicare Advantage as of December 2009; and (iii) the benchmark
rate in 2004 was based on the minimum amount applicable to an urban
area. There are special bonus provisions for newly established and low-
enrollment plans. Additionally, the phased-in benchmarks, including
bonuses, are capped at the pre-2012 benchmark level.
The share of the excess of benchmarks over bids, which is paid to the
plan sponsors as rebates, varies based on quality. The highest quality
plans (4.5 stars or higher) receive a 70-percent rebate, plans with a
quality rating of at least 3.5 stars and less than 4.5 stars receive a
65-percent rebate, and plans with a rating of less than 3.5 stars receive
a 50-percent rebate.
Beginning in 2014, private insurers were required to pay an
assessment, or fee, based on their revenues from the prior year. There
was a 1-year moratorium on the annual fee in 2017 and again in 2019.
The fee was in place for calendar year 2020, with the assessment on
MA sponsors expected to represent approximately 1.4 percent of plan
revenues. The Further Consolidated Appropriations Act, 2020
permanently repealed the annual fee beginning in calendar year 2021.
It is important to note that Medicare coverage provided through
private health plans does not have separate financing or an associated
trust fund. Rather, the Part A and Part B trust funds are the source
for payments to such private health plans.
68Beneficiaries are eligible for the MA program if they are entitled to coverage in
Medicare Part A and enrolled in Medicare Part B.
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Actuarial Methodology
1. Participation Rates
a. Background
To account for the distinct benefit, enrollment, and payment
characteristics of private health plans, enrollment and spending trends
for such plans are analyzed at the product level:
• Local coordinated care plans (LCCPs), which include health
maintenance organizations (HMOs), HMOs with a point-of-service
option, and local preferred provider organizations (PPOs).
• Private fee-for-service (PFFS) plans.
• Regional PPO (RPPO) plans.
• Special needs plans (SNPs).
• Other products, which include cost plans, Program of All-Inclusive
Care for the Elderly (PACE) plans, and Medicare-Medicaid plans
(MMPs) under the capitated model.
All types of coverage except for those represented in the “Other”
category are Medicare Advantage plans. Also, the values represented
in each category include enrollment not only in plans available to all
beneficiaries residing in the plan’s service area, but also in plans
available only to members of employer or union groups.
b. Historical
Table IV.C1 shows historical and projected private health plan
enrollment by type of plan. Between 2011 and 2020, private plan
enrollment grew by 12.7 million or 103 percent, compared to growth in
the overall Medicare population of 28 percent for the same period.
PFFS enrollment dropped 87 percent between 2011 and 2020 primarily
due to plan reaction to new statutory provider network requirements
beginning in 2011. Most of the enrollees in terminating PFFS plans
transferred to LCCP or RPPO plans.
The 2020 enrollment includes 4.7 million beneficiaries with coverage
through employer/union-only group waiver plans (EGWPs), the
majority of whom are in LCCPs. Beginning in 2017, the bidding
requirements for these types of plans have been waived, and payments
to these EGWPs, including RPPOs, are based on individual market
bids.
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Private Health Plans
Table IV.C1.—Private Health Plan Enrollment1
[In thousands]
Local CCP
Total Ratio of private
Calendar Regional private Total health plan to
year HMO PPO PPO PFFS SNP Other health plan Medicare total Medicare
2011 6,733 2,192 1,042 602 1,367 447 12,383 48,896 25.3%
2012 7,396 2,852 835 526 1,497 483 13,588 50,874 26.7
2013 8,045 3,167 949 388 1,768 527 14,843 52,504 28.3
2014 8,555 3,698 1,040 303 1,990 657 16,244 54,115 30.0
2015 9,122 4,034 1,018 256 2,085 978 17,493 55,589 31.5
2016 9,630 4,157 1,085 231 2,230 1,058 18,392 57,073 32.2
2017 10,051 4,943 1,085 184 2,420 1,133 19,816 58,683 33.8
2018 10,645 5,696 1,003 148 2,729 1,115 21,336 60,020 35.5
2019 11,325 6,880 866 111 3,064 701 22,947 61,529 37.3
2020 12,160 7,892 747 81 3,497 698 25,076 62,608 40.1
2021 12,960 8,993 629 56 4,120 666 27,424 63,674 43.12
2022 13,615 9,831 603 50 4,519 623 29,240 65,124 44.9
2023 14,180 10,340 603 47 4,921 336 30,427 66,788 45.6
2024 14,721 10,786 604 45 5,120 311 31,586 68,400 46.2
2025 15,259 11,221 604 43 5,301 319 32,747 70,036 46.8
2026 15,807 11,647 604 41 5,485 328 33,912 71,716 47.3
2027 16,338 12,052 605 39 5,664 336 35,033 73,260 47.8
2028 16,853 12,433 605 37 5,840 343 36,110 74,740 48.3
2029 17,351 12,788 605 35 6,009 350 37,138 76,136 48.8
2030 17,817 13,109 605 33 6,168 357 38,089 77,366 49.2
1
Most private plan enrollees are eligible for Medicare Part A and enrolled in Medicare Part B. Some
enrollees have coverage for only Medicare Part B. For example, in 2018 the Part B-only private plan
enrollment consisted of 28,000 in local CCPs and 72,000 in the “Other” coverage category.
2
This table presents the ratio of private health plan to total Medicare enrollment. The ratio of private health
plan enrollees to Medicare beneficiaries with both Part A and Part B coverage in 2021 is 47.2 percent.
c. Projected
The Medicare Advantage (MA) enrollment projection model groups
counties by common characteristics and models each of these groups
using 2015 through 2020 base data, as follows:
• One group for Puerto Rico.
• Five groups for urban counties as defined by the fiscal year 2015
core-based statistical area (CBSA) designation. The quintiles are
sorted based on 2015 penetration rates and grouped with an
approximately equal number of MA-eligible beneficiaries in each
cohort.
• Five groups for rural counties as defined by the fiscal year 2015
CBSA designation. The quintiles are sorted based on 2015
penetration rates and grouped with an approximately equal
number of MA-eligible beneficiaries in each cohort.
The private health plan enrollment projections are based on three
cohorts of beneficiaries: (i) dual-eligible beneficiaries, (ii) beneficiaries
with employer-sponsored coverage, and (iii) all others, including
individual-market enrollees.
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Actuarial Methodology
Private plan enrollment for the individual market is projected by
calculating the penetration growth rates for individual plans in years
2015 through 2020 for each category described above and extrapolating
those results through 2030. These growth rates are applied to the
enrollment distribution for each county’s specific 2020 plan type (for
example, LCCP, PFFS, and RPPO) and are adjusted to reflect
applicable legislative changes to the program, as described in more
detail below.
Two categories of MA enrollees—those with employer coverage and
those who are dually eligible—are modeled at the national level.
Historically, EGWP and dual-eligible enrollment has had much larger
enrollment variation from year to year while individual-market
enrollment has trended at a more consistent level. Because of the
fluctuations in enrollment, the cohort method does not work as well for
the employer-sponsored and dual-eligible populations.
The private Medicare health plan enrollment projections for the 2021
Trustees Report are higher than those in the 2020 report. As shown in
table IV.C1, the share of Medicare enrollees in private health plans is
projected to increase from 40.1 percent in 2020 to 49.2 percent in 2030.
The increases that are expected in private plan penetration rates
between 2021 and 2030 are partly due to higher relative rebates that
are used to lower premiums and expand benefits.
SNP enrollment is expected to grow by 18 percent in 2021 after
increasing by 14 percent in 2020. In 2022 and later years, the
enrollment growth rate for these plans is expected to slow, ranging
from 10 percent in 2022 to 3 percent in 2030.
For LCCP-HMOs, enrollment is expected to increase by 7 percent in
2021 following growth of 7 percent in 2020. For LCCP-PPOs,
enrollment is expected to increase by 14 percent in 2021 after growth
of 15 percent in 2020.
The “Other” category is expected to fluctuate over the next several
years due to enrollment in the MMP capitated model and enrollment
in cost plans. The MMP capitated model represents health plans that
are capitated by CMS and States to provide comprehensive and
coordinated care for Medicare-Medicaid enrollees. After the
introduction of MMPs in October 2013, enrollment grew nationally
from approximately 3,400 enrollees in a single State to over
397,000 enrollees across nine States in October 2020. These contracts
are set to expire during the years 2021 through 2023. It is assumed
that once the contracts expire, the majority of MMP enrollees will
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Private Health Plans
remain in the MA program by switching to SNPs. Meanwhile, the
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)
amended the cost plan competition requirements specified in section
1876(h)(5)(C) of the Social Security Act. The amended competition
requirements provide that CMS not renew cost plans in service areas
where two or more competing local or regional MA coordinated care
plans meet enrollment requirements over the course of the entire prior
contract year. Under MACRA, cost plans were permitted to transition
to the MA program until the beginning of calendar year 2019.
Enrollment in the “Other” category increased by 49 percent in 2015
because of the influx of MMP enrollment. For 2016 through 2018,
enrollment in this category increased by 14 percent before decreasing
by 37 percent in 2019 due to the reduction in the number of cost plans
required by MACRA. During the period 2020 through 2024, enrollment
in the “Other” category is expected to decrease by 55 percent as a result
of the expiration of the MMP contracts; for most years in 2025 and
later, it is expected to grow more steadily at a rate of 2 to 3 percent.
2. Cost Projection Methodology
a. Background
Benchmarks form the foundation for payments to Medicare Advantage
(MA) plans. Along with geographic, demographic, and risk
characteristics of plan enrollees, these values determine the monthly
prospective payments made to private health plans. MA benchmarks
vary substantially by county. Benchmarks range between 95 and
115 percent of county-level fee-for-service costs, plus applicable quality
bonuses.
For individual non-RPPO plans, a plan’s benchmark is an average of
the statutory capitation ratebook values, weighted by projected plan
enrollment in each county in the plan’s service area. For RPPOs, the
benchmark is a blend of the weighted ratebook values for all Medicare-
eligible beneficiaries in the region and an enrollment-weighted average
of RPPO bids for the region. The weight applied to the bid component
to calculate the blended benchmark is the national MA participation
rate.
Plans submit bids equal to their projected per enrollee cost of providing
the standard Medicare Part A and Part B benefits. Plans with bids
below the benchmark apply the rebate share of the savings to aid plan
enrollees through coverage of Part A and Part B cost sharing, coverage
of additional non-drug benefits, and/or reduction in the Part B or
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Actuarial Methodology
Part D premium. The rebate percentage is based on the quality rating
of the health plan and ranges from 50 to 70 percent. Beneficiaries
choosing plans with bids above the benchmark must pay for both the
full amount of the difference between the bid and the benchmark and
the projected cost of the plans’ supplemental benefits.
Medicare capitation payments to an MA plan are a product of the
standardized plan bid, which is equal to the bid divided by the plan’s
projected risk score, and the actual enrollee risk score, which is based
on demographic characteristics and medical diagnosis data. The risk
score for a given enrollee may be adjusted retrospectively since CMS
receives diagnosis data after the payment date.
Rebate payments are based on the projected risk profile of the plan and
are not adjusted based on subsequent actual risk scores.
b. Incurred Basis
Private health plan expenditures are forecast on an incurred basis by
coverage type. The bid-based expenditures for each quarter are a
product of the average enrollment and the projected average per capita
bid. Similarly, the rebate expenditures are a product of enrollment and
projected average rebates.
Annual per capita benchmarks, bids, and rebates were determined on
an incurred basis for calendar years 2007–2020 for each coverage
category. These amounts include adjustments processed after the
payment due date for retroactive enrollment and risk score updates.
Benchmark growth for 2012 through 2017 was significantly lower than
it was before 2012 because of the phase-in of the fee-for-service-based
ratebook beginning in 2012, which resulted in lower benchmark rates
in most areas. Benchmark growth for years 2021 and later is estimated
to be slightly higher than the growth rate of beneficiaries enrolled in
Medicare fee-for-service due in part to quality bonus payments that are
projected to increase slightly for 2021 and later years and changes in
risk scores that are projected to grow faster for the MA population.
Private health plan expenditures are affected by the sequestration of
non-salary Medicare expenditures. Under the sequestration, private
health plan benefit payments will be reduced by a specified percentage
through March 2031.
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Private Health Plans
c. Cash Basis
Cash MA expenditures are largely identical to incurred amounts, since
both arise primarily from the monthly capitation payments to plans.
Small cash payment adjustments are developed from incurred
spending by accounting for the payment lag that results from CMS’
receipt of post-payment diagnosis data, retroactive enrollment
notifications, and corrections in enrollees’ demographic characteristics.
Table IV.C2 shows Medicare private plan expenditures on an incurred
and cash basis. The incurred payments are reported separately for the
bid-related and rebate expenditures. As noted, most payments to plans
are made as they are incurred, and cash and incurred amounts are
generally the same.
Table IV.C2.—Medicare Payments to Private Health Plans, by Trust Fund
[Dollar amounts in billions]
Incurred basis1
Calendar Part A as a
year Bid Rebate Total percentage of total2 Cash basis
2011 $113.0 $10.8 $123.8 52.3% $123.7
2012 124.8 11.8 136.6 51.6 136.2
2013 134.5 12.5 147.0 50.1 145.6
2014 147.5 12.0 159.5 46.3 159.6
2015 161.9 12.7 174.6 45.6 172.3
2016 174.5 14.4 188.9 45.2 188.6
2017 193.6 15.7 209.3 45.1 209.6
2018 217.9 18.1 236.0 43.7 232.7
2019 250.4 23.0 273.4 43.5 273.8
2020 292.4 29.8 322.2 43.1 317.1
2021 331.9 37.9 369.8 42.9 364.2
2022 368.1 44.0 412.1 42.6 410.6
2023 399.8 49.4 449.2 42.0 448.0
2024 434.0 54.8 488.8 41.4 487.4
2025 473.3 60.8 534.1 40.9 532.6
2026 515.1 68.0 583.1 40.4 581.4
2027 558.4 75.7 634.1 40.0 632.4
2028 605.7 84.1 689.8 39.6 687.9
2029 655.8 92.5 748.3 39.1 746.3
2030 700.4 100.8 801.2 38.7 799.4
1
The bid category includes all expenditures for non-Medicare Advantage coverage.
2
The remaining percentage is paid from the Part B account of the SMI trust fund.
d. Incurred Expenditures per Enrollee
Table IV.C3 shows estimated incurred per enrollee expenditures for
beneficiaries enrolled in private health plans. It combines the values
for expenditures from the Part A and Part B trust funds.
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Actuarial Methodology
Table IV.C3.—Incurred Expenditures per Private Health Plan Enrollee1
Local CCP
Calendar Regional
year HMO PPO PPO PFFS SNP Other Total
Bid-based expenditures2
2011 $9,156 $8,329 $8,211 $8,276 $12,762 $4,842 $9,149
2012 9,162 8,517 7,925 8,551 12,944 4,943 9,210
2013 8,868 8,533 8,121 8,936 12,728 5,061 9,089
2014 8,744 8,618 8,522 9,298 12,667 6,169 9,097
2015 8,817 8,833 8,445 9,553 12,954 8,208 9,273
2016 8,901 9,276 9,033 10,261 13,171 8,397 9,503
2017 9,103 9,629 9,011 10,798 13,688 8,723 9,788
2018 9,456 10,029 9,473 11,141 14,368 9,046 10,233
2019 10,031 10,366 10,006 12,129 15,256 13,164 10,932
2020 10,639 11,012 10,623 12,925 16,490 14,210 11,676
2021 10,944 11,297 11,058 13,590 17,237 15,509 12,122
2022 11,387 11,720 11,590 14,392 17,878 15,904 12,605
2023 11,925 12,288 12,170 15,210 18,674 12,746 13,161
2024 12,468 12,865 12,758 16,052 19,510 12,516 13,760
2025 13,109 13,536 13,465 17,100 20,520 13,207 14,471
2026 13,773 14,243 14,175 18,132 21,540 13,950 15,208
2027 14,450 14,966 14,899 19,199 22,581 14,702 15,962
2028 15,195 15,786 15,685 20,364 23,713 15,498 16,796
2029 15,990 16,627 16,530 21,629 24,936 16,379 17,679
2030 16,650 17,323 17,238 22,744 25,951 17,131 18,411
Rebate expenditures2
2011 $1,135 $401 $474 $450 $1,132 $0 $877
2012 1,157 358 510 355 1,084 0 871
2013 1,124 289 456 255 1,119 0 842
2014 1,020 282 352 210 897 0 739
2015 1,049 212 298 217 954 0 731
2016 1,123 290 310 199 925 0 788
2017 1,120 281 403 194 1,083 0 796
2018 1,184 324 421 176 1,184 0 851
2019 1,327 445 535 198 1,449 0 1,005
2020 1,557 572 691 347 1,678 0 1,192
2021 1,769 697 863 534 1,983 0 1,385
2022 1,913 783 981 658 2,140 0 1,508
2023 2,030 837 1,055 721 2,292 0 1,625
2024 2,162 896 1,138 792 2,455 0 1,736
2025 2,308 962 1,232 873 2,661 0 1,862
2026 2,478 1,041 1,342 969 2,903 0 2,009
2027 2,657 1,124 1,455 1,067 3,140 0 2,162
2028 2,848 1,214 1,579 1,176 3,423 0 2,331
2029 3,040 1,304 1,698 1,275 3,669 0 2,495
2030 3,218 1,390 1,810 1,370 3,910 0 2,649
Total expenditures2
2011 $10,291 $8,730 $8,686 $8,726 $13,893 $4,842 $10,026
2012 10,318 8,875 8,436 8,906 14,027 4,943 10,082
2013 9,991 8,821 8,577 9,190 13,846 5,061 9,930
2014 9,764 8,900 8,875 9,508 13,564 6,169 9,836
2015 9,866 9,045 8,743 9,770 13,908 8,208 10,005
2016 10,023 9,566 9,343 10,460 14,096 8,397 10,291
2017 10,223 9,910 9,414 10,991 14,770 8,723 10,584
2018 10,640 10,353 9,894 11,316 15,552 9,046 11,084
2019 11,358 10,811 10,541 12,327 16,705 13,164 11,937
2020 12,196 11,584 11,314 13,272 18,167 14,210 12,869
2021 12,712 11,994 11,921 14,124 19,220 15,509 13,506
2022 13,300 12,503 12,571 15,051 20,018 15,904 14,113
2023 13,955 13,125 13,225 15,931 20,966 12,746 14,786
2024 14,630 13,761 13,896 16,844 21,965 12,516 15,496
2025 15,417 14,498 14,696 17,973 23,181 13,207 16,333
2026 16,250 15,284 15,517 19,102 24,442 13,950 17,217
2027 17,107 16,090 16,354 20,266 25,721 14,702 18,123
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Private Health Plans
Local CCP
Calendar Regional
year HMO PPO PPO PFFS SNP Other Total
2028 18,043 17,000 17,264 21,540 27,136 15,498 19,127
2029 19,031 17,932 18,228 22,904 28,606 16,379 20,173
2030 19,868 18,713 19,047 24,113 29,861 17,131 21,060
1
Values represent the sum of per capita expenditures for Part A and Part B.
2
The bid category includes all expenditures for non-Medicare Advantage coverage.
Average Medicare payments per private plan enrollee vary by
geographic location of the plan, plan efficiency, and average reported
health status of plan enrollees. LCCPs and SNPs tend to be located in
urban areas where prevailing health care costs tend to be above
average. Conversely, PFFS plans and RPPOs generally reflect a more
rural enrollment. These factors complicate meaningful comparisons of
average per capita costs by plan category.
Per capita bids are expected to increase by 3.8 percent in 2021. For
years 2022 through 2030, the per capita bid trend is expected to be
equal to the average of growth in per capita Medicare fee-for-service
expenditures and benchmark growth. After 2030, average Medicare
payments to private plans per enrollee are assumed to follow the
aggregate growth trends of the HI and SMI Part B per capita benefits,
as described in section IV.D of this report.
Annual increases in per capita rebates are projected to be in the mid to
high single digits due to assumed increases in quality bonus payments
and increases in benchmarks. An exception occurs in 2021 when the
rebate growth rate is expected to be 16 percent due to the permanent
repeal of the insurer fee moratorium in that year.
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Actuarial Methodology
D. LONG-RANGE MEDICARE COST GROWTH ASSUMPTIONS
Sections IV.A, IV.B, and IV.C have described the detailed assumptions
and methodology underlying the projected expenditures for HI
(Part A), SMI (Parts B and D), and private health plans (Part C) during
2021 through 2030. These projections are made for individual
categories of Medicare-covered services, such as inpatient hospital care
and physician services.
As the projection horizon lengthens, it becomes increasingly difficult to
anticipate changes in the delivery of health care, the development of
new medical technologies, and other factors that will affect future
health care cost increases. Accordingly, rather than extending the
detailed projections by individual type of service for all future years,
the Trustees use a more aggregated basis for setting cost growth
assumptions in the long range. Such increases also reflect the
substantial uncertainty associated with payments that are specified
through statute, which may present challenges for the Medicare
program.
Beginning with the 2013 report, the Trustees used the statutory price
updates and the volume and intensity assumptions from the “factors
contributing to growth” model to derive the year-by-year Medicare cost
growth assumptions for the last 50 years of the projection period.69 The
Trustees assume that the productivity reductions to Medicare payment
rate updates will reduce volume and intensity growth by 0.1 percent
below the factors model projection.70
The output and key assumptions of the factors model that are used in
this year’s report are similar to those used in the 2020 report. In
subsequent reports, the Trustees will determine if additional historical
data warrant a re-evaluation of these assumptions and a re-estimation
of the factors model output. The remainder of section IV.D discusses
the factors model and its role in the Medicare projections. Section V.C
69This assumed increase in the average expenditures per beneficiary excludes the
impacts of the aging of the population, changes in the gender composition of the Medicare
population, and changes in the distribution of the Medicare population on the basis of
proximity to death, as the Trustees estimated these factors separately. For convenience,
the increase in Medicare expenditures per beneficiary, before consideration of
demographic impacts, is referred to as the Medicare cost growth rate.
70The Trustees’ methodology is consistent with Finding III-2 and Recommendation III-3
of the 2010–2011 Medicare Technical Review Panel and with Finding 3-2 of the 2016–
2017 Medicare Technical Review Panel. The Panels’ final reports are available at http://
aspe.hhs.gov/health/reports/2013/MedicareTech/TechnicalPanelReport2010-2011.pdf
and at https://aspe.hhs.gov/system/files/pdf/257821/MedicareTechPanelFinalReport2017.pdf.
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Long-Range Assumptions
explains the methods used to derive the long-range cost growth
assumptions underlying the illustrative alternative projection.
1. Long-Range Growth Assumptions for the Overall Health
Sector
The first step to estimate the long-range Medicare trends is to
determine the long-range assumptions affecting the overall health
sector. The Trustees use the factors model to determine the year-by-
year growth rates for the overall health sector over the last 50 years of
the projection. Based on the factors model, the Trustees assume that
the long-range per capita overall health spending growth is GDP plus
0.7 percent (or 4.3 percent) for 2045, gradually declining to GDP plus
0.5 percent by 2095 (or 4.2 percent).71 The per capita increase in overall
health care costs is due to the combined effects of general inflation,
medical-specific excess price inflation (above general price growth), and
changes in the utilization of services per person and the intensity or
average complexity per service. The Trustees assume that beginning
in 2045 (i) general price inflation will remain constant at 2.05 percent
per year, as measured by the GDP deflator; (ii) excess medical price
inflation will remain constant at 0.75 percent per year; and (iii) the
annual increase in the volume and intensity of services per person will
decline gradually from approximately 1.5 percent in 2045 to
1.3 percent in 2095 based on the key economic assumptions and
elasticity estimates from the factors model, as described below.
Excess medical price inflation for the overall health sector is assumed
to grow at 0.75 percent annually from 2045 through 2095. This
assumption is roughly equivalent to the difference between the growth
in the personal health care deflator over the past three decades and the
growth in the GDP deflator over this same period.72 Combining this
assumption with the ultimate assumed growth rate of 2.05 percent per
year in the GDP deflator yields the Trustees’ estimate of the long-range
rate of medical price growth of 2.8 percent annually. Using the
relationship between medical price growth and resource-based health
71These growth rate assumptions are described relative to the per capita increase in GDP
and characterized simply as GDP plus X percent.
72Information on the personal health care deflator is available at
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-
and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.
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Actuarial Methodology
sector productivity growth73 allows for the determination of medical
input price growth.74 For resource-based health sector productivity, the
Trustees assume that the rate of growth will be equivalent to published
research75 of 0.4 percent per year. Hence, the Trustees’ estimate of the
long-range rate of growth of medical input prices is 3.2 percent.
As stated earlier, the factors model is based on economic research that
separates health spending growth into its major drivers—income
growth, relative medical price inflation, insurance coverage, and a
residual that primarily reflects the impact of technological
development.76 The factors model provides the ability to model the
expected behavioral effects associated with a continuing increase in the
share of national income devoted to consumption of health care
services. In particular, this approach is based on historically estimated
income and price elasticities and uses measurable key variables,
providing a foundation for developing the long-range growth
assumptions.77
In the factors model, the sensitivity of health cost growth to each of the
three factors must be estimated. Each sensitivity is measured as an
elasticity, which is the percentage change in cost growth that is caused
by a 1-percent change in a factor. The first elasticity, the income-
technology elasticity, reflects the increase in demand for health care
and new medical technologies in response to growth in income. The
second elasticity, the relative medical price elasticity, reflects the
73Resource-based productivity is defined as the real value of provider goods and services
divided by the real value of the resources (inputs) used to produce the goods and services,
whereas price changes are measured across constant products—that is, defined health
services with a constant mix of inputs. Resource-based productivity is used for this
decomposition, rather than outcomes-based productivity (which incorporates the
estimated value of improvements in health resulting from the services), because
Medicare and most other payers reimburse providers based on their resource use.
74A third factor, provider profit margins, is assumed to remain constant over the long
range.
75Information on updated estimates of hospital productivity is available at
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-
and-Re po rts / Re po rts Tr us t Fu n ds / Downloads/ProductivityMemo2016.pdf; Fisher,
Charles. “Multifactor Productivity in Physicians’ Offices: An Exploratory Analysis.”
Health Care Financing Review, 29, no. 2 (2007): 15–32.
76Smith, Sheila, Newhouse, Joseph P., and Freeland, Mark S. “Income, Insurance, and
Technology: Why Does Health Spending Outpace Economic Growth?” Health Affairs, 28,
no. 5 (2009): 1276–1284.
77Additional information on the “factors contributing to growth” model is available in a
memorandum by the CMS Office of the Actuary titled “A Conceptual View of the
Long-Term Projection Methods for Medicare and Aggregate National Health
Expenditures,” available at https://www.cms.gov/files/document/conceptual-
view-long-term-projection-methods-medicare-and-aggregate-national-health-
expenditures.pdf.
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Long-Range Assumptions
sensitivity of consumers and purchasers in consuming health care to
changes in excess medical price inflation. The final key elasticity is the
insurance elasticity, which reflects the change in demand for medical
care as the level of insurance coverage changes.
For the income-technology elasticity, the Trustees developed a time-
trend-based method for projecting the elasticity that reflects the
historical declining trend, produces results consistent with the
elasticity implied by the most recent short-range national health
expenditure (NHE) projections, and converges to 1.0 within a range of
roughly 75 to 150 years. In the resulting projection, the income-
technology elasticity is 1.25 in the 25th year of the projection period
(2045) and declines at a slowing pace to 1.07 in the 75th year of the
period (2095). This methodology results in an income-technology
elasticity that reaches 1.0 in 2125. These are the same elasticity
assumptions that were used for 2045 and 2095 in the 2020 report.
For the medical price elasticity, the Trustees assume a rising
sensitivity of demand for health care to changes in relative medical
price as the share of income devoted to health care rises. The medical
price elasticity is determined for a given year by subtracting an income
effect from a pure substitution effect. The income effect is determined
by multiplying the share of income devoted to health care in that year
by the estimated yearly income-technology elasticity. The substitution
effect is assumed to be equal to ï0.2 and represents the change in
demand in response to a change in the relative price of health care
holding utility constant. For the 2021 report, the Trustees project the
price elasticity to be ï0.50 for the 25th year of the projection (2045) and
assume that it will follow a non-linear path until it reaches ï0.56 in
the 75th year of the projection (2095). Based on the RAND Health
Insurance Experiment, the insurance elasticity was estimated at ï0.2
and was assumed to be unchanged over the long range.78
Two additional assumptions are required to complete the factors model
determination. First, relative medical price inflation must be
estimated over the long-range projection period. As discussed
previously, the Trustees assume a relative medical price growth rate
of 0.75 percent per year. Second, insurance coverage is assumed to be
unchanged over the long range in order to maintain consistency with
78Newhouse, Joseph P., and the Insurance Experiment Group. Free for All? Lessons from
the RAND Health Insurance Experiment. Cambridge: Harvard University Press, 1993.
The coefficient of this elasticity is negative because the level of insurance coverage is
measured using individuals’ cost-sharing requirements (such as deductibles and
coinsurance).
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Actuarial Methodology
the concept of a Medicare projection in which the Medicare benefit
package is not altered.
2. Long-Range Growth Assumptions for Medicare
The Trustees have assumed since 2001 that it is reasonable to expect
over the long range that the drivers of health spending will be similar
for the overall health sector and for the Medicare program. This view
was affirmed by the 2010–2011 Medicare Technical Review Panel,
which recommended use of the same long-range assumptions for the
increase in the volume and intensity of health care services for the total
health sector and for Medicare. Therefore, the overall health sector
long-range cost growth assumptions for volume and intensity are used
as the starting point for developing the Medicare-specific assumptions.
Medicare payment rates for most non-physician provider categories are
updated annually by the increase in providers’ input prices for the
market basket of employee wages and benefits, facility costs, medical
supplies, energy and utility costs, professional liability insurance, and
other inputs needed to produce the health care goods and services.
These updates are then reduced by the 10-year moving average
increase in economy-wide productivity, which the Trustees assume will
be 1.0 percent per year over the long range. The Trustees assume that
the full market basket increase would be approximately 3.2 percent
annually, or about 0.4 percent greater than the net price increase of
2.8 percent per year described above for the total health sector. The
different statutory provisions for updating payment rates require the
development of separate long-range Medicare cost growth assumptions
for four categories of health care provider services:
(i) All HI, and some SMI Part B, services that are updated annually
by provider input price increases less the increase in economy-wide
productivity.
The annual increase in Medicare payment rates for these services
is reduced by the 10-year moving average increase in economy-
wide productivity. These gains are estimated to be 1.0 percent per
year over the long-range projection period. Combined with an
assumed market basket increase of 3.2 percent, the statutory
price update for these services is 2.2 percent per year over the long
range. The initial projected increase in the volume and intensity
of these Medicare services is assumed to be equivalent to the
average projected growth in the volume and intensity of services
for the overall health sector. The Trustees believe that the use of
a common baseline rate of volume and intensity growth across all
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Long-Range Assumptions
Medicare services is reasonable, as there would be only a small
likelihood that one part of the health sector could continue to grow
indefinitely at significantly faster rates of growth than do other
parts.
Additionally, the Trustees assume that the growth in Medicare
payment rates will reduce the volume and intensity growth of
these services by 0.1 percent per year relative to the assumption
from the factors model. The Trustees’ assumption is based on the
work of the 2010–2011 and 2016–2017 Medicare Technical
Review Panels, both of which concluded that there would likely be
a small net negative impact on volume and intensity growth due
to reduced incentives to develop new technologies, provider exits,
and the impact of greater bundling of services for payment
purposes.79,80 For new technology that leads to new services,
Medicare would pay lower fees than would otherwise be the case,
and providers would be less likely to adopt new services and
innovations, thereby lowering the demand for, and intensity of,
the medical care provided. Regarding provider exits, as fee-for-
service fees declined relative to those assumed for private health
insurance plans, facilities of marginal profitability would likely
exit the Medicare market, reducing capacity and volume. This
change could also cause a more bifurcated health system in which
only providers that could operate profitably under Medicare would
offer services to Medicare beneficiaries, with a tendency to provide
only the more basic services not associated with new medical
technologies. Finally, the innovations being tested for the
Medicare program, such as bundled payments or accountable care
organizations, could reduce incentives to adopt new cost-
increasing technologies and increase incentives to adopt new cost-
decreasing technologies for those participating in these programs
and/or could contribute to greater efforts to avoid services of
limited or no value within the service bundle.
Reflecting all of these considerations, the year-by-year long-range
cost growth rate assumption for these HI and SMI Part B services
starts at 3.6 percent in 2045, or GDP plus 0 percent, and gradually
declines to 3.4 percent by 2095, or GDP minus 0.3 percent.
79See Recommendation III-3 of the 2010–2011 Medicare Technical Review Panel and
Finding 3-2 of the 2016–2017 Medicare Technical Review Panel.
80Other factors, such as reduced beneficiary cost-sharing requirements, would tend to
increase the volume and intensity of services. The assumption of ï0.1 percent reflects
the Technical Panel’s assessment that the overall impact would be a small net decrease
in volume and intensity growth.
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Actuarial Methodology
(ii) Physician services
Payment rate updates are 0.75 percent per year for those qualified
physicians assumed to be participating in advanced alternative
payment models (advanced APMs) and 0.25 percent for those
assumed to be participating in the merit-based incentive payment
system (MIPS) in the long range. The year-by-year cost growth
rates for physician payments are assumed to decline from
3.2 percent in 2045, or GDP minus 0.4 percent, to 2.8 percent in
2095, or GDP minus 0.9 percent.
(iii) Certain SMI Part B services that are updated annually by the CPI
increase less the increase in productivity.
Such services include durable medical equipment (DME) that is
not subject to competitive bidding,81 care at ambulatory surgical
centers, ambulance services, and medical supplies, which are
updated by the CPI and reduced by the 10-year moving average
increase in economy-wide productivity. For these services, the
Trustees initially assume that the rate of per beneficiary volume
and intensity growth is equivalent to that derived for the overall
health sector using the factors model. This volume and intensity
growth is assumed to be reduced by 0.1 percent per year, as
described above. The volume and intensity assumption is
combined with the long-range CPI assumption (2.4 percent)
minus the productivity factor (1.0 percent) to produce a long-
range growth assumption for these SMI Part B services. The
corresponding year-by-year cost growth rates gradually decline
from 2.8 percent in 2045, or GDP minus 0.8 percent, to 2.6 percent
in 2095, or GDP minus 1.1 percent.
(iv) All other Medicare services, for which payments are established
based on market processes, such as prescription drugs provided
through Part D and the remaining Part B services.
The Trustees assume that per beneficiary outlays for these other
Part B services, which constitute about 15 percent of total Part B
expenditures in 2030, and for all Part D services grow at the same
rate as the overall health sector as determined from the factors
model. The services are assumed to grow similarly because their
payment updates are determined by market forces, such as the
competitive-bidding process for Medicare Part D. The year-by-
year cost growth rates gradually decline from 4.3 percent in 2045,
81The portion of DME that is subject to competitive bidding is included with all other
Medicare services since the price is determined by a competitive bidding process.
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or GDP plus 0.7 percent, to 4.2 percent by 2095, or GDP plus
0.5 percent.
In addition, these long-range cost growth rates must be modified to
reflect demographic impacts. Beginning with the 2020 report, these
impacts reflect the changing distribution of Medicare enrollment by
age, sex, and the beneficiary’s proximity to death, which is referred to
as a time-to-death (TTD) adjustment. The TTD adjustment reflects the
fact that the closer an individual is to death, the higher his or her
health care spending is. Thus, as mortality rates improve and a smaller
portion of the Medicare population is likely to die at any given age, the
effect of individuals getting older and spending more on health care is
offset somewhat.82
After combining the rates of growth from the four long-range
assumptions, the weighted average cost growth rate for Part B is
3.8 percent, or GDP plus 0.2 percent in 2045, declining to 3.7 percent,
or GDP plus 0 percent by 2095. When Parts A, B, and D are combined,
the weighted average cost growth rate is 3.8 percent in 2045, or GDP
plus 0.2 percent, declining to 3.7 percent, or GDP plus 0 percent by
2095.
As in the past, the Trustees have established detailed growth rate
assumptions for the initial 10 years of the projection period by
individual type of service (for example, inpatient hospital care and
physician services), reflecting recent trends and the impact of all
applicable statutory provisions. For each of Parts A, B, and D, the
assumed growth rates for years 11 through 25 of the projection period
are set by interpolating between the rate at the end of the short-range
period and the rate at the start of the final 50 years of the long-range
period described above. The 2016–2017 Medicare Technical Review
Panel concluded that both the current length of the transition period
and the current approach to the transition are reasonable, and they
recommended that the Trustees continue to use the same approach to
transitions between short-range and long-range projections for both HI
and SMI.83
82More information on the TTD adjustment is available at
https://www.cms.gov/files/document/incorporation-time-death-medicare-demographic-
assumptions.pdf.
83See Findings 6-2 and 6-3 and Recommendation 6-1.
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V. APPENDICES
A. MEDICARE AMENDMENTS SINCE THE 2020 REPORT
Since Appendix V.A. for the 2020 annual report was written, nine laws
have been enacted that have an effect on the Medicare trust funds.
(Three of these laws were enacted before, and six after, the transmittal
of the 2020 report to Congress on April 22, 2020.) The more important
provisions, from an actuarial standpoint, are described, in brief, in the
following paragraphs. Certain provisions with a relatively minor
financial impact, but which are important from a policy perspective,
are briefly described as well.
1. The Coronavirus Preparedness and Response
Supplemental Appropriations Act, 2020 (Public
Law 116-123, enacted on March 6, 2020) included one
provision that affects Part B of the SMI program.
• The Secretary of Health and Human Services (HHS) may
temporarily waive or modify certain Medicare restrictions and
requirements regarding telehealth services in geographical
emergency areas and during certain emergency periods,
including during the COVID-19 public health emergency
period. Specifically, the originating site (where the patient is
located) need not be in a rural area (as is otherwise required
for many types of telehealth services), nor need it be one of the
otherwise-specified types of facilities (thereby allowing
telehealth to be provided to beneficiaries in their homes); a
smartphone may be used; and the covered list of services may
be expanded. For services under these expansions to be
covered, the authorized physician or practitioner (or his or her
practice partners) must have seen the patient, and billed
Medicare for such service, within the past 3 years.
2. The Families First Coronavirus Response Act (Public
Law 116-127, enacted on March 18, 2020) included
provisions that affect Part B of the SMI program.
• Under both traditional fee-for-service Medicare and Medicare
Advantage, beneficiary cost sharing is eliminated for visits to
specified providers during which a COVID-19 diagnostic test is
administered or ordered. Medicare Advantage plans must also
cover COVID-19 testing without cost sharing (as is generally
already the case under traditional Medicare). Medicare
Advantage plans may not use prior authorization or other
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utilization management techniques with respect to COVID-19
testing and related visits. This provision is effective throughout
the COVID-19 emergency period, beginning with the date of
this law’s enactment.
• The telehealth provision in Public Law 116-123, as described
above, is modified such that, for the required preexisting
patient-physician relationship, the service must be one that
would have been covered by Medicare, rather than necessarily
billed to Medicare. (This change allows the telehealth
expansions during the COVID-19 emergency period to apply to
individuals who became Medicare beneficiaries within the last
3 years.)
3. The Coronavirus Aid, Relief, and Economic Support
(CARES) Act (Public Law 116-136, enacted on March 27,
2020) included provisions that affect the HI and SMI
programs.
CARES Act Provisions Affecting All Parts of Medicare
• From May 1, 2020 through December 31, 2020, the Medicare
program is exempted from the sequestration process that is in
place should Congress fail to address the budget deficit by
certain deadlines. In addition, the sequestration process is
extended by 1 year, through fiscal year 2030. The benefit
payment reductions of 4.0 percent for the first 6 months and
0.0 percent for the second 6 months that were ordered for fiscal
year 2029 are now ordered instead for fiscal year 2030, while
the reductions ordered for fiscal year 2029 are changed to a
uniform 2.0 percent. (The sequestration order for a given fiscal
year is applied to expenditures incurred from April 1 of that
fiscal year through March 31 of the following fiscal year.)
• Funding for the National Quality Forum from the HI and SMI
trust funds is extended through November 30, 2020 (from
May 22, 2020).
• Funding for certain low-income outreach and assistance
programs is extended through November 30, 2020 (from
May 22, 2020).
CARES Act Provisions Affecting HI and Part B of SMI
• The Medicare Accelerated and Advance Payments (AAP)
Program is significantly expanded during the COVID-19 public
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health emergency period. First, critical access, pediatric, and
certain cancer hospitals are added to the list of eligible
providers and suppliers. (The usual eligibility criteria—to have
billed Medicare during the last 180 days, to not be in
bankruptcy, to not be under review or investigation, and to not
have any outstanding delinquent Medicare overpayments—
will still apply.) Next, the maximum amounts available under
the AAP program are increased during the emergency period
to (i) 100 percent of Medicare payments made during the past
6 months—for inpatient acute care, pediatric, and certain
cancer hospitals; (ii) 125 percent of Medicare payments made
during the past 6 months—for critical access hospitals; and
(iii) 100 percent of Medicare payments made during the past
3 months—for all other eligible entities. (The maximum
available AAP amounts had been 70 percent and 80 percent for
providers and suppliers, respectively, of Medicare payments
made during the past 90 days.) In addition, recoupments begin
120 days after the accelerated or advance payment is issued,
and repayment is due in full within 1 year. (Normally,
recoupments begin shortly after the payment is issued, and
repayment is due in full within 90 days.)
• For Medicare coverage of and payment for home health
services, certain activities that required a physician may now
be performed by a nurse practitioner, clinical nurse specialist,
or physician assistant. Such activities include certifying the
need for home health services and establishing a plan of care.
These non-physician practitioners are now subject to the same
requirements and restrictions, with regard to home health
services, as physicians. These changes are to become effective,
through regulation, no later than 6 months after enactment.
• For home health services furnished under Medicare during the
COVID-19 public health emergency, the Secretary of HHS
must consider ways to encourage the use of
telecommunications systems, including remote patient
monitoring.
• For hospice care recertification under Medicare, the required
face-to-face encounter with a physician or nurse practitioner
may be furnished via telehealth during the COVID-19 public
health emergency.
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CARES Act Provisions Affecting HI
• During the COVID-19 emergency period, for discharges of
individuals diagnosed with COVID-19, the weighting factors
that would otherwise apply to the assigned diagnosis-related
groups are increased by 20 percent. Budget neutrality
requirements are waived for this provision.
• For inpatient rehabilitation facilities, the requirement that
patients must receive therapy at least 3 hours per day for
5 days a week is waived during the COVID-19 emergency
period.
• During the COVID-19 emergency period, long-term care
hospitals (LTCHs) are not subject to site-neutral payment
reductions for admissions made in response to the COVID-19
emergency. In addition, during the emergency period, the
50 percent rule is waived. (Under the 50 percent rule, if greater
than 50 percent of a LTCH’s discharges are paid at the site-
neutral rate during a cost reporting period, payments are
subsequently made as if the hospital were under the inpatient
prospective payment system—that is, at the typically lower
site-neutral rate.)
CARES Act Provisions Affecting Part B of SMI
• Traditional fee-for-service Medicare and Medicare Advantage
plans are to cover licensed COVID-19 vaccines and their
administration, and with no beneficiary cost sharing.
• During the COVID-19 emergency period, federally qualified
health centers and rural health clinics are allowed to serve as
distant sites for telehealth.
• The 1.00 floor on the geographic index for physician work
(which increases the work component for physicians who
practice in locations where labor costs are lower than the
national average) is extended through December 1, 2020 (from
May 23, 2020).
• For the market-based system used to update the Medicare
clinical laboratory fee schedule, laboratories are exempted for
another year, until calendar year 2022, from the requirement
that they report private payer rates. Also, the caps in place to
limit reductions in fee schedule payments from year to year are
changed—from 15 percent for 2021–2023 to 0 percent for 2021
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and to 15 percent for 2022–2024. (Thus, tests under the 2021
fee schedule are to be paid at the same rates as, rather than
reduced from, tests under the 2020 fee schedule.)
• Under the competitive bidding program for certain durable
medical equipment items, the transition period is extended,
such that implementation is delayed for payments under a new
fee schedule based on competitively bid rates (rather than on a
blend of these rates and rates based on the prior fee schedule).
For those items furnished in rural or in non-contiguous areas
(that is, Alaska, Hawaii, and U.S. Territories), payment based
on a 50/50 blend of the new fee schedule and prior fee schedule
amounts is extended through December 31, 2020 or through
the duration of the COVID-19 public health emergency,
whichever is later. For those items furnished in non-rural
contiguous areas, payment is to be based on a 75/25 blend of
the new fee schedule and the prior fee schedule amounts,
respectively, for dates of service from March 6, 2020 through
the duration of the COVID-19 emergency.
• During the COVID-19 public health emergency, the Secretary
of HHS may waive the requirement that individuals with end-
stage renal disease (ESRD) and on home dialysis must receive
face-to-face, in-person clinical assessments every 3 months in
order to receive clinical assessments via telehealth under
Medicare.
• For the telehealth expansions during the COVID-19 emergency
period, as described previously under both Public Law 116-123
and Public Law 116-127, the preexisting physician-patient
relationship is no longer required, and the Secretary of HHS
may provide flexibility regarding audio-only telehealth.
Moreover, the Secretary may waive additional statutory
restrictions on Medicare telehealth services.
CARES Act Provision Affecting Part D of SMI
• Medicare prescription drug plans (both stand-alone and under
Medicare Advantage) must, during the COVID-19 public
health emergency, allow enrollees to obtain the entire
prescribed supply of a covered drug in a single fill or refill, up
to a 90-day supply. An exception is made for certain safety
concerns.
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4. The Continuing Appropriations Act, 2021 and Other
Extensions Act (Public Law 116-159, enacted on October 1,
2020) included provisions that affect the HI and SMI
programs.
Provisions Affecting All Parts of Medicare
• Funding for the National Quality Forum from the HI and SMI
trust funds is extended through December 11, 2020 (from
November 30, 2020).
• Funding for certain low-income outreach and assistance
programs is extended through December 11, 2020 (from
November 30, 2020).
Provision Affecting HI and Part B of SMI
• For providers and suppliers who receive accelerated or advance
payments under the AAP program during the COVID-19 public
health emergency, the repayment terms are amended from
those provided by, and discussed previously under, the CARES
Act. Specifically, recoupments are not to begin until 1 year has
passed since the payment was issued, after which recoupments
are to be 25 percent of the AAP amount over the first
11 months and 50 percent over the following 6 months. After
that 29-month period has elapsed, the remaining balance will
be due within 30 days. If not repaid, interest will accrue for
each full 30-day period that the balance remains unpaid, but
at an interest rate of 4 percent (instead of 10.25 percent). In
addition, a $10-million limit on advance payments to Part B
suppliers is established for the period from October 1, 2020 (the
date of enactment) through December 31, 2020 and for each
subsequent calendar year in which there is a COVID-19 public
health emergency during all or part of the year.
Provisions Affecting Part B of SMI
• For the 2021 Part B premium, the actuarial rate for enrollees
aged 65 and older is to be determined as the sum of the 2020
actuarial rate for enrollees aged 65 and older and one-fourth of
the difference between the 2020 actuarial rate and the
preliminary 2021 actuarial rate (as determined by the
Secretary of HHS) for such enrollees. The premium revenue
lost by using the resulting lower premium (excluding the
forgone income-related premium revenue) is to be replaced by
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a transfer of general revenue from the Treasury, and this
transferred amount, in turn, is to be repaid over time (by
continuing to collect—and repay to the general fund of the
Treasury—the $3 amount that, starting in 2016, has been
added to the otherwise-determined Part B premium).
• A transfer is to be made from the general fund of the Treasury
to the Part B account, reflecting estimated advance payments
made from the Part B account to Part B providers and
suppliers during the COVID-19 public health emergency
period as of October 1, 2020. (By virtue of this transfer, the
Part B account no longer bears the risk for non-repayments,
and the Part B premium for 2021 can be determined without
consideration of potential non-repayments.) Then, over time,
as Part B providers and suppliers repay the Part B account for
the advance payments, the Part B account is to make periodic
transfers of these amounts to the general fund in order to repay
the general fund for the original transfer. (As of this writing,
there is no analogous provision for Part A.)
• The 1.00 floor on the geographic index for physician work is
extended through December 12, 2020 (from December 1, 2020).
5. The Further Continuing Appropriations Act, 2021 and
Other Extensions Act (Public Law 116-215, enacted on
December 11, 2020) included provisions that affect the HI
and SMI programs.
Provisions Affecting All Parts of Medicare
• Funding for the National Quality Forum from the HI and SMI
trust funds is extended through December 18, 2020 (from
December 11, 2020).
• Funding for certain low-income outreach and assistance
programs is extended through December 18, 2020 (from
December 11, 2020).
Provision Affecting Part B of SMI
• The 1.00 floor on the geographic index for physician work is
extended through December 19, 2020 (from December 12,
2020).
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Provision Affecting Part D of SMI
• CMS must share certain Medicare Advantage and Medicare
prescription drug plan enrollment information with certain
insurers in response to Medicare Secondary Payer queries.
Specifically, CMS must share whether the queried individual
is, or has been during the preceding 3-year period, entitled to
Medicare benefits, and CMS must also provide, if applicable,
the plan name and address under which the individual is or
has been enrolled. This provision is effective beginning 1 year
after enactment.
6. The ALS Disability Insurance Access Act of 2019 (Public
Law 116-250, enacted on December 22, 2020) included one
provision that affects the HI and SMI programs.
• The 5-month waiting period for Social Security Disability
Insurance (DI) benefits is eliminated for individuals with
amyotrophic lateral sclerosis (ALS). Originally, this provision
was applicable to individuals applying for DI benefits on or
after December 31, 2020, but a technical correction (Public
Law 117-3, enacted on March 23, 2021) modified the provision
retroactively such that the waiting period is eliminated for
individuals approved for DI benefits on or after July 23, 2020.
(The 24-month Medicare waiting period, which follows the
5-month DI waiting period, was waived for individuals with
ALS, beginning July 1, 2001, by Public Law 106-554.)
7. The Consolidated Appropriations Act, 2021 (Public
Law 116-260, enacted on December 27, 2020) included
provisions that affect the HI and SMI programs.
Provisions Affecting All Parts of Medicare
• The CARES Act provision described above that temporarily
exempts the Medicare program from sequestration beginning
May 1, 2020 is extended through March 31, 2021 (from
December 31, 2020).
• Funding for the National Quality Forum from the HI and SMI
trust funds is extended through September 30, 2023 (from
December 18, 2020).
• Funding for certain low-income outreach and assistance
programs is extended through September 30, 2023 (from
December 18, 2020).
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• Funding in the amount of $165 million is provided to the
Medicare Improvement Fund from the HI and SMI trust funds
in such proportion as is deemed appropriate by the Secretary
of HHS.
• The public-private partnership that is in place for detecting
and preventing fraud, waste, and abuse in CMS-administered
programs is codified, and partnership responsibilities are
specified. The Secretary of HHS is directed to award a contract
to a trusted third party to carry out the duties of the
partnership.
Provisions Affecting HI and Part B of SMI
• Medicare Part B insurance coverage is to begin the first day of
the month following an eligible individual’s enrollment. In
addition, the Secretary of HHS is authorized to establish a
special Part A and Part B enrollment period for people in
exceptional circumstances, as defined by the Secretary. This
provision is effective January 1, 2023.
• The cap on Medicare-funded physician residency positions in
teaching hospitals is increased by 200 positions each year,
beginning in fiscal year 2023, until it reaches an additional
1,000 positions. In addition, the Medicare Graduate Medical
Education Rural Training Tracks Program is amended to
provide greater flexibility for rural and urban hospitals that
participate in it. Also, the rules imposed on certain community
hospitals that have hosted rotator residents for brief periods
are changed, such that these hospitals are allowed to establish
new residency programs without limitations on the number of
residency slots.
• Beginning no later than January 1, 2022, occupational
therapists may conduct the initial assessment visit and
complete the comprehensive assessment for certain
rehabilitation services provided by home health agencies. The
home health plan of care for the beneficiary must not initially
include skilled nursing care but must include occupational
therapy and either physical therapy or speech language
pathology.
• A new basis for Medicare Part B eligibility is established for
post-kidney-transplant immunosuppressive drug coverage
only. (Without this provision, Medicare eligibility due solely to
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ESRD generally ends 36 months after a successful kidney
transplant. This provision (i) allows individuals with no other
insurance coverage for their immunosuppressive medications
to remain enrolled in Part B solely for this purpose; (ii) reduces
the likelihood of drug noncompliance, transplant failure, and a
return to dialysis and Medicare coverage under Parts A and B;
and (iii) allows dialysis patients to remove drug cost
considerations from transplant decisions.) The premium for
this extended coverage is to be 15 percent of the Part B aged
actuarial rate and not subject to late enrollment penalties or
the income-related monthly adjustment amount. Beneficiaries
whose 36-month coverage period ends before January 2023 can
enroll starting in October 2022, and their coverage is to begin
in January 2023 or the month after they enroll, whichever is
later; those whose 36-month coverage period ends in January
2023 or later are to be automatically enrolled.
Provisions Affecting HI
• The Rural Community Hospital Demonstration is extended for
an additional 5 years. (This program tests the feasibility of
cost-based Medicare reimbursement for small rural hospitals
that are too large to be critical access hospitals.)
• Beginning October 1, 2021, blood clotting factors, and items
and services related to their furnishing, are added to the list of
high-cost, low-probability services paid for separately rather
than under the Medicare skilled nursing facility (SNF)
prospective payment system.
• For the Medicare SNF value-based purchasing program, the
Secretary of HHS is allowed to add up to 10 quality measures.
• For the hospice aggregate cap, the change made by the
Improving Medicare Post-Acute Care Transformation
(IMPACT) Act of 2014—whereby the hospice payment update
percentage is used for the annual updates for fiscal years 2017–
2025 rather than the Consumer Price Index for All Urban
Consumers—is extended to fiscal years 2026–2030.
• For the Medicare hospice program, the practice of surveying
hospices at least once every 36 months is codified, and poor-
performing hospices are to be surveyed at least once every
6 months. For deficiencies identified, a range of remedies is
provided for (depending on whether or not there is immediate
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jeopardy to the health and safety of patients). The penalties for
hospices that fail to report quality data are to increase from 2
to 4 percentage points beginning in fiscal year 2024.
Provisions Affecting Part B of SMI
• The 1.00 floor on the geographic index for physician work is
extended through January 1, 2024 (from December 19, 2020).
• An increase of 3.75 percent is made to payments under the
physician fee schedule for all services in 2021. This increase is
not subject to the budget neutrality requirements that typically
apply. Congress also appropriated $3 billion to the Part B
account of the SMI trust fund to mitigate the effect of this
increase on premiums and the account balance.
• CMS is prohibited from using the physician fee schedule
add-on code for inherently complex evaluation and
management visits until January 1, 2024 at the earliest. (The
code was adopted to make extra payments for certain services
typically provided by primary care physicians, but, due to
budget neutrality rules, this adjustment also resulted in
payment reductions for other physician services, particularly
those provided by certain types of specialists.)
• For physicians participating in alternative payment models,
the payment and patient count thresholds that must be met to
qualify for incentive payments are frozen at their current levels
for payment years 2023 and 2024 (which cover performance
years 2021 and 2022). The partial qualifying thresholds are
frozen in the same manner.
• During the period beginning April 1, 2021 and ending
December 31, 2021, for independent rural health clinics
(RHCs), the statutory cap on the Medicare payment per visit is
raised to $100 (from $87.52). The cap is to then gradually
increase by prescribed amounts each calendar year through
2028, when the cap will reach $190. For 2029 and later, the cap
is to increase based on the Medicare Economic Index (MEI).
This payment cap structure also applies to provider-based
RHCs, except for those that (i) are based with a hospital having
fewer than 50 beds and (ii) were Medicare-certified on or before
December 31, 2019. Such RHCs can avoid the lower cap
structure just described and apply instead to be grandfathered.
(Hospital beds temporarily added due to the COVID-19
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pandemic are excluded when determining whether the parent
hospital has fewer than 50 beds.) Each grandfathered RHC is
to have its individual clinic-specific cap established based on
its 2020 cost per visit, and its clinic-specific cap is to then
increase based on the MEI. (Previously, hospital-based RHCs
with a parent hospital having fewer than 50 beds could receive
uncapped cost-based reimbursement.) It should be noted that
technical changes were subsequently made to this provision
and are described later under Public Law 117-7.
• A new Medicare provider type is established, as hospitals
currently designated as critical access hospitals or as small
rural hospitals with fewer than 50 beds can choose to convert
to rural emergency hospitals (REHs) that provide REH
services. This new designation allows these facilities to receive
Medicare reimbursement for providing emergency and
observation services without providing inpatient hospital
services. REHs may also provide, on an outpatient basis, other
medical and health services from options to be specified by the
Secretary of HHS. REHs must (i) provide emergency medical
and observation care 24 hours a day and 7 days a week, with
certain staffing required; (ii) not provide acute care inpatient
services; (iii) not exceed an annual per patient length of stay of
24 hours; (iv) have protocols in place for the timely transfer of
patients who require inpatient hospital services; (v) have a
transfer agreement in place with a Level I or Level II trauma
center; and (vi) meet certain licensing requirements and
conditions of participation. REHs may also have a SNF unit for
post-acute care, allowing the facility to take in patients for
emergency treatment, transfer them to other hospitals for
acute care, and then receive them back for post-acute
treatment. In addition, REHs qualify as Medicare telehealth
originating sites (at which beneficiaries may receive covered
telehealth services). Medicare payments for REH services are
to be made at the outpatient prospective payment system rate,
plus a 5-percent add-on to that rate, and a fixed monthly
payment is to be made as well. Separate payment provisions
are made for associated SNF services, ambulance transport
services, and certain permitted off-campus provider-based
departments. This provision is in effect for RHE services
furnished on or after January 1, 2023.
• Beginning January 1, 2022, rural health clinic and federally
qualified health center physicians may furnish and bill
Medicare for providing attending physician services to their
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patients who become terminally ill and elect the hospice
benefit.
• Physician assistants are authorized to receive direct payment
under Medicare for services furnished to beneficiaries on or
after January 1, 2022.
• Beneficiary cost sharing is gradually eliminated for colorectal
cancer screening tests when tissue is removed. (Medicare
covers colorectal cancer screening tests without cost sharing,
but the beneficiary could be responsible for 20-percent
coinsurance if a tissue removal procedure—such as, but not
limited to, polyp removal or tissue taken for biopsy—is
included.) Cost sharing is to be reduced from 20 percent
through 2022 to 15 percent for 2023–2026, 10 percent for
2027–2029, and 0 percent thereafter.
• The budget neutrality requirement for establishing new
payment classes of oxygen and oxygen equipment no longer
applies (thereby increasing Medicare payment for new
payment classes).
• For calendar quarters beginning on or after January 1, 2022,
manufacturers of drugs covered under Medicare Part B are
required to report average sales prices (ASPs) to HHS, even if
they are not otherwise required to do so under the Medicaid
drug rebate program. Also, when determining payment for
drugs covered under Part B, CMS is authorized to exclude,
from the ASP calculation, payments made under Part D for the
self-administered versions of these drugs that are identified for
exclusion by the HHS Office of Inspector General.
• For mental health services delivered by telehealth beyond the
COVID-19 public health emergency period, the geographic and
originating site requirements are waived, thereby allowing
beneficiaries to receive these services in their homes and in any
area of the country. To be eligible, beneficiaries will be required
to receive at least one in-person mental health service during
the 6 months prior to the first telehealth service, and CMS may
develop additional in-person requirements.
• Implementation of the Medicare Radiation Oncology Model is
delayed until January 1, 2022 at the earliest. (This model had
most recently been scheduled by CMS to start July 1, 2021.)
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• For self-administered and biological drugs that were covered
under the temporary transitional home infusion therapy
benefit, continued coverage is ensured under the permanent
benefit, effective for items and services furnished on or after
January 1, 2021.
• The Secretary of HHS must conduct outreach to Medicare
providers and practitioners regarding Medicare payment for
cognitive assessment and care plan services for individuals
with cognitive impairment such as Alzheimer’s and related
dementias. A year after enactment, HHS is to report on this
provider outreach; 3 years after enactment, GAO is to report
on beneficiary utilization of these services.
• The Frontier Community Health Integration Project
Demonstration is extended for an additional 5 years, beginning
July 1, 2021.
• The Independence at Home Demonstration is extended for an
additional 3 years (through December 31, 2023) and is
expanded from 15,000 to 20,000 beneficiaries.
• The Medicare Intravenous Immune Globulin Demonstration is
extended for an additional 3 years (through December 31,
2023), and an additional 2,500 beneficiaries with primary
immunodeficiency diseases may enroll (for a total of 6,500).
Provisions Affecting Part D of SMI
• The Limited Income Newly Eligible Transition Demonstration,
which provides immediate transitional Part D coverage to
certain beneficiaries with low income (and retroactive coverage
to certain dual-eligible individuals) while their eligibility is
being processed, is permanently authorized beginning no later
than January 1, 2024.
• Part D plans (both stand-alone and under Medicare
Advantage) must implement real-time benefit tools for Part D
enrollees. These tools must (i) integrate with electronic
prescribing and health record systems; (ii) identify clinically
appropriate alternatives to an individual’s covered prescription
drug; (iii) compare the costs of the drug and the alternatives at
multiple pharmacies (including price and cost-sharing
information); and (iv) provide formulary information for the
185
Appendices
drug and the alternatives (including any prior authorization or
other utilization management requirements).
8. The American Rescue Plan Act of 2021 (Public Law 117-2,
enacted on March 11, 2021) included provisions that affect
the HI and SMI programs.
Provision Affecting HI and Part B of SMI
• For discharges occurring on or after October 1, 2021, the area
wage index applicable to any hospital in an all-urban State is
not to be less than the minimum area wage index for the fiscal
year for hospitals in that State. (This provision reestablishes a
floor for the wage index portion of Medicare payment rates for
these hospitals, similar to the rural floor for urban hospitals in
States that are not all-urban.) Budget neutrality requirements
are waived for this provision.
Provision Affecting HI
• For third-party settlement organizations (such as eBay),
certain Internal Revenue Service reporting requirements are
changed. Specifically, while these organizations have been
required to report the annual total transaction amount for each
merchant providing goods and/or services totaling over $20,000
through more than 200 transactions, the reporting thresholds
are reduced to total amounts over $600 through one or more
transactions, beginning with transactions in 2022. This change
is expected to slightly increase reported self-employment
income and, therefore, HI taxable payroll.
Provision Affecting Part B of SMI
• Medicare payment is authorized for ground ambulance
services furnished in response to a 911 call (or the equivalent
in areas without a 911 call system) for cases in which a patient
would have been transported to a destination of the type
required for such payment were it not for COVID-19-related
community-wide emergency medical services protocols.
186
Medicare Amendments
9. An Act to Prevent Across-the-Board Direct Spending Cuts,
and for Other Purposes (Public Law 117-7, enacted on
April 14, 2021) included provisions that affect the HI and
SMI programs.
Provision Affecting All Parts of Medicare
• The temporary exemption from sequestration for the Medicare
program from May 1, 2020 to March 31, 2021 (as described
previously under Public Laws 116-136 and 116-260) is
extended through December 31, 2021. (This exemption
extension applied retroactively as well, beginning April 1,
2021.) In addition, the sequestration amounts ordered for fiscal
year 2030 are to be increased overall, with benefit payment
reductions of 2.0 percent for the first 5.5 months, 4.0 percent
for the next 6 months, and 0.0 percent for the final 0.5 months
(instead of 4.0 percent for the first 6 months and 0.0 percent
for the second 6 months). (The sequestration order for a given
fiscal year is applied to expenditures incurred from April 1 of
that fiscal year through March 31 of the following fiscal year.)
Provision Affecting Part B of SMI
• Technical corrections are made to the rural health clinic (RHC)
payment cap provision described previously under Public
Law 11-260. First, for a RHC that is hospital-based and whose
parent hospital has fewer than 50 beds, the date by which the
RHC must be Medicare-certified, in order to be grandfathered,
is changed from December 31, 2019 to December 31, 2020.
Next, a clinic that is owned by a hospital with fewer than
50 beds and that submitted certain applications (received by
Medicare) for certification as a Medicare RHC prior to the end
of 2020 is to be grandfathered (and its clinic-specific cap is to
be set based on its 2021 cost per visit). Lastly, a grandfathered
RHC must continue to be owned by a hospital with fewer than
50 beds; if the parent hospital exceeds 50 beds, the RHC will
lose its grandfathered status. (Hospital beds temporarily added
due to the COVID-19 pandemic are excluded when determining
whether a parent hospital has fewer than 50 beds.) These
technical corrections are to take effect as if they had been
originally included in Public Law 116-260.
187
Appendices
B. TOTAL MEDICARE FINANCIAL PROJECTIONS
Medicare is the nation’s second largest social insurance program,
exceeded only by Social Security (OASDI). Although Medicare’s two
components—Hospital Insurance (HI) and Supplementary Medical
Insurance (SMI)—are very different from each other in many key
respects, it is important to consider the overall cost of Medicare and its
financing. By reviewing Medicare’s total expenditures, readers can
assess the financial obligation created by the program. Similarly, the
sources and relative magnitudes of HI and SMI revenues are an
important policy matter.
The issues of Medicare’s total cost to society and the means of financing
that cost are different from the question of the financial status of the
Medicare trust funds. The latter focuses on whether a specific trust
fund’s income and expenditures are in balance. The separate HI and
SMI financial projections prepared for this purpose, however, can be
usefully combined for the broader purposes outlined above. To that
end, this section presents information on combined HI and SMI costs
and revenues. Sections III.B, III.C, and III.D of this report present
detailed assessments of the financial status of the HI trust fund and
the Part B and Part D accounts of the SMI trust fund, respectively.
1. 10-Year Actuarial Estimates (2021–2030)
Table V.B1 shows past and projected Medicare income, expenditures,
and trust fund assets in dollar amounts for calendar years,84 with
projections shown under the intermediate set of assumptions for the
short-range projection period 2021 through 2030.
84The table shows amounts on a cash basis, reflecting actual expenditures made during
the year, even if the payments were for services performed in an earlier year. Similarly,
income figures represent amounts actually received during the year, even if incurred in
an earlier year.
188
Total Medicare Financial Projections
Table V.B1.—Total Medicare Income, Expenditures, and Trust Fund Assets
during Calendar Years 1970–2030
[In billions]
Net change in Assets at end of
Calendar year Total income Total expenditures assets year
Historical data:
1970 $8.2 $7.5 $0.7 $3.4
1975 17.7 16.3 1.3 12.0
1980 37.0 36.8 0.1 18.3
1985 76.5 72.3 4.2 31.4
1990 126.3 111.0 15.3 114.4
1995 175.3 184.2 í8.9 143.4
2000 257.1 221.8 35.3 221.5
2005 357.5 336.4 21.0 309.8
2010 486.11 522.9 í36.8 344.0
2011 530.0 549.1 í19.2 324.9
2012 537.0 574.2 í37.3 287.6
2013 575.8 582.9 í7.1 280.5
2014 599.3 613.3 í14.1 266.4
2015 644.41 647.6 í3.2 263.2
2016 710.21 678.7 31.5 294.7
2017 705.1 710.2 í5.0 289.6
2018 755.8 740.7 15.1 304.7
2019 794.7 796.1 í1.4 303.3
2020 899.91,2 925.83 í25.9 277.4
Intermediate estimates:
2021 878.01 874.63 3.4 280.8
2022 933.1 935.63 í2.5 278.3
2023 1,026.1 1,048.3 í22.2 256.2
2024 1,098.9 1,121.5 í22.6 233.5
2025 1,171.5 1,202.4 í30.8 202.7
1
2026 1,261.9 1,292.8 í30.9 171.8
1
2027 1,335.4 1,386.4 í51.0 120.8
2028 1,429.4 1,486.5 í57.1 63.7
2029 1,521.3 1,593.3 í72.0 í8.3
2030 1,611.6 1,693.7 í82.0 í90.3
1
Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits
when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those
benefits normally due January 3, 2010 actually occurred on December 31, 2009, payment of benefits
normally due January 3, 2016 occurred on December 31, 2015, and payment of benefits normally due
January 3, 2021 occurred on December 31, 2020. Consequently, the Part B and Part D premiums
withheld from these benefits and the associated Part B general revenue contributions were added to the
Part B or Part D account, as appropriate, on December 31, 2009 (about $14.8 billion for Part B and about
$0.2 billion for Part D), December 31, 2015 (about $7.5 billion for Part B and about $0.1 billion for Part D),
and December 31, 2020 (about $10.0 billion for Part B and about $0.1 billion for Part D), respectively.
Similarly, the payment date for those benefits normally due January 3, 2027 will be on December 31, 2026.
Accordingly an estimated $6.2 billion will be added to the Part B account, and an estimated $0.1 billion
will be added to the Part D account, on December 31, 2026.
2
See footnote 9 of table III.C4.
3
Includes net payments of $100.5 billion made through the Medicare Accelerated and Advance Payments
Program in calendar year 2020 and subsequent repayments of $47.0 billion and $53.5 billion in calendar
years 2021 and 2022, respectively.
Note: Totals do not necessarily equal the sums of rounded components.
As indicated in table V.B1, Medicare expenditures have increased
rapidly during most of the program’s history. From 1985 through 2020,
expenditures grew at an average annual rate of 7.6 percent, and they
are projected to increase at an average annual rate of 6.2 percent from
2021 through 2030.
189
Appendices
Through most of Medicare’s history, trust fund income has kept pace
with increases in expenditures.85 For this year’s report, the Trustees
estimate that, from 2021 through 2030, total Medicare income will
increase at an average annual rate of 6.0 percent, which is slightly
lower than the growth in expenditures.
The Department of the Treasury has invested past excesses of income
over expenditures in U.S. Treasury securities, with total trust fund
assets accumulating to $277.4 billion at the end of calendar year 2020.
Combined assets decreased from 2009 through 2015, increased in 2016,
and decreased in 2017. They then increased in 2018 before once again
decreasing in 2019 and 2020. The change in assets fluctuates slightly
over the remainder of the short-range projection period due to the
timing of premium collections, as described in footnote 1 of table V.B1,
and the return of HI deficits.86
2. 75-Year Actuarial Estimates (2021–2095)
Table V.B2 shows past and projected Medicare expenditures expressed
as a percentage of GDP.87 This percentage provides a relative measure
of the size of the Medicare program compared to the general economy
and represents the portion of the nation’s total resources dedicated
each year to providing health care services to beneficiaries through
Medicare. Expenditures represented 0.7 percent of GDP in 1970 and
had grown to 2.6 percent of GDP by 2005, reflecting rapid increases in
the factors affecting health care cost growth. Starting in 2006,
Medicare provided subsidized access to prescription drug coverage
through Part D, which caused most of the increase in Medicare
expenditures to 3.0 percent of GDP in the first year. The Trustees
project much more moderate continuing growth in the long range,
partially as a result of the lower price updates under current law, with
total Medicare expenditures projected to reach about 6.5 percent of
GDP by 2095.
Part of the projected increase is attributable to the prescription drug
benefit in Medicare. When it was fully implemented in 2006, Part D
85This balance resulted from periodic increases in HI payroll tax rates and other HI
financing, from annual increases in SMI premium and general revenue financing rates
(to cover the following year’s estimated expenditures), and from frequent legislation
designed to slow the rate of growth in expenditures.
86See sections III.B, III.C, and III.D regarding the asset projections for HI and Part B
and Part D of SMI, separately.
87In contrast to the expenditure amounts shown in table V.B1, table V.B2 shows
historical and projected expenditures on an incurred basis. Incurred amounts relate to
the expenditures for services performed in a given year, even if payment for those
expenditures occurs in a later year.
190
Total Medicare Financial Projections
represented 11 percent of incurred Medicare expenditures; this share
increased to 13 percent in 2020 and will account for 14 percent of
Medicare expenditures by the end of the projection period.
The projections shown in table V.B2 for total Medicare as a share of
GDP are similar to those in the 2020 report primarily because lower
projections for Part D are mostly offset by slightly higher projections
for Part A and Part B. The details of these changes are described in
sections III.B, III.C, and III.D.
Table V.B2.—HI and SMI Incurred Expenditures as a Percentage
of the Gross Domestic Product
HI SMI
Calendar year Part A Part B Part D Total
Historical data:
1970 0.51% 0.21% — 0.71%
1975 0.69 0.29 — 0.98
1980 0.91 0.40 — 1.31
1985 1.11 0.55 — 1.66
1990 1.12 0.74 — 1.86
1995 1.55 0.87 — 2.42
2000 1.28 0.91 — 2.19
2005 1.44 1.18 0.01% 2.62
2010 1.64 1.43 0.42 3.49
2011 1.65 1.45 0.43 3.53
2012 1.62 1.48 0.43 3.53
2013 1.60 1.48 0.44 3.52
2014 1.54 1.52 0.47 3.53
2015 1.52 1.55 0.49 3.56
2016 1.54 1.58 0.50 3.61
2017 1.54 1.61 0.48 3.62
2018 1.51 1.65 0.48 3.64
2019 1.54 1.73 0.48 3.74
2020 1.63 1.83 0.50 3.97
Intermediate estimates:
2021 1.68 1.98 0.48 4.14
2022 1.68 1.99 0.49 4.16
2023 1.69 2.05 0.50 4.24
2024 1.71 2.12 0.51 4.34
2025 1.74 2.20 0.52 4.46
2026 1.77 2.30 0.53 4.60
2027 1.81 2.38 0.55 4.74
2028 1.85 2.47 0.56 4.88
2029 1.88 2.57 0.57 5.02
2030 1.91 2.63 0.58 5.12
2035 2.07 3.07 0.62 5.76
2040 2.14 3.28 0.64 6.06
2045 2.17 3.33 0.65 6.15
2050 2.15 3.35 0.67 6.17
2055 2.13 3.40 0.70 6.22
2060 2.11 3.46 0.73 6.30
2065 2.11 3.52 0.76 6.40
2070 2.12 3.57 0.79 6.48
2075 2.13 3.61 0.82 6.56
2080 2.12 3.63 0.84 6.58
2085 2.09 3.62 0.85 6.56
2090 2.05 3.59 0.86 6.50
2095 2.01 3.57 0.88 6.46
Note: Percentages are affected by economic cycles.
191
Appendices
The 75-year projection period fully allows for the presentation of
anticipated future developments, such as the impact of a large increase
in enrollees from 2010 through 2030. This increase in the number of
beneficiaries will occur because the relatively large number of persons
born during the period between the end of World War II and the
mid-1960s (known as the baby boom generation) will reach eligibility
age and begin to receive benefits. Moreover, as this generation ages,
these individuals will experience greater health care utilization and
costs, thereby adding further to growth in program expenditures.
Table V.B3 shows past and projected enrollment in the Medicare
program.
As indicated in table V.B3, over the last 35 years the total number of
Medicare beneficiaries approximately doubled, and the Trustees
expect the total to increase by 43 percent over approximately the next
35 years. During this same historical period, the number of covered
workers also increased rapidly (by about 46 percent), but the Trustees
project this number to increase much more slowly (about 14 percent)
over the next 35 years. This demographic shift and its implications for
Medicare costs, relative to workers’ earnings or to the GDP, are fairly
well known.
The enrollment data also show that the number of Medicare
beneficiaries enrolled in private health plans under Part C has
increased substantially in recent years. (Section IV.C of this report
describes the changes in enrollment growth since 2005.) By 2020, about
40 percent of eligible Medicare beneficiaries were enrolled in private
Part C health plans. The Trustees expect modest increases in private
plan penetration rates between 2021 and 2030, with the estimated
proportion of beneficiaries in such plans ultimately stabilizing at about
49 percent.
192
Total Medicare Financial Projections
Table V.B3.—Medicare Enrollment
[In thousands]
HI SMI
Private health
Calendar year Part A Part B Part D plans1 Total2
Historical data:
1970 20,104 19,496 — — 20,398
1975 24,481 23,744 — — 24,864
1980 28,002 27,278 — — 28,433
1985 30,621 29,869 — 1,271 31,081
1990 33,747 32,567 — 2,017 34,251
1995 37,175 35,641 — 3,467 37,594
2000 39,257 37,335 — 6,856 39,688
2005 42,233 39,752 1,841 5,794 42,606
2010 47,365 43,882 34,772 11,693 47,720
2011 48,549 44,917 35,720 12,383 48,896
2012 50,540 46,477 37,448 13,588 50,874
2013 52,169 47,952 39,103 14,843 52,504
2014 53,777 49,413 40,499 16,244 54,115
2015 55,246 50,756 41,786 17,493 55,589
2016 56,729 52,094 43,199 18,392 57,073
2017 58,344 53,446 44,477 19,816 58,683
2018 59,677 54,679 45,802 21,336 60,020
2019 61,182 56,017 47,176 22,947 61,529
2020 62,250 57,296 48,684 25,076 62,608
Intermediate estimates:
2021 63,306 58,395 49,910 27,424 63,674
2022 64,744 59,830 51,343 29,240 65,124
2023 66,394 61,390 52,857 30,427 66,788
2024 67,993 62,881 54,284 31,586 68,400
2025 69,615 64,385 55,690 32,747 70,036
2026 71,282 65,933 57,113 33,912 71,716
2027 72,813 67,385 58,384 35,033 73,260
2028 74,282 68,778 59,606 36,110 74,740
2029 75,666 70,093 60,761 37,138 76,136
2030 76,887 71,268 61,789 38,089 77,366
2035 81,138 75,557 65,507 41,090 81,654
2040 83,263 77,699 67,364 42,177 83,797
2045 84,540 78,848 68,360 42,834 85,085
3
2050 86,432 80,547 69,833 86,990
3
2055 89,041 82,872 71,849 89,611
3
2060 92,299 85,844 74,426 92,893
3
2065 95,376 88,767 76,960 95,990
3
2070 98,677 91,925 79,697 99,314
3
2075 102,204 95,291 82,616 102,869
3
2080 104,404 97,589 84,609 105,084
3
2085 105,802 99,113 85,930 106,492
3
2090 106,674 100,277 86,939 107,365
3
2095 109,016 102,211 88,615 109,722
1
Of Medicare beneficiaries enrolled in private plans, about 97 percent are in Medicare Advantage plans or
Part C. The remainder are in certain holdover plans reimbursed on a cost basis rather than through
capitation payments, in Program of All-Inclusive Care for the Elderly (PACE) plans, or in Medicare-
Medicaid Plans (MMPs).
2
Number of beneficiaries with HI and/or SMI coverage.
3
The Trustees do not explicitly project enrollment in private health plans beyond 2045.
Table V.B4 shows the past and projected amounts of Medicare
revenues as a percentage of total non-interest Medicare income, under
the intermediate assumptions. The table excludes interest income,
which would not be a significant part of program financing in the long
range.
193
Appendices
Table V.B4.—Medicare Sources of Income as a Percentage
of Total Non-Interest Income
Calendar Tax on Brand-name State General
year Payroll taxes benefits Premiums1 drug fees transfers revenue2
Historical data:
1970 61.8% — 13.7% — — 24.6%
1980 68.0 — 8.6 — — 23.4
1990 62.2 — 9.8 — — 27.9
2000 59.8 3.6% 9.1 — — 27.6
2010 38.9 2.9 13.3 — 0.9% 44.0
2015 38.1 3.2 13.6 0.5% 1.4 43.2
2016 36.3 3.3 12.8 0.4 1.4 45.7
2017 37.7 3.5 14.6 0.6 1.6 42.0
2018 36.0 3.2 15.2 0.5 1.6 43.4
2019 36.4 3.0 15.3 0.4 1.6 43.4
2020 34.0 3.0 14.8 0.3 1.3 46.6
Intermediate estimates:
2030 28.6 4.3 18.2 0.2 1.6 47.3
2040 25.0 4.4 19.4 0.1 1.5 49.7
2050 24.7 4.5 19.4 0.1 1.5 49.8
2060 24.3 4.5 19.5 0.0 1.6 50.0
2070 23.9 4.6 19.6 0.0 1.7 50.2
2080 23.8 4.5 19.6 0.0 1.7 50.3
2090 24.1 4.4 19.6 0.0 1.8 50.2
2095 24.2 4.3 19.5 0.0 1.8 50.1
1
Includes premium revenue from HI and both accounts in the SMI trust fund.
2
Includes Part B repayment amounts in 2016–2025.
Note: Row sums may not exactly equal 100 percent due to rounding.
General revenues (primarily those for SMI) represented 47 percent of
total non-interest income to the Medicare program in 2020 and have
constituted the largest share of Medicare financing since 2009. HI
payroll taxes were the next largest source of overall financing at
34 percent. Beneficiary premiums (again, primarily for SMI) were
third, at 15 percent. Projected HI tax revenues fall short of projected
HI expenditures in all future years. In contrast, SMI premium and
general revenues will keep pace with SMI expenditure growth, and
State payments88 (on behalf of Medicare beneficiaries who also qualify
for full Medicaid benefits) will grow with Part D expenditures. General
revenue transfers to the Part B account increased significantly in 2016,
as required by the Bipartisan Budget Act of 2015 to compensate for
premium revenue that was not received in 2016 due to the hold-
harmless provision, and they increased again in 2020, as required by
the Consolidated Appropriations Act, 2021 and Other Extensions Act
to account for the outstanding balance of the Accelerated and Advance
Payments (AAP) Program. Another source of Part B financing, from
fees on manufacturers and importers of brand-name prescription
drugs, increased from $2.5 billion in 2011 to $4.1 billion in 2018 but
then decreased to $2.8 billion for 2019 and later. In the absence of
88State payments to Part D amounted to 90 percent of their projected forgone Medicaid
prescription drug costs in 2006, and this percentage phased down over a 10-year period
to 75 percent in 2015.
194
Total Medicare Financial Projections
legislation, HI tax income would represent a declining portion of total
Medicare revenues. In 2026, for example, the projected year of
depletion of the HI trust fund, currently scheduled HI payroll taxes
would represent about 31 percent of total non-interest Medicare
income. General revenues and beneficiary premiums would equal
about 46 and 17 percent, respectively.
The law requires an expanded analysis of the combined expenditures
and dedicated revenues of the HI and SMI trust funds. In particular,
the law requires a determination as to whether the difference between
total Medicare outlays and its dedicated financing sources is projected
to exceed 45 percent of total outlays within the next 7 fiscal years
(2021–2027). Dedicated Medicare financing sources include HI payroll
taxes; income from taxation of Social Security benefits; State transfers
for the prescription drug benefit; premiums paid under Parts A, B, and
D; fees on brand-name prescription drugs paid to Part B; and any gifts
received by the Medicare trust funds. The test uses expenditures
adjusted to avoid temporary distortions arising from the payment of
Medicare Advantage and Part D capitation amounts in September
when the normal October payment date is a Saturday or Sunday.
Lawmakers established the 45-percent test to help call attention to
Medicare’s impact on the Federal budget. The Trustees made
determinations of excess general revenue Medicare funding in each of
the reports for 2006 through 2013 and in the 2017 through 2020
reports. Two consecutive such determinations trigger a Medicare
funding warning. The 2007 through 2013 reports, and the 2018
through 2020 reports, thus prompted Medicare funding warnings. The
law specifies that in response to such findings the President must
submit to Congress, within 15 days after the date of the Budget
submission for the succeeding year, proposed legislation to respond to
the warning. The law also requires Congress to consider the legislation
proposed in response to Medicare funding warnings on an expedited
basis. To date, elected officials have not enacted legislation responding
to these funding warnings.
Figure V.B1 displays, on a calendar-year basis, the historical and
projected ratio of the difference between total Medicare outlays and
dedicated financing sources to total Medicare outlays. As indicated,
this ratio exceeded 45 percent at the end of calendar years 2009
through 2012 and in calendar year 2020, and it is expected to again
exceed that level at the end of calendar year 2021, the first year of the
projection. This ratio is expected to be below 45 percent in calendar
year 2022, mainly due to higher Part A income from payroll taxes and
taxation of Social Security benefits, but then to exceed that level again
195
Appendices
in all years thereafter. Therefore, the Board of Trustees is issuing a
determination of excess general revenue Medicare funding in this
report. Since this is the fifth consecutive such finding, a Medicare
funding warning is again triggered.
Figure V.B1.—Projected Difference between Total Medicare Outlays
and Dedicated Financing Sources, as a Percentage of Total Outlays
60%
45%
30%
15%
0%
2020
-15%
1970 1990 2010 2030 2050 2070 2090
Calendar year
As figure V.B1 also indicates, the Board projects that the difference
between outlays and dedicated funding sources will reach almost
54 percent of outlays by 2045 and will decline to 51 percent by the end
of the 75-year period. This difference between outlays and dedicated
funding sources, which the law refers to as general revenue Medicare
funding, includes the following:
• Financing specified portions of SMI Part B and SMI Part D
expenditures;
• Reimbursing the HI trust fund for the costs of certain uninsured
beneficiaries;
• Paying interest on invested assets of the trust funds;
• Redeeming the special Treasury securities held as assets by the
trust funds; and
• Financing the imbalance between HI expenditures and dedicated
revenues after HI asset depletion.
196
Total Medicare Financial Projections
Current law provides for the first four of these items. However, for the
fifth—coverage of the HI shortfall—there is no provision under current
law.
The law also requires a comparison of projected growth in the
difference between outlays and dedicated revenues with other health
spending growth rates. Table V.B5 contains this comparison.
Table V.B5.—Comparative Growth Rates of Medicare,
Private Health Insurance, National Health Expenditures, and GDP
Average annual growth in:
Incurred outlays
minus dedicated Incurred National health Private health
Calendar year revenues Medicare outlays GDP expenditures1 insurance1
2015 4.1% 5.0% 4.1% 5.6% 5.9%
2016 1.2 4.3 2.8 4.6 5.9
2017 3.4 4.5 4.3 4.3 5.0
2018 7.6 6.0 5.5 4.7 5.6
2019 9.2 6.9 4.0 4.6 3.7
2020 í0.5 3.5 í2.3 5.2 5.2
2021 26.5 11.5 6.9 5.1 4.0
2022 1.3 6.4 6.0 5.7 4.9
2023 7.2 6.8 4.6 5.6 5.0
2024 7.9 7.0 4.4 5.5 5.0
2025 9.1 7.3 4.4 5.7 5.0
2026 8.5 7.5 4.3 5.8 5.0
2027 8.1 7.2 4.1 5.6 5.0
2028 8.4 7.2 4.2 5.6 4.9
2029 8.4 7.2 4.1 5.3 4.9
2030 6.6 6.2 4.1 5.3 4.9
2031–2045 5.8 5.3 4.0 5.0 —
2046–2070 4.2 4.3 4.1 4.7 —
2071–2095 4.0 4.1 4.1 4.6 —
1
Based on a national health expenditure (NHE) projections article published in March 2020 (Health Affairs,
vol. 39, no. 4). Data through 2018 are considered historical, and years after 2028 were determined based
on the methods described in section IV.D. The findings presented in this article, along with the paper
outlining its methodology, are available at http://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html.
The gap between outlays and dedicated revenues slowed after 2010 as
Medicare spending decelerated and as cost-reducing provisions began
taking effect. The COVID-19 pandemic had a significant effect on
expenditures in 2020, but the impact on dedicated funding sources is
delayed because program financing, which includes Part A payroll tax
income and the Part B and Part D premiums, is set prospectively and
is not able to be changed. This phenomenon, along with the assumed
path of the pandemic in 2021 and 2022, results in the growth patterns
shown in table V.B5. Beginning in 2023, the gap between outlays and
dedicated revenues will increase faster than outlays in many years
through 2045 since the dedicated sources of income to the HI trust fund
will generally cover a decreasing percentage of HI outlays.
In addition to projected Medicare outlay growth, table V.B5 shows
projected growth in GDP, total national health expenditures in the
197
Appendices
U.S., and private health insurance expenditures. The Trustees expect
each of the health expenditure categories to continue the longstanding
trend of increasing more rapidly than GDP in most years. Private
health insurance expenditures equal the total premiums earned by
private health insurers, including benefits incurred and the net cost of
insurance. The net cost of insurance includes administrative costs,
additions to reserves, rate credits and dividends, premium taxes, and
profits or losses.
Several factors affect comparisons between aggregate Medicare and
private health insurance cost growth:
• The number of Medicare beneficiaries is currently increasing by
about 3 percent per year, and this growth rate will continue as
more of the post-World War II baby boom generation reaches
eligibility age. The number of individuals with private health
insurance is estimated to increase at slower rates than the growth
in the number of Medicare beneficiaries.
• Certain current-law provisions, such as the limitation on
maximum out-of-pocket costs in 2014 and later, will also affect the
average actuarial value of private health insurance benefits.
• The use of health care services differs significantly between
Medicare beneficiaries (who are generally over 65) and individuals
with private health insurance (who are predominantly below
age 65). The former group, for example, has a higher incidence of
hospitalization, skilled nursing care, and home health care. For the
latter group, physician services represent a greater proportion of
their total health care needs. Different cost growth trends by type
of service will affect overall growth rates and reflect the
distribution of services for each category of people.
• There is some overlap between people with Medicare and those
with private health insurance. For example, many Medicare
beneficiaries have supplemental health insurance coverage
through private Medigap insurance policies or employer-sponsored
retiree health benefits, and private health insurance includes both
of these categories. About 10 million Medicare beneficiaries receive
supplemental coverage through the Medicaid program; neither the
growth rates for Medicare nor those for private health insurance
reflect the Medicaid costs for these dual beneficiaries.
A number of research studies have attempted to control for some or all
of these differences in comparing growth trends. Over long historical
198
Total Medicare Financial Projections
periods, average, demographically adjusted, per capita growth rates for
common benefits have been somewhat lower for Medicare than for
private health insurance. For shorter periods, however, the rates of
growth have often diverged substantially, and the differential has been
negative in some years and positive in others. More information on
past and projected national and private health expenditures, and on
comparisons to Medicare growth rates, is available in the sources cited
in table V.B5.
199
Appendices
C. ILLUSTRATIVE ALTERNATIVE PROJECTIONS
The Social Security Act requires the Trustees to evaluate the financial
status of the Medicare trust funds. To comply with this mandate, the
Trustees must assess whether the financing provided under current
law is adequate to cover the benefit payments and other expenditures
required under current law. Accordingly, the estimates shown in this
report are based on all of the current statutory requirements, including
(i) the reductions in payment updates by the increase in economy-wide
productivity for most non-physician provider categories; (ii) the
physician payment updates specified by the Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA) for all future years; and (iii) the
expiration in 2025 of the 5-percent bonuses for qualified physicians in
advanced alternative payment models (advanced APMs) and of the
$500-million payments for physicians in the merit-based incentive
payment system (MIPS).
As discussed in the Introduction, there is substantial uncertainty
regarding the adequacy of future Medicare payment rates under
current law. This section illustrates the higher Medicare outlays that
would result if certain statutory Medicare payment provisions were not
fully implemented in all future years. The assumptions that underlie
the illustrative alternative and that transition from current law to the
illustrative scenario are consistent with recommendations from the
2016–2017 Medicare Technical Review Panel.89
For all Part A services and some other (non-physician) Part B services,
payment updates will be reduced in all future years by the increase in
economy-wide productivity.90 By the end of the long-range projection
period, payment rates for affected providers would be about 51 percent
lower than their level in the absence of these reductions. In 2016, the
Medicare payment rates for inpatient hospital services declined to
about 60 percent of those paid by private health insurance.91 If future
improvements in productivity were to remain similar to what providers
have achieved in the recent past (about 0.4 percent annually), then
Medicare payment levels for inpatient hospital services at the end of
the long-range projection period would be less than 35 percent of the
89The 2016–2017 Medicare Technical Review Panel concluded that the ultimate
assumptions underlying the illustrative alternative were reasonable (Finding 2-3) and
recommended that they be implemented over a later time frame (Recommendation 2-4).
The assumptions were implemented in the 2018 report.
90In addition to the productivity adjustments, Medicare payments to providers will be
affected by the sequestration of outlays in April 2013 through September 2029.
91See https://www.aha.org/system/files/2018-05/2018-chartbook-table-4-4.pdf. Private
payer hospital payments are roughly 45 percent above costs while Medicare hospital
payments are roughly 13 percent below costs.
200
Alternative Projections
corresponding level paid by private health insurance. This comparison
assumes that private payer rate increases would continue to be set
through the same negotiation process used to date, independent of the
Medicare reductions or other health system changes. Specifically,
private payer rates would grow by 2.8 percent per year, or the increase
in the price of inputs to the provision of health care (3.2 percent) less
the assumed growth in hospital productivity (0.4 percent). By
comparison, Medicare payment rates would grow by 2.2 percent per
year, or 3.2 percent less the assumed growth in economy-wide
productivity (1.0 percent).
Simulations that take into account the lower Medicare payment rates,
other payment provisions, sequestration, changes to Medicare and
Medicaid disproportionate share hospital payments, and coverage
expansions collectively suggest a deterioration of facility margins for
hospitals, skilled nursing facilities, and home health agencies,
particularly over the long run. From 2019 through 2027, the
simulations suggest that up to 3 percent more hospitals would
experience negative total facility margins and that approximately
10 percent more would experience negative Medicare margins. Other
factors, such as efforts to improve efficiency in lower-performing
hospitals, could mitigate some of the impact of the payment provisions
under current law, though there is a wide range of uncertainty
regarding these types of behavioral changes. By 2040, simulations
suggest that roughly one-third of hospitals and approximately
60 percent of skilled nursing facilities and home health agencies would
have negative total facility margins, raising the possibility of access
and quality-of-care issues for Medicare beneficiaries. A memorandum
on these provider margin simulations is available on the CMS
website.92
Over time, unless providers could alter their use of inputs to reduce
their cost per service correspondingly, Medicare’s payments for health
services would fall increasingly below providers’ costs. Providers could
not sustain continuing negative margins and would have to withdraw
from serving Medicare beneficiaries or (if total facility margins
remained positive) shift substantial portions of Medicare costs to their
non-Medicare, non-Medicaid payers. Under such circumstances,
lawmakers might feel substantial pressure to override the productivity
adjustments, much as they did to prevent reductions in physician
92See https://www.cms.gov/files/document/simulations-affordable-care-act-medicare-
payment-update-provisions-part-provider-financial-margins.pdf.
201
Appendices
payment rates while the sustainable growth rate (SGR) system was in
effect.
While the physician payment system put in place by MACRA avoided
the significant short-range physician payment issues resulting from
the SGR system approach, it nevertheless raises important long-range
concerns that will almost certainly need to be addressed by future
legislation. In particular, additional updates totaling $500 million per
year and 5-percent annual bonuses are scheduled to expire in 2025,
resulting in a payment reduction for most physicians. In addition, the
law specifies the physician payment updates for all years in the future,
and these updates do not vary based on underlying economic
conditions, nor are they expected to keep pace with the average rate of
physician cost increases. The specified rate updates could be an issue
in years when levels of inflation are high and would be problematic
when the cumulative gap between the price updates and physician
costs becomes large. The Trustees previously estimated that physician
payment rates under current law will be lower than they would have
been under the SGR formula by 2048 and will be about 30 percent
lower by the end of the projection period. Absent a change in the
delivery system or level of update by subsequent legislation, the
Trustees expect access to Medicare-participating physicians to become
a significant issue in the long term.
In view of these issues, it is important to note that the actual future
costs for Medicare may exceed the projections shown in this report,
possibly by substantial amounts. Use of an alternative projection can
illustrate the potential magnitude of this difference.
It is conceivable that health care providers could improve their
productivity, reduce wasteful expenditures, and take other steps to
keep their cost growth within the bounds imposed by the Medicare
price limitations. For such efforts to be successful in the long range,
however, providers would have to generate and sustain unprecedented
levels of productivity gains—a very challenging and uncertain
prospect.
A transformation of health care in the U.S., affecting both the means
of delivery and the method of paying for care, is also a possibility.
Private health insurance and Medicare are taking important steps in
this direction by initiating programs of research into innovative
payment and service delivery models, such as accountable care
organizations, patient-centered medical homes, improvement in care
coordination for individuals with multiple chronic health conditions,
better coordination of post-acute care, payment bundling, pay for
202
Alternative Projections
performance, and assistance for individuals in making informed health
choices. Such changes have the potential to reduce health care costs
and cost growth rates and could, as a result, help lower health care
spending to levels compatible with the lower price updates payable
under current law.
The ability of new delivery and payment methods to lower cost growth
rates is uncertain at this time. Preliminary indications are that some
of these delivery reforms have had modest levels of success in lowering
costs. It is too early to tell if these reductions in spending will continue
or if they will grow to the magnitude needed to align with the statutory
Medicare price updates. Given these uncertainties, it will be important
for policy makers to monitor the adequacy of Medicare payment rates
over time to ensure beneficiary access to high-quality care.
To help illustrate and quantify the potential magnitude of the cost
understatement, a set of illustrative Medicare projections has been
prepared under a hypothetical alternative.93 The 2016–2017 Medicare
Technical Review Panel recommended that the Trustees continue to
prepare such a projection and that, under this illustrative alternative,
Medicare spending reflect less than full implementation of the
payment updates to providers specified under current law.94
There are multiple ways in which the law could be changed if these
provider updates prove unsustainable. The illustrative scenario
presented in this report is just one possibility among many that
demonstrates the degree to which the current-law projections may be
understated. While a particular set of illustrative alternative update
assumptions for specific years is used, the transition from current law
to the illustrative alternative ultimate assumptions over time is
intended to reflect an increasing likelihood of modifications to current
law rather than a specific forecast of when current law will cease to be
fully implemented. Figure V.C1 compares the illustrative alternative
projection with the projections under current law.
93The 2010–2011 Medicare Technical Review Panel supported the continued use of
illustrative alternative projections for this purpose (Recommendation IV-3). In addition,
the Panel recommended a graphical comparison of the current-law and alternative
projections within the Medicare annual report, highlighting the potential effects of both
the SGR system and productivity adjustments (Recommendation IV-4). The Panel’s
report, Review of Assumptions and Methods of the Medicare Trustees’ Financial
Projections, can be found at http://aspe.hhs.gov/health/reports/2013/MedicareTech/
TechnicalPanelReport2010-2011.pdf. The text summarizes the specific assumptions chosen
by the Trustees for the illustrative alternative projections.
94See Recommendation 2-3 of the 2016–2017 Medicare Technical Review Panel report,
available at https://aspe.hhs.gov/system/files/pdf/257821/MedicareTechPanelFinalReport2017.pdf.
203
Appendices
Figure V.C1.—Medicare Expenditures as a Percentage
of the Gross Domestic Product under Current Law
and Illustrative Alternative Projections
10%
8%
6%
4%
Current Law
Illustrative Alternative
2%
0%
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Calendar year
Note: Percentages are affected by economic cycles.
The top curve in figure V.C1 shows the cost levels under the illustrative
alternative. This scenario illustrates the impact that would occur if the
payment updates that are affected by the productivity adjustments
transition from current law to the payment updates assumed for
private health plans over the period 2028–2042.95 It also reflects
physician payment updates that transition from current law to the
increase in the Medicare Economic Index over the same period. Finally,
the scenario assumes the continuation of the 5-percent bonuses for
qualified physicians in advanced alternative payment models
(advanced APMs) and of the $500-million payments for physicians in
the merit-based incentive payment system (MIPS), which are set to
expire in 2025. Under this alternative, the average long-range per
beneficiary growth rate for all Medicare services would be similar to
the long-range growth rate assumed for the overall health sector.
Under the illustrative alternative scenario, Medicare costs as a
percentage of GDP continue to increase rapidly throughout the
projection period, reaching 6.5 percent of GDP in 2045 and 8.5 percent
in 2095—considerably higher than under current law (6.2 percent of
GDP in 2045 and 6.5 percent of GDP in 2095).
95Section IV.D of this report describes the price component of health care cost increases
for the overall health sector.
204
Per Beneficiary Cost
D. AVERAGE MEDICARE EXPENDITURES PER
BENEFICIARY
Table V.D1 shows historical average per beneficiary expenditures for
HI and SMI, as well as projected costs for calendar years 2021 through
2030 under the intermediate assumptions. Starting with the 2014
report, this section presents per beneficiary expenditures based on
when the service is performed rather than when payment for the
service is made.
For both HI and SMI Part B, costs increased very rapidly in the early
years, in part because the availability of Medicare coverage enabled
many beneficiaries to obtain the full range of health services they
needed. The rapid inflation of the 1970s and early 1980s also
contributed to rapid Medicare expenditure increases, and the cost-
based reimbursement mechanisms in place provided relatively little
incentive for efficiency in the provision of health care. Growth in
average HI expenditures moderated dramatically following the
introduction of the inpatient hospital prospective payment system in
fiscal year 1984, but it accelerated again in the late 1980s and early
1990s due to rapid growth in skilled nursing and home health
expenditures. During this same period, SMI Part B average costs
generally continued to increase at relatively fast rates but slowed
somewhat in the early 1990s with the implementation of physician fee
reform legislation.
Expenditure growth moderated again during the late 1990s due to the
effects of further legislation and efforts to control fraud and abuse. In
addition, historically low levels of general and medical inflation helped
reduce Medicare payment updates. The growth rates rebounded from
2001 through 2005 and then moderated somewhat for the remainder
of the decade.
For 2010 through 2015, HI and Part B of SMI experienced the lowest
5-year per beneficiary growth rates in the program’s history. This slow
growth, which continued in 2016 and 2017 (and in 2018 for HI), was
driven in part by legislated update reductions, low provider payment
updates caused by the economic recession, and adjustments for
documentation and coding that did not reflect changes in real case mix.
In addition, increased enrollment resulting from eligibility of the baby
boom generation has decreased the average age of Medicare
beneficiaries, thereby reducing per beneficiary costs. The growth rates
also reflect the impact of the sequestration process, which is required
under current law and reduces Medicare expenditures by 2 percent per
year beginning April 1, 2013, with the exception of May 1, 2020
205
Appendices
through December 31, 2021 when it was suspended. Finally, growth in
the volume and intensity of the services delivered has also been
relatively low, highlighted by reductions in the number of hospital
admissions over this period.
Although SMI Part D began in 2004, full prescription drug coverage
did not start until 2006. Accordingly, this discussion includes only the
per beneficiary expenditures for 2006 and later. Spending growth
occurred in 2011 but was negative in 2012 due to the patent expiration
of certain high-cost drugs. The large amount of growth in 2014 and
2015 was due to utilization of the new, expensive specialty drugs used
to treat hepatitis C. Lower utilization of these drugs contributed to the
decline in average spending growth in 2016. In 2017, larger rebates
caused average per beneficiary costs to drop, but growth in spending
rebounded in 2018 and 2019. It slowed again in 2020 because the plan
bids assumed higher direct and indirect remuneration and slow
reinsurance growth. The COVID-19 pandemic had a notable impact on
Part A and Part B benefit spending growth in 2020 as non-COVID care
was significantly reduced, in particular for elective services. The
Trustees assume that some of this reduced and deferred care will
return in 2021 and 2022.
206
Per Beneficiary Cost
Table V.D1.—HI and SMI Average Incurred per Beneficiary Costs
Average per beneficiary costs Average percent change1
Calendar SMI SMI
year HI Part B Part D Total HI Part B Part D Total
Historical data:
1970 $270 $115 — $385 13.8% 13.8% — 13.8%
1975 472 205 — 677 11.8 12.3 — 12.0
1980 929 423 — 1,352 14.5 15.6 — 14.8
1985 1,579 795 — 2,373 11.2 13.4 — 11.9
1990 1,979 1,355 — 3,334 4.6 11.3 — 7.0
1995 3,194 1,867 — 5,061 10.0 6.6 — 8.7
2000 3,348 2,496 — 5,844 0.9 6.0 — 2.9
2005 4,439 3,839 — 8,278 5.8 9.0 — 7.2
2010 5,193 4,901 $1,808 11,902 3.2 5.0 — 7.5
2011 5,275 5,033 1,858 12,166 1.6 2.7 2.8% 2.2
2012 5,195 5,169 1,839 12,204 í1.5 2.7 í1.0 0.3
2013 5,155 5,170 1,874 12,199 í0.8 0.0 1.9 í0.0
2014 5,012 5,395 2,031 12,438 í2.8 4.3 8.4 2.0
2015 5,028 5,556 2,153 12,737 0.3 3.0 6.0 2.4
2016 5,092 5,674 2,156 12,922 1.3 2.1 0.2 1.5
2017 5,144 5,870 2,120 13,134 1.0 3.5 í1.7 1.6
2018 5,219 6,220 2,139 13,578 1.4 6.0 0.9 3.4
2019 5,382 6,617 2,174 14,173 3.1 6.4 1.7 4.4
2020 5,481 6,695 2,171 14,348 1.9 1.2 í0.1 1.2
Intermediate estimates:
2021 5,930 7,575 2,166 15,671 8.2 13.1 í0.2 9.2
2022 6,169 7,868 2,243 16,280 4.0 3.9 3.5 3.9
2023 6,310 8,289 2,346 16,946 2.3 5.3 4.6 4.1
2024 6,503 8,741 2,453 17,698 3.1 5.5 4.6 4.4
2025 6,756 9,252 2,527 18,534 3.9 5.8 3.0 4.7
2026 7,014 9,813 2,633 19,461 3.8 6.1 4.2 5.0
2027 7,301 10,376 2,744 20,421 4.1 5.7 4.2 4.9
2028 7,610 10,990 2,858 21,457 4.2 5.9 4.1 5.1
2029 7,927 11,665 2,978 22,570 4.2 6.1 4.2 5.2
2030 8,215 12,253 3,105 23,572 3.6 5.0 4.3 4.4
1
Percent changes for 1970 represent the average annual increases from 1967 (the first full year of trust
fund operations) through 1970. Similarly, percent changes shown for 1975, 1980, 1985, 1990, 1995, 2000,
2005, and 2010 represent the average annual increase over the 5-year period ending in the indicated
year.
On average, annual increases in per beneficiary costs have been
greater for SMI Part B than for HI during the previous five decades—
by approximately 1.0 percent, 4.5 percent, 1.0 percent, 2.5 percent, and
2.5 percent per year in the 1970s, 1980s, 1990s, 2000s, and 2010s,
respectively. The HI increase remains lower than the SMI Part B
increase over the next 10 years due to lower utilization growth of HI
services.
Note that the rapid growth rates in the 1970s and 1980s are not
expected to recur for either HI or SMI Part B due to more moderate
inflation rates and the conversion of Medicare’s remaining cost-based
reimbursement mechanisms to prospective payment systems. In
addition, the reduction in Medicare price updates for most categories
of providers that affected the growth rates over the last several years
will continue to reduce growth rates throughout the projection period.
207
Appendices
E. MEDICARE COST-SHARING AND PREMIUM AMOUNTS
HI beneficiaries who use covered services may be subject to deductible
and coinsurance requirements. A beneficiary is responsible for an
inpatient hospital deductible amount, which is deducted from the
amount payable by the HI trust fund to the hospital, for inpatient
hospital services furnished in a spell of illness. When a beneficiary
receives such services for more than 60 days during a spell of illness,
he or she is responsible for a coinsurance amount equal to one-fourth
of the inpatient hospital deductible for each of days 61–90 in the
hospital. After 90 days in a spell of illness, each individual has
60 lifetime reserve days of coverage, for which the coinsurance amount
is equal to one-half of the inpatient hospital deductible. A beneficiary
is responsible for a coinsurance amount equal to one-eighth of the
inpatient hospital deductible for each of days 21–100 of skilled nursing
facility services furnished during a spell of illness. No cost sharing is
required for home health or hospice services.
Most persons aged 65 and older and many disabled individuals under
age 65 are insured for HI benefits without payment of any premium.
The Social Security Act provides that certain aged and disabled
persons who are not insured may voluntarily enroll, subject to the
payment of a monthly premium. In addition, since 1994, voluntary
enrollees may qualify for a reduced premium if they have at least
30 quarters of covered employment.
Table V.E1 shows the historical levels of the HI deductible,
coinsurance amounts, and premiums, as well as projected values for
future years based on the intermediate set of assumptions used in
estimating the operations of the trust funds. The values listed in the
table for future years are estimates, and the actual amounts are likely
to be somewhat different as experience emerges.
208
Cost Sharing and Premiums
Table V.E1.—HI Cost-Sharing and Premium Amounts
Inpatient daily coinsurance1 Monthly premium
Inpatient hospital Lifetime SNF daily
Year deductible1 Days 61–90 reserve days coinsurance1 Standard2 Reduced1
Historical data:
1970 $52 $13 $26 $6.50 — —
1975 92 23 46 11.50 $40 —
1980 180 45 90 22.50 78 —
1985 400 100 200 50.00 174 —
1990 592 148 296 74.00 175 —
1995 716 179 358 89.50 261 $183
2000 776 194 388 97.00 301 166
2005 912 228 456 114.00 375 206
2006 952 238 476 119.00 393 216
2007 992 248 496 124.00 410 226
2008 1,024 256 512 128.00 423 233
2009 1,068 267 534 133.50 443 244
2010 1,100 275 550 137.50 461 254
2011 1,132 283 566 141.50 450 248
2012 1,156 289 578 144.50 451 248
2013 1,184 296 592 148.00 441 243
2014 1,216 304 608 152.00 426 234
2015 1,260 315 630 157.50 407 224
2016 1,288 322 644 161.00 411 226
2017 1,316 329 658 164.50 413 227
2018 1,340 335 670 167.50 422 232
2019 1,364 341 682 170.50 437 240
2020 1,408 352 704 176.00 458 252
2021 1,484 371 742 185.50 471 259
Intermediate estimates:
2022 1,556 389 778 194.50 499 274
2023 1,536 384 768 192.00 510 281
2024 1,584 396 792 198.00 526 289
2025 1,636 409 818 204.50 547 301
2026 1,688 422 844 211.00 568 312
2027 1,740 435 870 217.50 591 325
2028 1,796 449 898 224.50 617 339
2029 1,852 463 926 231.50 643 354
2030 1,904 476 952 238.00 666 366
1
Amounts shown are effective for calendar years.
2
Amounts shown for 1970–1980 are for the 12-month periods ending June 30; amounts shown for 1985
and later are for calendar years.
The Federal Register notice96 announcing the HI deductible and
coinsurance amounts for 2021 included an estimate of the aggregate
cost to HI beneficiaries for the changes in the deductible and
coinsurance amounts from 2020 to 2021. At the time of the notice’s
publication, it was estimated that in 2021 there would be 6.45 million
inpatient deductibles paid at $1,484 each, 1.46 million inpatient days
subject to coinsurance at $371 per day (for hospital days 61 through
90), 0.72 million lifetime reserve days subject to coinsurance at
$742 per day, and 32.19 million extended care days subject to
coinsurance at $185.50 per day. Similarly, it was estimated that in
2020 there would be 5.81 million deductibles paid at $1,408 each,
1.31 million days subject to coinsurance at $352 per day (for hospital
days 61 through 90), 0.65 million lifetime reserve days subject to
See https://www.govinfo.gov/content/pkg/FR-2020-11-12/pdf/2020-25024.pdf.
96
209
Appendices
coinsurance at $704 per day, and 28.82 million extended care days
subject to coinsurance at $176.00 per day. The total increase in cost to
beneficiaries was estimated to be $2.45 billion due to (i) the increase in
the inpatient deductible and coinsurance amounts and (ii) the increase
in the number of deductibles and daily coinsurance amounts paid.
Table V.E2 displays the SMI cost-sharing and premium amounts for
Parts B and D. The projected values for future years are based on the
intermediate set of assumptions used in estimating the operations of
the Part B and Part D accounts. As a result, these values are
estimates, and the actual amounts are likely to be somewhat different
as experience emerges. The Part B premiums for 2010 and 2011 also
reflect significant additional increases designed to offset the loss of
revenues attributable to the hold-harmless provision, as described
later in this appendix. Similarly, the 2017 premium was increased due
to loss of revenues from the very low Social Security cost-of-living
adjustment and the hold-harmless provision.
Table V.E2.—SMI Cost-Sharing and Premium Amounts
Part B Part D
Standard Base
monthly Annual beneficiary Initial benefit Catastrophic
Calendar year premium1 deductible2 premium Deductible limit threshold
Historical data:
1970 $4.00 $50 — — — —
1975 6.70 60 — — — —
1980 8.70 60 — — — —
1985 15.50 75 — — — —
1990 28.60 75 — — — —
1995 46.10 100 — — — —
2000 45.50 100 — — — —
2005 78.20 110 — — — —
2006 88.50 124 $32.20 $250 $2,250 $3,600
2007 93.50 131 27.35 265 2,400 3,850
2008 96.40 135 27.93 275 2,510 4,050
2009 96.40 135 30.36 295 2,700 4,350
2010 110.50 155 31.94 310 2,830 4,550
2011 115.40 162 32.34 310 2,840 4,550
2012 99.90 140 31.08 320 2,930 4,700
2013 104.90 147 31.17 325 2,970 4,750
2014 104.90 147 32.42 310 2,850 4,550
2015 104.90 147 33.13 320 2,960 4,700
2016 121.80 166 34.10 360 3,310 4,850
2017 134.00 183 35.63 400 3,700 4,950
2018 134.00 183 35.02 405 3,750 5,000
2019 135.50 185 33.19 415 3,820 5,100
2020 144.60 198 32.74 435 4,020 6,350
2021 148.50 203 33.06 445 4,130 6,550
Intermediate estimates:
2022 158.50 217 32.64 4803 4,4303 7,0503
2023 169.90 233 34.09 505 4,660 7,400
2024 180.60 248 35.52 530 4,910 7,800
2025 188.20 262 36.49 560 5,180 8,200
2026 198.90 278 37.95 585 5,400 8,550
2027 210.20 294 39.45 610 5,640 8,900
2028 222.70 311 40.98 640 5,920 9,350
2029 235.80 329 42.61 670 6,210 9,800
2030 248.60 347 44.34 705 6,520 10,300
210
Cost Sharing and Premiums
1
Amounts shown for 1970–1980 are for the 12-month periods ending June 30; amounts shown for 1985
and later are for calendar years.
2
The Part B deductible was fixed by statute through 2005 and is to be indexed by average per beneficiary
Part B expenditures thereafter.
3
These amounts have already been finalized.
The Part B monthly premiums displayed in table V.E2 are the
standard premium rates paid by most Part B enrollees. However, there
are three provisions that alter the premium rate for certain Part B
enrollees. First, there is a premium surcharge for those beneficiaries
who enroll after their initial enrollment period.
Second, beginning in 2007, there is a higher income-related premium
for those individuals whose modified adjusted gross income exceeds a
specified threshold. Table V.E3 displays, for 2007 through 2030, the
income-related premium adjustment amounts, the number of
beneficiaries affected, and the aggregate additional premium amounts
collected, based on the intermediate set of assumptions. In 2020,
approximately 4.6 million beneficiaries paid a Part B income-related
premium.
Table V.E3.—Part B Income-Related Premium Information
Income-related monthly adjustment amount1 Beneficiaries Aggregate
Calendar affected premiums2
year 35% 50% 65% 80% 85% (millions) (billions)
Historical data:
2007 $12.30 $30.90 $49.40 $67.90 — 0.0 $0.7
2008 25.80 64.50 103.30 142.00 — 0.0 1.8
2009 38.50 96.30 154.10 211.90 — 0.0 2.9
2010 44.20 110.50 176.80 243.10 — 0.0 2.7
2011 46.10 115.30 184.50 253.70 — 0.0 2.3
2012 40.00 99.90 159.80 219.80 — 0.0 2.4
2013 42.00 104.90 167.80 230.80 — 0.0 2.9
2014 42.00 104.90 167.80 230.80 — 2.6 3.4
2015 42.00 104.90 167.80 230.80 — 2.9 3.8
2016 48.70 121.80 194.90 268.00 — 3.3 5.2
2017 53.50 133.90 214.30 294.60 — 3.5 6.0
2018 53.50 133.90 214.30 294.60 — 3.6 7.0
2019 54.10 135.40 216.70 297.90 $325.00 4.2 8.4
2020 57.80 144.60 231.40 318.10 347.00 4.6 10.0
2021 59.40 148.50 237.60 326.70 356.40 5.0 11.2
Intermediate estimates:
2022 63.40 158.50 253.60 348.70 380.40 5.5 13.3
2023 68.00 169.90 271.80 373.80 407.80 6.0 15.6
2024 72.20 180.60 289.00 397.30 433.40 6.6 17.9
2025 75.30 188.20 301.10 414.00 451.70 7.1 20.6
2026 79.60 198.90 318.20 437.60 477.40 7.7 23.5
2027 84.10 210.20 336.30 462.40 504.50 8.3 26.7
2028 89.00 222.60 356.20 489.80 534.30 8.9 30.5
2029 94.20 235.70 377.20 518.60 565.80 9.6 34.4
2030 99.40 248.50 397.60 546.80 596.50 10.2 38.9
1
Amount is based on the applicable percentage of program cost represented by the premium and also
reflects the impact of the 3-year transition in 2007 and 2008. The Bipartisan Budget Act of 2018 created
an additional premium level for 2019 and later.
2
Represents the total amount paid by affected beneficiaries in excess of the Part B standard premium.
211
Appendices
In 2021 the initial threshold is $88,000 for an individual tax return and
$176,000 for a joint return. The thresholds were not indexed to
inflation in the years 2011 through 2019 but are indexed thereafter.
Individuals exceeding the threshold will pay premiums covering 35, 50,
65, 80, or, beginning in 2019, 85 percent of the average program cost
for aged beneficiaries, depending on their income level, compared to
the standard premium covering 25 percent. Effective in 2018, the
Medicare Access and CHIP Reauthorization Act of 2015 lowered
certain income thresholds used for determining the income-related
monthly adjustment amounts to be paid by beneficiaries, resulting in
a greater number of beneficiaries paying the higher amounts. In
addition, beginning in 2020, the legislation adjusted the methodology
used to index the thresholds, and accordingly more beneficiaries will
be subject to the income-related premiums. The Bipartisan Budget Act
of 2018 (BBA 2018) established an additional premium level beginning
in 2019 for individuals with incomes at or above $500,000 (and couples
with incomes at or above $750,000), and they will pay a premium
covering 85 percent of the average program cost. These new thresholds
will not be indexed until 2028 and later.
Third, Part B premiums may also vary from the standard rate because
a hold-harmless provision can lower the premium rate for individuals
who have their premiums deducted from their Social Security benefits.
On an individual basis, this provision limits the dollar increase in the
Part B premium to the dollar increase in the individual’s Social
Security benefit. As a result, the person affected pays a lower Part B
premium, and the net amount of the individual’s Social Security
benefit does not decrease despite the greater increase in the premium.
Most services under Part B are subject to an annual deductible and
coinsurance. The annual deductible was set by statute through 2005.
Thereafter, it increases with the increase in the Part B aged actuarial
rate to approximate the growth in per capita Part B expenditures.97
After meeting the deductible, the beneficiary pays an amount equal to
the product of the coinsurance percentage and the remaining allowed
charges. The coinsurance percentage is 20 percent for most services.
However, since the coinsurance payment for a service paid under the
outpatient hospital prospective payment system is capped at the
inpatient hospital deductible amount, the average coinsurance
97The current mechanism to index the Part B deductible has technical computational
issues mainly due to the timing of the calculation. The Part B deductible for any given
year is indexed by the increase in the monthly aged actuarial rate for that same year,
which represents estimated monthly per capita expenditures. However, these
expenditures are dependent on the Part B deductible, which is not known until the
actuarial rate is determined. The result is circularity in the modeling process.
212
Cost Sharing and Premiums
percentage for these services was about 18 percent in 2018 and is
expected to gradually decline in the projection period. For those
services not subject to the deductible or coinsurance (clinical laboratory
tests, home health agency services, and most preventive care services),
the beneficiary pays nothing.
The Part D average premiums displayed in table V.E2 are the
estimated base beneficiary premiums. Starting in 2009, the national
average plan bid is based on the enrollment-weighted average. The
actual premium that a beneficiary pays varies according to the plan in
which the beneficiary enrolls. The average paid premium has always
been lower than the base beneficiary premium; the average paid
premium was $30.22 in 2020 and is projected to be $31.69 in 2021.
Since beneficiaries may switch plans each year once the premium rates
become known, the Trustees assume that the estimated average
premium rate paid by beneficiaries will continue to be slightly less
than the base beneficiary premium in future years.
Similar to Part B, there are two provisions that affect the premium
rate for certain Part D beneficiaries. First, there is a Part D late
enrollment penalty for those beneficiaries enrolling after their initial
enrollment period. Second, starting in 2011, individuals whose
modified adjusted gross income exceeds the same thresholds applicable
to the Part B premium pay an income-related premium in addition to
the premium charged by the plan in which the individual enrolled. The
amount of the income-related premium adjustment is dependent on the
individual’s income level, and the extra premium amount is the
difference between 35, 50, 65, 80, or 85 percent and 25.5 percent,
applied to the National Average Monthly Bid Amount adjusted for
reinsurance. In addition, the changes to the income ranges and
threshold methodology that were previously described for Part B also
apply to Part D. Table V.E4 displays, for 2011 through 2030, the Part D
income-related premium adjustment amounts, the number of
beneficiaries affected, and the aggregate additional premium amounts
collected, based on the intermediate set of assumptions. In December
2020, approximately 3.9 million beneficiaries paid a Part D income-
related premium.
213
Appendices
Table V.E4.—Part D Income-Related Premium Information
Income-related monthly adjustment amount1 Beneficiaries Aggregate
Calendar affected premiums2
year 35% 50% 65% 80% 85% (millions) (billions)
Historical data:
2011 $12.00 $31.10 $50.10 $69.10 — 0.9 $0.3
2012 11.60 29.90 48.10 66.40 — 1.1 0.4
2013 11.60 29.90 48.30 66.60 — 1.5 0.5
2014 12.10 31.10 50.20 69.30 — 1.8 0.7
2015 12.30 31.80 51.30 70.80 — 2.1 0.9
2016 12.70 32.80 52.80 72.90 — 2.5 1.0
2017 13.30 34.20 55.20 76.20 — 2.7 1.2
2018 13.00 33.60 54.20 74.80 — 2.9 1.4
2019 12.40 31.90 51.40 70.90 $77.40 3.4 1.6
2020 12.20 31.50 50.70 70.00 76.40 3.8 1.8
2021 12.30 31.80 51.20 70.70 77.10 4.1 1.9
Intermediate estimates:
2022 12.20 31.40 50.60 69.80 76.20 4.6 2.2
2023 12.70 32.80 52.80 72.90 79.50 5.1 2.5
2024 13.20 34.10 55.00 75.90 82.90 5.5 2.8
2025 13.60 35.10 56.50 78.00 85.20 6.0 3.2
2026 14.10 36.50 58.80 81.10 88.50 6.5 3.7
2027 14.70 37.90 61.10 84.30 92.00 7.0 4.0
2028 15.30 39.40 63.50 87.60 95.60 7.6 4.5
2029 15.90 40.90 66.00 91.10 99.40 8.1 5.0
2030 16.50 42.60 68.70 94.80 103.50 8.6 5.6
1
Amount is based on the applicable percentage of program cost represented by the premium. The
Bipartisan Budget Act of 2018 created an additional premium level for 2019 and later.
2
Represents the total amount paid by affected beneficiaries in excess of the Part D plan premium.
In addition, there are Part D premium and cost-sharing subsidies for
those beneficiaries with incomes less than 150 percent of the Federal
poverty level and with assets, including burial expenses, in 2021 that
amount to less than $14,790 for an individual and $29,520 for a couple.
The asset thresholds are indexed in subsequent years by the Consumer
Price Index (CPI-U). Under the current statutory adjustment formula,
the asset figures for 2021 increase for both an individual and a couple
as a result of increases in the CPI-U.
Under standard Part D coverage, there is an initial deductible. After
meeting the deductible, the beneficiary pays 25 percent of the
remaining costs up to the initial benefit limit. Beyond this limit, prior
to 2011, the beneficiary paid all the drug costs until his or her total out-
of-pocket expenditures reached the catastrophic threshold. (This total
includes the deductible and coinsurance payments for expenses up to
the initial benefit limit.) The coverage gap was to be gradually closed
beginning in 2011 until 2020, and then BBA 2018 required the
coverage gap for brand-name drugs to close 1 year earlier, in 2019.
Starting in 2020, for all drugs, beneficiaries pay 25 percent of the costs
between the deductible and the catastrophic threshold under the
standard coverage. In 2021, after reaching the catastrophic threshold,
the beneficiary pays the greater of (i) 5 percent of the drug cost or
(ii) $3.70 for generic or preferred multiple-source drugs or $9.20 for
214
Cost Sharing and Premiums
preferred single-source drugs. The latter copayment amounts from
2021 are indexed annually by per enrollee Part D average costs.
Beneficiaries qualifying for the Part D low-income subsidy pay
substantially reduced premium and cost-sharing amounts. Many
Part D plans offer alternative coverage that differs from the standard
coverage described above. The majority of beneficiaries have not
enrolled in the standard benefit design but rather in plans with low or
no deductibles, flat copayments for covered drugs, and, in some cases,
partial coverage in the coverage gap.
215
Appendices
F. MEDICARE AND SOCIAL SECURITY TRUST FUNDS AND
THE FEDERAL BUDGET
One can view the financial operations of Medicare and Social Security
in the context of the programs’ trust funds or in the context of the
overall Federal budget. The financial status of the trust funds differs
fundamentally from the impact of these programs on the budget, and
people often misunderstand the relationship between these two
perspectives. Each perspective is appropriate and important for its
intended purpose; this appendix attempts to clarify their roles and
relationship.
By law, the annual reports of the Medicare and Social Security Boards
of Trustees to Congress include a statement of the financial status of
the programs’ trust funds—that is, whether these funds have sufficient
revenues and assets to enable the payment of benefits and
administrative expenses. This trust fund perspective is important
because the existence of trust fund assets provides the statutory
authority to make such payments without the need for an
appropriation from Congress. Under current law, Medicare and Social
Security benefits can be paid only if the relevant trust fund has
sufficient income or assets.
The trust fund perspective does not encompass the interrelationship
between the Medicare and Social Security trust funds and the overall
Federal budget. The budget is a comprehensive display of all Federal
activities, whether financed through trust funds or from the general
fund of the Treasury. This broader focus may appropriately be termed
the budget perspective or government-wide perspective and is officially
presented in the Budget of the United States Government and in the
Financial Report of the United States Government.
Payroll taxes, income taxes on Social Security benefits, Medicare
premiums, and special State payments to Medicare finance the
majority of Medicare and Social Security costs. In addition to these
earmarked receipts from workers, employers, beneficiaries, and States,
and interest payments on their accumulated assets, the trust funds
(principally the SMI trust fund) rely on Federal general fund revenues
for some of their financing. The financial status of a trust fund
appropriately considers all sources of financing provided for that fund,
including the availability of trust fund assets that Medicare or Social
Security can use to meet program expenditures. From a budget
perspective, however, general fund transfers represent a draw on other
Federal resources for which there is no earmarked source of revenue
from the public. For this appendix, interest payments to the trust funds
216
Trust Funds and Federal Budget
and asset redemptions, both of which occur due to the postponed use of
earmarked revenues, are classified as draws on other Federal
resources, since they require payments from the Treasury general
fund. The budget perspective does not reflect that publicly held debt
and interest payments to the public are both lower because the trust
funds hold some of the debt.
In the past, general fund and interest payments for Medicare and
Social Security were relatively small. These amounts have been
increasing, and the expected future growth of Medicare and Social
Security will make their interaction with the Federal budget
increasingly important. As the difference between earmarked and total
trust fund revenues grows, the financial operations of Social Security
and Medicare can appear markedly different depending on which of the
two perspectives one uses.98
Illustration with Actual Data for 2020
Table V.F1 illustrates the trust fund and budget perspectives using
actual data on Federal financial operations for fiscal year (FY) 2020.
The first three columns show revenues and expenditures for HI, SMI,
and OASDI, respectively, and the fourth column is the sum of these
three columns. The fifth column shows total revenues and
expenditures for all other government programs (including the general
fund account of the Treasury), and the final column is the sum of the
“Combined” and “Other Government” columns. The table shows
earmarked revenues from the public separately from revenues from
other government accounts (general revenue transfers and interest
credits). Note that the transfers and interest credits received by the
trust funds appear in total as negative entries under the “Other
Government” column and are thus offsetting when summed for the
total budget in the final column. These two intragovernmental
transactions are key to the differences between the two perspectives.
98A more complete treatment of this topic appears in the 2018 Financial Report of the
United States Government at www.fms.treas.gov/fr/ and in a May 2009 Treasury report
titled “Social Security and Medicare Trust Funds and the Federal Budget” at
http://www.treasury.gov/resource-center/economic-policy/ss-medicare/Documents/
budget_trust_fund_perspectives_2009.pdf. Additional information is available in a
Health Care Financing Review article titled “Medicare Financial Status, Budget Impact,
and Sustainability: Which Concept Is Which?” at http://www.cms.gov/Research-
Statistics-Data-and-Systems/Research/HealthCareFinancingReview/Downloads/
05-06Winpg127.pdf and in a Social Security Bulletin article titled “Social Security Trust
Fund Cash Flows and Reserves” at https://www.ssa.gov/policy/docs/ssb/v75n1/
v75n1p1.html.
217
Appendices
Table V.F1.—Annual Revenues and Expenditures
for Medicare and Social Security Trust Funds and the Total Federal Budget,
Fiscal Year 2020
[In billions]
Trust funds Other
Revenue and expenditures categories HI SMI OASDI Combined government Total1
Revenues from public:
Payroll and benefit taxes $322.9 — $1,024.1 $1,347.0 — $1,347.0
Premiums2 6.6 $123.0 — 129.6 — 129.6
Other taxes, fees, and payments3 — 14.9 — 14.9 $1,929.7 1,944.6
Total 329.4 137.9 1,024.1 1,491.5 1,929.7 3,421.2
Total expenditures to public4 400.6 514.8 1,095.4 2,010.9 4,539.5 6,550.4
Net Results for Budget Perspective í71.2 í376.9 í71.3 í519.4 í2,609.8 í3,129.2
Revenues from other government accounts:
Transfers 1.4 357.5 0.0 358.9 í358.9 —
Interest credits 5.3 2.2 78.8 86.3 í86.3 —
Total 6.7 359.7 78.8 445.2 í445.2 —
Net Results for Trust Fund Perspective í64.5 í17.2 7.5 í74.2 n/a n/a
1
This column is the sum of the preceding two columns and shows data for the total Federal budget. The
figure $3,129.2 billion was the estimated total Federal budget deficit for fiscal year 2020.
2
Includes Part D premiums paid directly to plans, which are not displayed on Treasury statements and are
estimated.
3
Includes Part D State transfers.
4
The OASDI figure includes $5.0 billion transferred to the Railroad Retirement Board.
Notes: 1. For comparison, HI taxable payroll, OASDI taxable payroll, and GDP were $9,688 billion,
$7,705 billion, and $20,937 billion, respectively, in 2020.
2. Totals do not necessarily equal the sums of rounded components.
3. n/a indicates not applicable.
The trust fund perspective reflects both categories of revenues for each
trust fund. For HI, revenues from the public plus transfers/credits from
other government accounts were $64.5 billion less than total
expenditures in FY 2020, as shown at the bottom of the first column.99
For the SMI trust fund, the statutory revenues from beneficiary
premiums, State transfers, general revenue transfers, and interest
earnings collectively were $17.2 billion less than expenditures in
FY 2020. Note that it is appropriate to view the general revenue
transfers from other government accounts as financial resources from
the trust fund perspective since they are available to help meet trust
fund outlays. For OASDI, total trust fund revenues from all sources
(including $78.8 billion in interest payments and $0.0 billion in general
fund reimbursements) exceeded total expenditures by $7.5 billion.
From the government-wide or budget perspective, only earmarked
revenues received from the public—principally taxes on payroll and
99The Department of the Treasury invests surplus revenues from the public over
expenditures to the public in special Treasury securities, which thereby represent a loan
from the trust funds to the general fund of the Federal Government. These loans reduce
the amount that the general fund has to borrow from the public to finance a deficit (or
likewise increase the amount of debt paid off if there is a surplus). Interest is credited to
the trust funds while the securities are being held. Trust fund securities can be redeemed
at any time if needed to help meet program expenditures.
218
Trust Funds and Federal Budget
benefits, plus premiums—and expenditures made to the public are
important for the final balance.100 For HI, the difference between such
revenues ($329.4 billion) and total expenditures made to the public
($400.6 billion) was $71.2 billion in FY 2020, indicating that HI had a
negative effect on the overall budget in FY 2020. For SMI, beneficiary
premiums, fees on brand-name prescription drugs to Part B, and State
payments to Part D of Medicare were the only sources of revenues from
the public in FY 2020 and represented only about 27 percent of total
expenditures. The remaining $376.9 billion in FY 2020 outlays
represented a substantial net draw on the Federal budget in that
year.101 For OASDI, the difference between revenues from the public
($1,024.1 billion) and total expenditures ($1,095.4 billion) was
$71.3 billion, indicating that OASDI also had a negative effect on the
overall budget last year if the effects of past trust fund cash flows on
interest payments from the Federal Government to the public are not
taken into account.
Thus, from the trust fund perspective, OASDI had an annual surplus
in FY 2020, and HI and SMI both had a deficit. From the budget
perspective, HI, SMI, and OASDI each required a net draw on the
budget. HI, SMI, and OASDI collectively had a trust fund deficit of
$74.2 billion in FY 2020 and a net draw of $519.4 billion on the budget.
It is important to recognize that each viewpoint is appropriate for its
intended purpose but that one perspective cannot be used to answer
questions related to the other. In the case of SMI, the trust fund will
always be in balance and there will always be a net draw on the Federal
budget. In the case of HI, trust fund surpluses in a given year may
occur with either a positive or negative direct impact on the budget for
that year. Conversely, a positive or negative budget impact from HI
offers minimal insight into whether its trust fund has sufficient total
revenues and assets to permit payment of benefits.
The next section illustrates the magnitude of the long-range difference
between projected expenditures and revenues for Medicare and Social
Security from both the trust fund and budget perspectives.
100For this purpose, the public includes State governments since they are outside of the
Federal Government.
101Three types of trust fund transactions constituted this net budget obligation:
$357.5 billion was drawn in the form of general revenue transfers, and another
$2.2 billion in interest payments, while $17.2 billion was transferred from the general
fund to the trust fund through the redemption of special-issue Treasury securities in an
amount equal to the trust fund deficit for the year.
219
Appendices
Future Obligations of the Trust Funds and the Budget
Table V.F2 collects from the Medicare and OASDI Trustees Reports
the present values of projected future revenues and expenditures over
the next 75 years. For HI and OASDI, tax revenues from the public are
projected to fall short of statutory expenditures by $5.1 trillion and
$22.7 trillion, respectively, in present value terms.102
Table V.F2.—Present Values of Projected Revenue and Cost Components
of 75-Year Open-Group Obligations for HI, SMI, and OASDI
[In trillions, as of January 1, 2021]
Revenue and expenditure categories HI SMI OASDI Combined
Revenues from public:
Payroll and benefit taxes $26.3 — $78.6 $104.9
Premiums 0.4 $16.2 — 16.6
Other taxes and fees1 — 1.5 — 1.5
Total 26.7 17.7 78.6 123.0
Total expenditures to public 31.8 60.9 101.3 194.0
Net Results for Budget Perspective í5.1 í43.2 í22.7 í71.0
Revenues from other government accounts:
Transfers 0.0 43.1 0.0 43.1
Interest credits n/a n/a n/a n/a
Total 0.0 43.1 0.0 43.1
Trust fund assets on January 1, 2021 0.2 0.1 2.9 3.2
Net Results for Trust Fund Perspective í4.9 0.0 í19.8 í24.6
1
Includes Part B revenues from fees on manufacturers and importers of brand-name prescription drugs
and Part D State transfers.
Notes: 1. For comparison, the present values of HI taxable payroll, OASDI taxable payroll, and GDP are
$674.8 trillion, $591.5 trillion, and $1,544.8 trillion, respectively, over the next 75 years. This
present value of GDP is calculated using HI-specific interest discount factors and differs
slightly from the corresponding amount shown in the OASDI Trustees Report.
2. Medicare present values are calculated using HI-specific discount factors, while OASDI
amounts use OASDI-specific discount factors.
3. Totals do not necessarily equal the sums of rounded components.
4. n/a indicates not applicable.
5. 0.0 indicates an amount of less than $50 billion.
From the budget perspective, these are the additional amounts that
would be necessary in order to pay HI and OASDI benefits and other
costs at the level scheduled over the next 75 years. From the trust fund
perspective, the amounts needed are smaller by the value of the
accumulated assets in the respective trust funds—$0.2 trillion for HI
and $2.9 trillion for OASDI—that could be drawn down to cover a part
of the projected shortfall in tax revenues. Three points about this
comparison in table V.F2 are important to note:
• The trust fund and budget perspectives differ in the treatment of
the starting trust fund assets. Those accumulated reserves are
102Interest income is not a factor in this table, as dollar amounts are in present value
terms.
220
Trust Funds and Federal Budget
credited to the trust fund programs under the trust fund
perspective but are not under the budget perspective.
• The amounts shown in table V.F2 assume payment of full
scheduled benefits, which is not permissible under current law
after trust fund depletion. For both the budget and trust fund
perspectives, the 75-year HI and OASDI deficits reflect the
financial imbalance after trust fund depletion. By law, however,
once assets are depleted, expenditures cannot be made except to
the extent covered by ongoing tax receipts and other trust fund
income.
• In practice, the long-range HI and OASDI deficits would likely be
addressed by future legislation to reduce expenditures, increase
payroll or other earmarked tax revenues, or some combination of
such measures. For Medicare, in particular, lawmakers have
frequently enacted legislation to slow the growth of expenditures.
The situation for SMI is somewhat different. SMI expenditures for
Part B and Part D are projected to exceed premium and other
dedicated revenues by $43.2 trillion. To keep the SMI trust fund
solvent for the next 75 years will require general fund transfers of this
amount, and these transfers represent a formal budget requirement.
From the trust fund perspective, the present value of projected total
premiums and general revenues is about equal to the present value of
future expenditures.
From the 75-year budget perspective, the present value of the
additional resources that would be necessary to meet projected
expenditures, for the three programs combined, is $71.0 trillion.103 To
put this very large figure in perspective, it would represent 4.6 percent
of the present value of projected GDP over the same period
($1,545 trillion). The components of the $71.0-trillion total are as
follows:
103As noted previously, the long-range HI and OASDI financial imbalances could instead
be partially addressed by expenditure reductions, thereby reducing the need for
additional revenues. Similarly, SMI expenditure reductions would reduce the need for
general fund transfers.
221
Appendices
Unfunded Medicare and OASDI obligations
(trust fund perspective)104 ................................. $24.6 trillion (1.6% of GDP)
HI, SMI, and OASDI asset redemptions .......... 3.2 trillion (0.2% of GDP)
SMI general revenue financing ......................... 43.1 trillion (2.8% of GDP)
These resource needs would be in addition to the payroll taxes, benefit
taxes, and premium payments. As noted, the asset redemptions and
SMI general revenue transfers represent formal budget commitments,
but no provision exists for covering the HI and OASDI trust fund
deficits once assets are depleted.
As discussed throughout this report, the Medicare projections shown
here could be substantially understated as a result of other potentially
unsustainable elements of current law. Although this issue does not
affect the nature of the budget and trust fund perspectives described
in this appendix, it is important to note that actual long-range present
values for HI expenditures and SMI expenditures and revenues could
exceed the amounts shown in table V.F2 by a substantial margin.
104Additional revenues and/or expenditure reductions totaling $24.6 trillion, together
with $3.2 trillion in asset redemptions, would cover the projected financial imbalance
but would leave the HI and OASDI trust funds depleted at the end of the 75-year period.
The long-range actuarial deficits for HI and OASDI include a cost factor to allow for a
normal level of fund assets. See section III.B3 in this report, and section IV.B4 in the
OASDI Trustees Report, for the numerical relationship between the actuarial deficit and
the unfunded obligations of each program.
222
Infinite horizon projections
G. INFINITE HORIZON PROJECTIONS
Consistent with the practice of previous reports, this report focuses on
the 75-year period 2021–2095 for the evaluation of the long-range
financial status of the Medicare program. The estimates are for the
open-group population—all persons, some of whom are not yet born,
who will participate during the period as either taxpayers or
beneficiaries, or both—and consist of payments from, and on behalf of,
employees now in the workforce, as well as those who will enter the
workforce over the next 75 years.
Experts have noted that limiting the projections to 75 years
understates the magnitude of the long-range unfunded obligations
because summary measures (such as the actuarial balance and open-
group unfunded obligations) reflect the full amount of taxes paid by the
next two or three generations of workers, but not the full amount of
their benefits. One approach to addressing the limitations of 75-year
summary measures is to extend the projection horizon indefinitely, so
that the overall results reflect the projected costs and revenues after
the first 75 years.105 Such extended projections can also help indicate
whether the financial imbalance would be improving or continuing to
worsen beyond the normal 75-year period.
Table V.G1 presents estimates of HI unfunded obligations that extend
to the infinite horizon. The extension assumes that the HI program and
the demographic and economic trends used for the 75-year projection
continue indefinitely except that average HI expenditures per
beneficiary increase at the same rate as GDP per capita less the
productivity adjustments after 2095. If the slower HI price updates
under current law were able to continue indefinitely, then the HI
financial imbalance would actually improve beyond the 75-year
period.106 Specifically, under these assumptions, extending the
calculations beyond 2095 subtracts $15.4 trillion in unfunded
obligations from the amount estimated through 2095. Over the infinite
horizon, the HI program thus has a projected surplus of $10.5 trillion.
105The calculation of present values, in effect, applies successively less weight to future
amounts over time, through the process of interest discounting. For example, the weights
associated with the 25th, 75th, and 200th years of the projection would be about
37.1 percent, 3.7 percent, and 0.01197 percent, respectively, of the weight for the first
year. In this way, it is possible to calculate a finite summary measure for an infinite
projection period.
106It is important to note that the actual future costs for Medicare may exceed the
projections shown in this report, possibly by substantial amounts. See section V.C for
details on the illustrative alternative projections.
223
Appendices
Table V.G1.—Unfunded HI Obligations from Program Inception
through the Infinite Horizon
[Present values as of January 1, 2021; dollar amounts in trillions]
As a percentage of:
Present HI taxable
value payroll GDP
Unfunded obligations through the infinite horizon1 í$10.50 í0.7% í0.3%
Unfunded obligations from program inception through 20951 4.86 0.7 0.3
1
Present value of future expenditures less income, reduced by the amount of trust fund assets at the
beginning of the period.
Notes: 1. The present values of future HI taxable payroll for 2021–2095 and for 2021 through the infinite
horizon are $674.8 trillion and $1,531.3 trillion, respectively.
2. The present values of GDP for 2021–2095 and for 2021 through the infinite horizon are
$1,544.8 trillion and $4,029.6 trillion, respectively. (These present values differ slightly from
the corresponding amounts shown in the OASDI Trustees Report due to the use of HI-specific
interest discount factors.)
It is possible to separate the projected HI unfunded obligation over the
infinite horizon into the portions associated with current participants
versus future participants. The first line of table V.G2 shows the
present value of future expenditures less future taxes for current
participants, including both beneficiaries and covered workers.
Subtracting the current value of the HI trust fund (the accumulated
value of past HI taxes less outlays) results in a closed-group unfunded
obligation of $13.3 trillion. In contrast, the projected difference
between taxes and expenditures for future participants is a surplus of
$23.8 trillion.
The year-by-year HI deficits described in section III.B have shown that
HI taxes will not be adequate to finance the program on a pay-as-you-
go basis (whereby payroll taxes from today’s workers provide benefits
to today’s beneficiaries).107 The unfunded obligations shown in
table V.G2 for current participants further indicate that their HI taxes
are not adequate to cover their own future costs when they become
eligible for HI benefits—and that this situation has also occurred for
workers in the past. For future workers, however, the compounding
effects of the lower HI price updates would, if they were able to
continue indefinitely, lower costs to the point that scheduled HI taxes
would be more than sufficient. In practice, lawmakers could address
the projected aggregate HI deficits by raising additional revenue or
reducing benefits (or some combination of these actions). The impact of
such changes on the unfunded obligation amounts for current versus
future participants would depend on the specific policies selected.
As noted previously, the HI trust fund also receives small amounts of income in the
107
form of income taxes on OASDI benefits, interest, and general revenue reimbursements
for certain uninsured beneficiaries.
224
Infinite horizon projections
Table V.G2.—Unfunded HI Obligations for Current and Future Program Participants
through the Infinite Horizon
[Present values as of January 1, 2021; dollar amounts in trillions]
As a percentage of:
Present HI taxable
value payroll GDP
Future expenditures less income for current participants.............................. $13.5 0.9% 0.3%
Less current trust fund
(income minus expenditures to date for past and current participants) ..... 0.2 0.0 0.0
Equals unfunded obligations for past and current participants1 .................... 13.3 0.9 0.3
Plus expenditures less income for future participants for the infinite horizon í23.8 í1.6 í0.6
Equals unfunded obligations for all participants for the infinite future ........... í10.5 í0.7 í0.3
1
This concept is also referred to as the closed-group unfunded obligation.
Notes: 1. The estimated present value of future HI taxable payroll for 2021 through the infinite horizon
is $1,531.3 trillion.
2. The estimated present value of GDP for 2021 through the infinite horizon is $4,029.6 trillion.
See note 2 in table V.G1.
3. Totals do not necessarily equal the sums of rounded components.
Tables V.G3 and V.G4 show the infinite horizon estimates for Part B.
The extension assumes that the demographic and economic trends
used for the 75-year projection continue indefinitely and that the
productivity adjustments to payment updates for some providers
remain unchanged. To simplify and stabilize the modeling for the
infinite horizon, the Trustees project that average Part B expenditures
per beneficiary will increase at about the same rate as GDP per capita
minus 0.3 percentage point in every year, reflecting the mix of costs by
provider category after 2095 and the payment rate updates applicable
to each category.
Table V.G3 shows an estimated present value of Part B expenditures
through the infinite horizon of $123.6 trillion, of which $50.0 trillion
would occur during the first 75 years. Because such amounts,
calculated over extremely long horizons, can be difficult to interpret,
they are also shown as percentages of the present value of future GDP.
So expressed, the corresponding figures are 3.1 percent and
3.2 percent, respectively. The table also indicates that beneficiary
premiums will finance approximately 29 percent of expenditures for
each time period and that fees related to brand-name prescription
drugs will finance about 0.1 percent. General revenues pay for the
remaining 71 percent.
225
Appendices
Table V.G3.—Unfunded Part B Obligations from Program Inception
through the Infinite Horizon
[Present values as of January 1, 2021; dollar amounts in trillions]
As a
percentage
Present value of GDP
Unfunded obligations through the infinite horizon1 $0.0 0.0%
Expenditures 123.6 3.1
Income 123.6 3.1
Beneficiary premiums 36.0 0.9
General revenue contributions 87.6 2.2
Fees related to brand-name prescription drugs 0.1 0.0
Unfunded obligations from program inception through 20951 0.0 0.0
Expenditures 50.0 3.2
Income 50.0 3.2
Beneficiary premiums 14.4 0.9
General revenue contributions 35.5 2.3
Fees related to brand-name prescription drugs 0.1 0.0
1
Present value of future expenditures less income, reduced by the amount of trust fund assets at the
beginning of the period.
Notes: 1. The present values of GDP for 2021–2095 and for 2021 through the infinite horizon are
$1,544.8 trillion and $4,029.6 trillion, respectively. See note 2 of table V.G1.
2. Totals do not necessarily equal the sums of rounded components.
Table V.G4 shows corresponding present values separately for current
versus future beneficiaries. As indicated, about 33 percent of the
projected total, infinite-horizon cost is attributable to current
beneficiaries, with the remaining 67 percent attributable to
beneficiaries becoming eligible for Part B benefits after
January 1, 2021.
226
Infinite horizon projections
Table V.G4.—Unfunded Part B Obligations
for Current and Future Program Participants through the Infinite Horizon
[Present values as of January 1, 2021; dollar amounts in trillions]
As a
Present percentage
value of GDP
Future expenditures less income for current participants................................ $0.0 0.0%
Expenditures............................................................................................... 41.0 1.0
Income........................................................................................................ 41.0 1.0
Beneficiary premiums.............................................................................. 11.9 0.3
General revenue contributions ................................................................ 29.0 0.7
Fees related to brand-name prescription drugs ....................................... 0.0 0.0
Less current trust fund
(Income minus expenditures to date for past and current participants) ....... 0.1 0.0
Equals unfunded obligations for past and current participants1 ...................... í0.2 0.0
Expenditures............................................................................................... 40.8 1.0
Income........................................................................................................ 40.9 1.0
Beneficiary premiums.............................................................................. 11.8 0.3
General revenue contributions ................................................................ 28.9 0.7
Fees related to brand-name prescription drugs ....................................... í0.1 0.0
Plus expenditures less income for future participants for the infinite horizon .. 0.0 0.0
Expenditures............................................................................................... 82.6 2.1
Income........................................................................................................ 82.6 2.1
Beneficiary premiums.............................................................................. 24.0 0.6
General revenue contributions ................................................................ 58.5 1.5
Fees related to brand-name prescription drugs ....................................... 0.1 0.0
Equals unfunded obligations for all participants for the infinite future ............. í0.1 0.0
Expenditures............................................................................................... 123.5 3.1
Income........................................................................................................ 123.5 3.1
Beneficiary premiums.............................................................................. 35.8 0.9
General revenue contributions ................................................................ 87.4 2.2
Fees related to brand-name prescription drugs ....................................... í0.1 0.0
1
This concept is also referred to as the closed-group unfunded obligation.
Notes: 1. The estimated present value of GDP for 2021 through the infinite horizon is $4,029.6 trillion.
See note 2 of table V.G1.
2 Totals do not necessarily equal the sums of rounded components.
Tables V.G5 and V.G6 present revenue and expenditure estimates for
Part D that extend to the infinite horizon. The extension assumes that
the demographic and economic trends used for the 75-year projection
continue indefinitely except that average Part D expenditures per
beneficiary would increase at the same rate as GDP per capita after
2095.
Table V.G5 shows an estimated present value of Part D expenditures
through the infinite horizon of $37.2 trillion, of which $10.9 trillion
would occur during the first 75 years. To put the estimates in
perspective, they are also shown as percentages of the present value of
future GDP. Expressed in this way, the corresponding figures are
0.9 percent and 0.7 percent of GDP, respectively. The table also
indicates that, for each time period, beneficiary premiums would
finance approximately 17 percent of expenditures and State transfers
would finance 13 percent, with general revenues paying for the
remaining 70 percent.
227
Appendices
Table V.G5.—Unfunded Part D Obligations from Program Inception
through the Infinite Horizon
[Present values as of January 1, 2021; dollar amounts in trillions]
As a
percentage
Present value of GDP
Unfunded obligations through the infinite horizon1 $0.0 0.0%
Expenditures 37.2 0.9
Income 37.2 0.9
Beneficiary premiums 6.2 0.2
State transfers 4.8 0.1
General revenue contributions 26.1 0.6
Unfunded obligations from program inception through 20951 0.0 0.0
Expenditures 10.9 0.7
Income 10.9 0.7
Beneficiary premiums 1.8 0.1
State transfers 1.4 0.1
General revenue contributions 7.7 0.5
1
Present value of future expenditures less income, reduced by the amount of trust fund assets at the
beginning of the period.
Notes: 1. The present values of GDP for 2021–2095 and for 2021 through the infinite horizon are
$1,544.8 trillion and $4,029.6 trillion, respectively. See note 2 of table V.G1.
2 Totals do not necessarily equal the sums of rounded components.
Table V.G6 shows corresponding projections separately for current
versus future beneficiaries. As indicated, about 21 percent of the
projected total, infinite-horizon cost is attributable to current
beneficiaries, with the remaining 79 percent attributable to
beneficiaries becoming eligible for Part D benefits after
January 1, 2021.
228
Infinite horizon projections
Table V.G6.—Unfunded Part D Obligations
for Current and Future Program Participants through the Infinite Horizon
[Present values as of January 1, 2021; dollar amounts in trillions]
As a
Present percentage
value of GDP
Future expenditures less income for current participants................................ $0.0 0.0%
Expenditures............................................................................................... 7.9 0.2
Income........................................................................................................ 7.9 0.2
Beneficiary premiums.............................................................................. 1.3 0.0
State transfers......................................................................................... 1.0 0.0
General revenue contributions ................................................................ 5.6 0.1
Less current trust fund
(Income minus expenditures to date for past and current participants) ....... 0.0 0.0
Equals unfunded obligations for past and current participants1 ...................... 0.0 0.0
Expenditures............................................................................................... 7.9 0.2
Income........................................................................................................ 7.9 0.2
Beneficiary premiums.............................................................................. 1.3 0.0
State transfers......................................................................................... 1.0 0.0
General revenue contributions ................................................................ 5.6 0.1
Plus expenditures less income for future participants for the infinite horizon .. 0.0 0.0
Expenditures............................................................................................... 29.2 0.7
Income........................................................................................................ 29.2 0.7
Beneficiary premiums.............................................................................. 4.8 0.1
State transfers......................................................................................... 3.8 0.1
General revenue contributions ................................................................ 20.6 0.5
Equals unfunded obligations for all participants for the infinite future ............. 0.0 0.0
Expenditures............................................................................................... 37.1 0.9
Income........................................................................................................ 37.1 0.9
Beneficiary premiums.............................................................................. 6.2 0.2
State transfers......................................................................................... 4.8 0.1
General revenue contributions ................................................................ 26.1 0.6
1
This concept is also referred to as the closed-group unfunded obligation.
Notes: 1. The estimated present value of GDP for 2021 through the infinite horizon is $4,029.6 trillion.
See note 2 of table V.G1.
2. Totals do not necessarily equal the sums of rounded components.
229
Appendices
H. FISCAL YEAR HISTORICAL DATA AND PROJECTIONS
THROUGH 2030
Tables V.H1, V.H2, and V.H3 present detailed operations of the HI
trust fund, along with Part B and Part D of the SMI trust fund, for
fiscal year 2020. These tables are similar to the calendar-year
operation tables displayed in sections III.B, III.C, and III.D.
Table V.H1.—Statement of Operations of the HI Trust Fund during Fiscal Year 2020
[In thousands]
Total assets of the trust fund, beginning of period ............................................................ $198,826,387
Revenue:
Payroll taxes ........................................................................................................... $295,913,474
Income from taxation of OASDI benefits ................................................................. 26,941,000
Interest on investments ........................................................................................... 5,296,790
Premiums collected from voluntary participants ...................................................... 3,975,102
Premiums collected from Medicare Advantage participants .................................... 345,215
ACA Medicare shared savings program receipts ..................................................... 78,022
Transfer from Railroad Retirement account ............................................................. 582,900
Reimbursement, transitional uninsured coverage.................................................... 109,000
Interfund interest receipts, CMS .............................................................................. 869
Interfund interest payments to OASDI1.................................................................... í287
Interest on reimbursements, Railroad Retirement ................................................... 23,549
Other ....................................................................................................................... 216
Reimbursement, union activity ................................................................................ 580
General fund transfer, program management.......................................................... 913,000
Fraud and abuse control receipts:
Criminal fines ...................................................................................................... 1,542
Civil monetary penalties ...................................................................................... 27,687
Civil penalties and damages, Department of Justice ........................................... 811,071
Asset forfeitures, Department of Justice ............................................................. 701,421
3% administrative expense reimbursement, Department of Justice .................... 25,870
General fund appropriation fraud and abuse, FBI ............................................... 141,423
General fund transfer, discretionary .................................................................... 227,516
Total revenue ............................................................................................................... $336,115,961
Expenditures:
Net benefit payments2 ............................................................................................. $395,823,039
Administrative expenses:
Treasury administrative expenses ...................................................................... 111,477
Salaries and expenses, SSA3 ............................................................................. 941,626
Salaries and expenses, CMS4 ............................................................................ 1,575,424
Salaries and expenses, Office of the Secretary, HHS ......................................... 126,562
Medicare Payment Advisory Commission ........................................................... 7,527
State Health Insurance Program, OBRA ............................................................. 18,341
CMS Program Management ............................................................................... í7,172
Medicare Access Children’s Health Insurance Program ..................................... 1,050
Fraud and abuse control expenses:
HHS Medicare integrity program .................................................................... 767,449
HHS Office of Inspector General .................................................................... 403,715
Department of Justice .................................................................................... 61,508
FBI ................................................................................................................. 69,102
HCFAC Discretionary, CMS ........................................................................... 368,598
HCFAC Other HHS Discretionary, CMS ......................................................... 147,464
HCFAC Department of Justice Discretionary, CMS........................................ 219,815
HCFAC Office of Inspector General Discretionary, CMS ................................ 10,631
Total administrative expenses ................................................................................. 4,823,116
Total expenditures ....................................................................................................... $400,646,155
Net addition to the trust fund ............................................................................................ í64,530,194
Total assets of the trust fund, end of period...................................................................... $134,296,193
1
Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust
230
FY Operations and Projections
funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from
the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A
positive figure represents a transfer to the HI trust fund from the other trust funds. A negative figure
represents a transfer from the HI trust fund to the other funds.
2
Includes net payments of $65.5 billion made through the Medicare Accelerated and Advance Payments
Program: $66.7 billion in payments to providers and $1.2 billion in repayments.
3
For facilities, goods, and services provided by SSA.
4
Includes expenses of the Medicare Administrative Contractors.
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H2.—Statement of Operations of the Part B Account
in the SMI Trust Fund during Fiscal Year 2020
[In thousands]
Total assets of the Part B account in the trust fund, beginning of period $99,490,884
Revenue:
Premiums from enrollees:
Enrollees aged 65 and over ....................................................... $92,497,854
Disabled enrollees under age 65 ............................................... 13,757,719
Total premiums .............................................................................. 106,255,573
Premiums collected from Medicare Advantage participants ........... 452,761
Government contributions:
Enrollees aged 65 and over ....................................................... 241,102,904
Disabled enrollees under age 65 ............................................... 52,306,182
Repayment amount1 .................................................................. í1,998,349
Adjustment for exempted amounts1 ........................................... í6,227,474
Union activity ............................................................................. 781
Total government contributions ...................................................... 285,184,044
Other .............................................................................................. 115
Interest on investments .................................................................. 2,173,321
Interfund interest receipts & payments2 .......................................... í7,024
Annual fees—branded Rx manufacturers and importers ................ 3,167,253
ACA Medicare shared savings program receipts ............................ 98,489
Total revenue ...................................................................................... $397,324,531
Expenditures:
Net Part B benefit payments3 ......................................................... $409,851,274
Administrative expenses:
Transfer to Medicaid4 ................................................................. 1,061,635
Treasury administrative expenses ............................................. 295
Salaries and expenses, CMS5 ................................................... 2,203,772
Salaries and expenses, Office of the Secretary, HHS ................ 126,562
Salaries and expenses, SSA ..................................................... 1,339,447
Medicare Payment Advisory Commission .................................. 5,018
Railroad Retirement administrative expenses ............................ 12,717
Railroad Retirement administrative expenses, OIG ................... 1,847
Railroad Retirement administrative expenses, SMAC ................ 16,089
CMS program management—Affordable Care Act .................... í13,773
ACL State Health Insurance Assistance Program6..................... 18,341
MACRA7 .................................................................................... 6,732
Total administrative expenses ........................................................ 4,778,682
Total expenditures .............................................................................. $414,629,957
Net addition to the trust fund ............................................................... í17,305,425
Total assets of the Part B account in the trust fund, end of period ........... $82,185,459
1
The Bipartisan Budget Act of 2015 (BBA 2015) required a transfer of funds from the general fund to cover
the premium income that was lost in 2016 as a result of the hold-harmless provision. BBA 2015 further
requires that, starting in 2016, the Part B premium otherwise determined be increased by $3.00, which is
to be collected and repaid to the general fund of the Treasury. The additional repayment premium amounts
will continue until the balance due (defined as transfer to the Part B account from the general fund plus
forgone income-related premiums) has been repaid. The additional repayment premium is not to be
matched by general revenue contributions; however, since CMS is not able to separate it from the standard
premium, the additional repayment premium is matched. An adjustment is therefore necessary to transfer
this erroneous Federal matching amount back to the general fund.
2
Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust
231
Appendices
funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from
the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A
positive figure represents a transfer to the Part B account of the SMI trust fund from the other trust funds.
A negative figure represents a transfer from the Part B account in the SMI trust fund to the other funds.
3
Includes net payments of $38.4 billion made through the Medicare Accelerated and Advance Payments
Program: $39.9 billion in payments to providers and $1.5 billion in repayments.
4
Represents amount transferred from the Part B account in the SMI trust fund to Medicaid to pay the Part B
premium for certain qualified individuals.
5
Includes expenses of the Medicare Administrative Contractors.
6
Reflects amount transferred from the Part B account of the SMI trust fund to the Administration for
Community Living (ACL) for administration of the State Health Insurance Assistance program, as
authorized by the Consolidated Appropriations Act of 2014.
7
Represents amounts transferred from the Part B account of the SMI trust fund for administration of
provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H3—Statement of Operations of the Part D Account
in the SMI Trust Fund during Fiscal Year 2020
[In thousands]
Total assets of the Part D account in the trust fund, beginning of period $7,702,360
Revenue:
Premiums from enrollees
Premiums deducted from Social Security benefits ................... $5,252,595
Premiums paid directly to plans1 .............................................. 10,468,343
Total premiums ............................................................................ 15,720,939
Government contributions:
Prescription drug benefits ........................................................ 71,422,360
Prescription drug administrative expenses 861,000
Total government contributions .................................................... 72,283,360
Payments from States .................................................................. 11,719,896
Interest on investments ................................................................ 48,282
DOJ/OIG/MA settlements2............................................................ 504,716
Total revenue .................................................................................... $100,277,193
Expenditures:
Part D benefit payments1 ............................................................. $99,751,826
Part D administrative expenses .................................................... 420,448
Total expenditures ............................................................................ $100,172,273
Net addition to the trust fund ............................................................. 104,920
Total assets of the Part D account in the trust fund, end of period......... $7,807,280
1
Premiums paid directly to plans are not displayed on Treasury statements and are estimated. These
premiums have been added to the benefit payments reported on the Treasury statement to obtain an
estimate of total Part D benefits. Direct data on such benefit amounts are not yet available.
2
Reflects amounts transferred to the Part D account for settlements related to Department of Justice (DOJ)
civil and criminal court cases, Office of the Inspector General (OIG) civil monetary penalties, and Medicare
Advantage (MA) civil monetary penalties.
Note: Totals do not necessarily equal the sums of rounded components.
232
FY Operations and Projections
Tables V.H4, V.H5, V.H6, V.H7, and V.H8 present estimates of the
fiscal-year operations of total Medicare, the HI trust fund, the SMI
trust fund, the Part B account in the SMI trust fund, and the Part D
account in the SMI trust fund, respectively. These tables correspond to
the calendar-year trust fund operation tables shown in section V.B and
in section III.
Table V.H4.—Total Medicare Income, Expenditures, and Trust Fund Assets
during Fiscal Years 1970–2030
[In billions]
Net change in Assets at end of
Fiscal year Total income Total expenditures assets year
Historical data:
1970 $7.5 $7.1 $0.3 $2.7
1975 16.9 14.8 2.1 11.3
1980 35.7 35.0 0.7 19.0
1985 75.5 71.4 4.1 31.9
1990 125.7 109.7 16.0 110.2
1995 173.0 180.1 í7.1 143.4
2000 248.9 219.3 29.6 214.0
2005 349.4 336.9 12.5 294.6
2010 500.7 521.2 í20.5 350.9
2011 528.0 560.3 í32.3 318.6
2012 532.6 550.1 í17.5 301.2
2013 556.71 581.7 í25.0 276.2
2014 597.71 600.3 í2.6 273.6
2015 629.9 638.1 í8.3 265.3
2016 687.7 694.5 í6.8 258.6
2017 721.0 707.4 13.6 272.1
2018 744.4 711.3 33.1 305.3
2019 782.8 782.1 0.7 306.0
2020 833.7 915.42 í81.7 224.3
Intermediate estimates:
2021 964.53 862.12 102.3 326.6
2022 917.0 953.42 í36.4 290.2
2023 1,006.3 1,038.3 í32.0 258.2
2024 1,082.8 1,058.9 23.9 282.2
2025 1,153.8 1,183.2 í29.4 252.8
2026 1,236.8 1,270.6 í33.8 219.0
2027 1,321.4 1,363.6 í42.2 176.8
2028 1,409.0 1,528.4 í119.5 57.4
2029 1,502.0 1,500.9 1.2 58.5
2030 1,591.3 1,673.3 í82.0 í23.5
1
Reflects the adjustment made by the Department of the Treasury in November of 2014 to account for
$2.6 billion in Part B drug fee income in September of 2013, rather than in October of 2013 when it was
actually received.
2
Includes net payments of $103.9 billion made through the Medicare Accelerated and Advance Payments
Program in fiscal year 2020 and subsequent repayments of $35.8 billion and $68.0 billion in fiscal years
2021 and 2022, respectively.
3
See footnote 9 of table III.C4.
Note: Totals do not necessarily equal the sums of rounded components.
233
234 Table V.H5.—Operations of the HI Trust Fund during Fiscal Years 1970–2030
[In billions]
Income Expenditures Trust fund
Income Railroad Reimburse- Premiums Payments
from Retirement ment for from for military Interest Adminis-
Fiscal Payroll taxation of account uninsured voluntary wage and Benefit trative Net Balance at
Appendices
3,4
year1 taxes benefits transfers persons enrollees credits other2,3 Total payments expenses5 Total change end of year
Historical data:
1970 $4.8 — $0.1 $0.6 — $0.0 $0.1 $5.6 $4.8 $0.1 $5.0 $0.7 $2.7
1975 11.3 — 0.1 0.5 $0.0 0.0 0.6 12.6 10.4 0.3 10.6 2.0 9.9
1980 23.2 — 0.2 0.7 0.0 0.1 1.1 25.4 23.8 0.5 24.3 1.1 14.5
1985 46.5 — 0.4 0.8 0.0 0.1 3.2 50.9 47.8 0.8 48.7 4.16 21.3
1990 70.7 — 0.4 0.4 0.1 0.1 7.9 79.6 65.9 0.8 66.7 12.9 95.6
1995 98.1 $3.9 0.4 0.5 1.0 0.1 11.0 114.8 113.6 1.3 114.9 0.0 129.5
2000 137.7 8.8 0.5 0.5 1.4 0.0 10.8 159.7 127.97 2.4 130.3 29.4 168.1
2005 169.0 8.8 0.4 0.3 2.3 0.0 16.2 196.9 181.3 2.9 184.1 12.8 277.7
2010 183.6 13.8 0.5 í0.1 3.3 0.0 16.9 218.0 245.6 3.3 249.0 í31.0 278.9
2011 192.1 15.1 0.5 0.3 3.3 0.0 15.3 226.5 255.7 3.9 259.6 í33.1 245.8
2012 204.8 18.6 0.5 0.3 3.4 0.0 14.2 241.7 254.5 3.7 258.2 í16.4 229.4
2013 212.9 14.3 0.6 0.0 3.4 0.0 12.4 243.6 262.4 4.1 266.5 í23.0 206.4
2014 227.6 18.1 0.6 0.4 3.3 0.0 12.8 262.8 262.5 4.3 266.9 í4.1 202.3
2015 237.7 20.2 0.6 0.2 3.3 0.0 10.4 272.4 273.2 5.5 278.7 í6.4 195.9
2016 250.5 23.0 0.7 0.2 3.2 0.0 9.6 287.1 285.6 5.1 290.6 í3.5 192.4
2017 259.7 24.2 0.6 0.1 3.5 0.0 10.3 298.5 290.3 3.08 293.3 5.3 197.6
2018 264.6 24.2 0.6 0.1 3.5 0.0 9.8 302.8 292.1 5.1 297.2 5.7 203.3
2019 281.4 23.8 0.6 0.1 3.8 0.0 9.5 319.3 318.4 5.4 323.7 í4.5 198.8
2020 295.9 26.9 0.6 0.1 4.0 0.0 8.6 336.1 395.89 4.8 400.6 í64.5 134.3
Intermediate estimates:
2021 297.7 24.5 0.6 0.1 4.4 0.0 5.7 333.0 339.19 4.7 343.8 í10.8 123.5
2022 327.3 30.1 0.7 0.1 4.7 0.0 6.0 369.0 360.59 4.6 365.1 3.9 127.3
2023 340.3 32.8 0.7 0.1 5.0 0.0 6.4 385.3 408.7 4.8 413.5 í28.2 99.2
2024 355.5 35.8 0.7 0.1 5.2 0.0 6.1 403.4 414.7 5.0 419.7 í16.3 82.8
2025 370.2 39.1 0.7 0.1 5.5 0.0 5.7 421.3 456.2 5.2 461.4 í40.1 42.7
10
2026 386.9 46.2 0.8 0.0 5.8 0.0 4.9 444.7 485.1 5.5 490.6 í45.9 í3.2
10
2027 402.0 53.9 0.8 0.0 6.2 0.0 4.1 467.0 515.9 5.8 521.7 í54.7 í57.8
202810 421.3 58.7 0.8 0.0 6.6 0.0 2.5 489.9 570.3 6.0 576.3 í86.4 í144.2
10
2029 437.6 63.7 0.8 0.0 7.0 0.0 í0.3 508.8 561.3 6.3 567.6 í58.8 í203.1
10
2030 455.5 69.1 0.8 0.0 7.3 0.0 í3.8 528.9 617.1 6.7 623.8 í94.8 í297.9
1
Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on
September 30 of each year.
2
Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund, receipts from the fraud and abuse control
program, and a small amount of miscellaneous income.
3
See footnote 2 of table III.B4.
4
Includes costs of Peer Review Organizations from 1983 through 2001 (beginning with the implementation of the prospective payment system on
October 1, 1983) and costs of Quality Improvement Organizations beginning in 2002.
5
Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses.
6
Includes repayment of loan principal, from the OASI trust fund, of $1.8 billion.
7
For 1998 through 2003, includes monies transferred to the SMI trust fund for home health agency costs.
8
Reflects a larger-than-usual downward adjustment of $1.8 billion for prior-year allocations among Part A, Part B, and Part D.
9
Includes net payments of $65.5 billion made through the Medicare Accelerated and Advance Payments Program in fiscal year 2020 and subsequent
repayments of $21.3 billion and $44.2 billion in fiscal years 2021 and 2022, respectively.
10
Estimates for 2026 and later are hypothetical since the HI trust fund would be depleted in those years.
Note: Totals do not necessarily equal the sums of rounded components.
235
FY Operations and Projections
Appendices
Table V.H6.—Operations of the SMI Trust Fund (Cash Basis)
during Fiscal Years 1970–2030
[In billions]
Income Expenditures Trust fund
Transfers Interest Adminis- Balance
Fiscal Premium General from and Benefit trative Net at end
year1 income revenue2 States other3,4 Total payments4,5 expense Total change of year6
Historical data:
1970 $0.9 $0.9 — $0.0 $1.9 $2.0 $0.2 $2.2 í$0.3 $0.1
1975 1.9 2.3 — 0.1 4.3 3.8 0.4 4.2 0.2 1.4
1980 2.9 6.9 — 0.4 10.3 10.1 0.6 10.7 í0.5 4.5
1985 5.5 17.9 — 1.2 24.6 21.8 0.9 22.7 1.8 10.6
1990 11.57 33.2 — 1.47 46.17 41.5 1.57 43.07 3.17 14.57
1995 19.2 37.0 — 1.9 58.2 63.5 1.7 65.2 í7.0 13.9
2000 20.5 65.6 — 3.2 89.2 87.28 1.8 89.0 0.2 45.9
2005 35.9 115.2 — 1.4 152.5 149.8 2.9 152.7 í0.2 16.9
2010 61.4 213.7 $4.5 3.2 282.7 268.7 3.5 272.2 10.5 72.0
2011 64.5 225.2 6.5 5.3 301.5 296.8 3.8 300.7 0.9 72.8
2012 66.1 210.5 8.3 6.0 290.9 287.8 4.1 291.9 í1.0 71.8
2013 71.3 227.2 8.7 6.09 313.2 311.4 3.8 315.1 í2.0 69.8
2014 75.9 244.4 8.7 6.09 334.9 329.1 4.3 333.4 1.5 71.3
2015 79.4 263.5 8.8 5.9 357.5 355.8 3.6 359.4 í1.9 69.4
2016 86.1 299.5 9.8 5.3 400.6 399.5 4.4 403.9 í3.3 66.2
2017 94.8 309.6 11.1 6.9 422.4 409.3 4.910 414.1 8.3 74.5
2018 106.2 316.7 11.7 7.0 441.6 409.4 4.7 414.1 27.5 102.0
2019 113.5 331.8 12.2 6.1 463.6 453.5 4.9 458.4 5.2 107.2
2020 122.0 357.5 11.7 6.4 497.6 509.611 5.2 514.8 í17.2 90.0
Intermediate estimates:
2021 130.5 483.612 11.3 6.1 631.5 514.211 4.2 518.3 113.2 203.2
2022 141.6 386.5 13.2 6.7 548.0 584.111 4.3 588.3 í40.3 162.9
2023 156.4 442.5 15.2 6.9 621.0 620.4 4.4 624.8 í3.8 159.1
2024 171.6 484.2 16.4 7.2 679.4 634.5 4.6 639.2 40.3 199.3
2025 185.2 521.6 17.7 7.9 732.5 716.9 4.8 721.8 10.7 210.1
2026 201.0 563.5 19.0 8.7 792.1 775.0 5.1 780.0 12.1 222.2
2027 218.2 606.1 20.3 9.8 854.4 836.6 5.3 841.9 12.5 234.7
2028 237.3 649.2 21.7 10.9 919.1 946.6 5.5 952.1 í33.1 201.6
2029 257.5 700.5 23.2 12.1 993.2 927.5 5.8 933.3 60.0 261.6
2030 278.2 746.2 24.7 13.3 1,062.4 1,043.5 6.0 1,049.5 12.9 274.4
1
Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980
and later consist of the 12 months ending on September 30 of each year.
2
Includes Part B general fund matching payments, Part D subsidy costs, and certain interest-adjustment
items.
3
Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of
the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest
inadvertently earned as a result of Part A hospice costs that were misallocated to the Part B trust fund
account.
4
See footnote 2 of table III.B4.
5
See footnote 3 of table III.B4.
6
The financial status of SMI depends on both the assets and the liabilities of the trust fund (see
table III.C8).
7
Includes the impact of the Medicare Catastrophic Coverage Act of 1988.
8
Benefit payments less monies transferred from the HI trust fund for home health agency costs.
9
See footnote 1 of table V.H4.
10
Reflects a larger-than-usual upward adjustment of $1.4 billion for prior-year allocations among Part A,
Part B, and Part D.
11
Includes net Part B payments of $38.4 billion made through the Medicare Accelerated and Advance
Payments Program in fiscal year 2020 and subsequent repayments of $14.5 billion and $23.9 billion in
fiscal years 2021 and 2022, respectively.
12
See footnote 9 of table III.C4.
Note: Totals do not necessarily equal the sums of rounded components.
236
FY Operations and Projections
Table V.H7.—Operations of the Part B Account in the SMI Trust Fund (Cash Basis)
during Fiscal Years 1970–2030
[In billions]
Income Expenditures Account
Interest Adminis- Balance at
Fiscal Premium General and Benefit trative Net end of
year1 income revenue2 other3,4 Total payments4,5 expense Total change year6
Historical data:
1970 $0.9 $0.9 $0.0 $1.9 $2.0 $0.2 $2.2 í$0.3 $0.1
1975 1.9 2.3 0.1 4.3 3.8 0.4 4.2 0.2 1.4
1980 2.9 6.9 0.4 10.3 10.1 0.6 10.7 í0.5 4.5
1985 5.5 17.9 1.2 24.6 21.8 0.9 22.7 1.8 10.6
1990 11.57 33.2 1.47 46.17 41.5 1.57 43.07 3.17 14.57
1995 19.2 37.0 1.9 58.2 63.5 1.7 65.2 í7.0 13.9
2000 20.5 65.6 3.2 89.2 87.28 1.8 89.0 0.2 45.9
2005 35.9 114.0 1.4 151.3 148.6 2.9 151.5 í0.2 16.9
2010 54.8 161.1 3.2 219.0 205.1 3.3 208.4 10.7 71.3
2011 57.0 168.8 5.3 231.2 226.2 3.4 229.6 1.5 72.8
2012 57.9 165.3 6.0 229.1 227.2 3.8 230.9 í1.8 70.9
2013 61.8 176.9 6.09 244.7 243.4 3.4 246.8 í2.1 68.8
2014 64.9 191.4 6.09 262.3 257.0 3.9 260.9 1.4 70.2
2015 67.1 195.8 5.8 268.8 272.0 3.2 275.2 í6.4 63.9
2016 72.5 223.1 5.3 300.8 295.1 4.0 299.1 1.7 65.6
2017 79.7 231.0 6.9 317.5 304.1 5.010 309.1 8.5 74.1
2018 90.4 244.3 6.9 341.7 316.8 4.2 321.0 20.7 94.8
2019 97.8 263.9 5.7 367.4 358.2 4.4 362.6 4.7 99.5
2020 106.3 285.2 5.9 397.3 409.911 4.8 414.6 í17.3 82.2
Intermediate estimates:
2021 113.7 402.512 5.5 521.6 405.511 3.6 409.0 112.6 194.8
2022 124.0 299.1 6.1 429.2 457.511 3.6 461.1 í32.0 162.9
2023 137.3 351.6 6.3 495.2 495.2 3.8 499.0 í3.8 159.1
2024 150.9 388.9 6.5 546.4 512.8 4.0 516.8 29.6 188.7
2025 163.1 422.5 7.1 592.8 578.5 4.2 582.7 10.1 198.8
2026 177.2 458.0 7.9 643.1 627.4 4.4 631.7 11.3 210.1
2027 192.8 493.9 8.8 695.5 679.3 4.6 683.8 11.7 221.8
2028 210.0 532.0 9.9 752.0 767.3 4.8 772.1 í20.2 201.6
2029 228.3 572.8 11.0 812.0 761.6 5.0 766.6 45.4 247.0
2030 246.9 613.0 12.1 872.1 854.9 5.2 860.1 12.0 259.0
1
Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980
and later consist of the 12 months ending on September 30 of each year.
2
General fund matching payments, plus certain interest-adjustment items.
3
Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of
the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest
earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account.
4
See footnote 2 of table III.B4.
5
See footnote 3 of table III.B4.
6
The financial status of Part B depends on both the assets and the liabilities of the trust fund (see
table III.C8).
7
Includes the impact of the Medicare Catastrophic Coverage Act of 1988.
8
Benefit payments less monies transferred from the HI trust fund for home health agency costs.
9
See footnote 1 of table V.H4.
10
Reflects a larger-than-usual upward adjustment of $1.7 billion for prior-year allocations among Part A,
Part B, and Part D.
11
See footnote 11 of table V.H6.
12
See footnote 9 of table III.C4.
Note: Totals do not necessarily equal the sums of rounded components.
237
Appendices
Table V.H8.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis)
during Fiscal Years 2004–2030
[In billions]
Income Expenditures Account
Transfers Interest Adminis- Balance
Fiscal Premium General from and Benefit trative Net at end of
year income revenue1 States2 other Total payments3 expense Total change year4
Historical data:
2004 — $0.2 — — $0.2 $0.2 — $0.2 — —
2005 — 1.2 — — 1.2 1.2 — 1.2 — —
2006 $2.6 28.3 $3.6 $0.0 34.6 33.7 $0.2 33.9 $0.7 $0.7
2007 3.9 41.4 7.0 0.0 52.3 51.4 1.0 52.4 í0.1 0.6
2008 4.8 35.5 7.0 0.0 47.4 46.8 0.4 47.2 0.2 0.8
2009 5.8 43.5 7.5 0.0 56.9 56.6 0.2 56.8 0.0 0.9
2010 6.6 52.6 4.5 0.0 63.7 63.6 0.3 63.8 í0.2 0.7
2011 7.5 56.3 6.5 0.0 70.4 70.6 0.4 71.0 í0.7 0.0
2012 8.2 45.3 8.3 0.0 61.8 60.6 0.4 61.0 0.8 0.8
2013 9.5 50.3 8.7 0.0 68.5 68.0 0.4 68.3 0.1 1.0
2014 11.0 52.9 8.7 0.0 72.7 72.2 0.4 72.6 0.1 1.1
2015 12.3 67.6 8.8 0.0 88.7 83.8 0.4 84.2 4.5 5.6
2016 13.6 76.4 9.8 0.0 99.8 104.4 0.4 104.8 í5.0 0.6
2017 15.1 78.7 11.1 0.1 104.9 105.2 í0.15 105.1 í0.2 0.4
2018 15.8 72.4 11.7 0.1 99.9 92.6 0.5 93.1 6.8 7.2
2019 15.8 67.9 12.2 0.4 96.2 95.3 0.5 95.7 0.5 7.7
2020 15.7 72.3 11.7 0.6 100.3 99.8 0.4 100.2 0.1 7.8
Intermediate estimates:
2021 16.8 81.2 11.3 0.6 109.8 108.7 0.6 109.3 0.5 8.3
2022 17.7 87.4 13.2 0.6 118.8 126.6 0.6 127.2 í8.3 í0.0
2023 19.0 90.9 15.2 0.6 125.8 125.1 0.6 125.8 — í0.0
2024 20.6 95.3 16.4 0.7 133.1 121.8 0.7 122.4 10.7 10.7
2025 22.1 99.1 17.7 0.8 139.7 138.4 0.7 139.1 0.6 11.3
2026 23.7 105.5 19.0 0.8 149.1 147.6 0.7 148.3 0.8 12.1
2027 25.5 112.2 20.3 0.9 158.9 157.4 0.7 158.1 0.8 12.9
2028 27.3 117.2 21.7 1.0 167.1 179.3 0.8 180.0 í12.9 í0.0
2029 29.2 127.8 23.2 1.1 181.2 165.8 0.8 166.6 14.6 14.6
2030 31.2 133.2 24.7 1.1 190.3 188.6 0.8 189.4 0.9 15.4
1
Includes, net of transfers from States, all government transfers required to fund benefit payments,
administrative expenses, and State expenses for making low-income eligibility determinations.
2
Payments from States with respect to the Federal assumption of Medicaid responsibility for drug
expenditures for full-benefit dually eligible individuals.
3
Includes payments to Part D plans, payments to retiree drug subsidy plans, payments to States for making
low-income eligibility determinations, Part D drug premiums collected from beneficiaries, and transfers to
Medicare Advantage plans and private drug plans. Includes amounts for the Transitional Assistance
program of $0.2, $1.1, and $0.2 billion in 2004–2006, respectively.
4
See footnote 3 of table V.H3.
5
Reflects a larger-than-usual downward adjustment of $0.3 billion for prior-year allocations among Part A,
Part B, and Part D.
Note: Totals do not necessarily equal the sums of rounded components.
Table V.H9 shows the total assets of the HI trust fund and their
distribution by interest rate and maturity date at the end of fiscal years
2019 and 2020. The assets at the end of fiscal year 2020 totaled
$134.3 billion: $133.7 billion in the form of U.S. Government
obligations and an undisbursed balance of $0.6 billion.
238
FY Operations and Projections
Table V.H9.—Assets of the HI Trust Fund, by Type,
at the End of Fiscal Years 2019 and 20201
September 30, 2019 September 30, 2020
Investments in public-debt obligations sold only to the trust funds (special issues):
Certificates of indebtedness:
0.750 percent, 2021 ................................... —— $25,333,295,000.00
1.625 percent, 2020 ................................... $13,460,060,000.00 ——
Bonds:
0.750 percent, 2022 ................................... —— 13,658,640,000.00
1.875 percent, 2025–2026 ......................... 25,500,234,000.00 23,379,464,000.00
2.000 percent, 2024 ................................... 3,507,921,000.00 ——
2.000 percent, 2025 ................................... 8,357,018,000.00 8,357,018,000.00
2.250 percent, 2026–2029 ......................... 45,482,280,000.00 45,482,280,000.00
2.875 percent, 2027–2028 ......................... 17,524,027,000.00 17,524,027,000.00
3.250 percent, 2023–2024 ......................... 18,380,800,000.00 ——
4.000 percent, 2021–2023 ......................... 24,291,189,000.00 ——
5.000 percent, 2020–2022 ......................... 21,667,208,000.00 ——
5.125 percent, 2020–2021 ......................... 20,454,359,000.00 ——
Total investments ................................................ $198,625,096,000.00 $133,734,724,000.00
Undisbursed balance........................................... 201,290,982.90 561,468,584,22
Total assets ......................................................... $198,826,386,982.90 $134,296,192,584.22
1
Certificates of indebtedness and bonds are carried at par value, which is the same as book value.
The effective annual rate of interest earned by the assets of the HI
trust fund during the 12 months ending on December 31, 2020 was
2.4 percent. Interest on special issues is paid semiannually on June 30
and December 31. The interest rate on public-debt obligations issued
for purchase by the trust fund in June 2020 was 0.75 percent, payable
semiannually.
Table V.H10 shows a comparison of the total assets of the SMI trust
fund, Parts B and D combined, and their distribution at the end of
fiscal years 2019 and 2020. At the end of 2020, assets totaled
$90.0 billion: $87.5 billion in the form of U.S. Government obligations
and an undisbursed balance of $2.5 billion.
239
Appendices
Table V.H10.—Assets of the SMI Trust Fund, by Type,
at the End of Fiscal Years 2019 and 20201
September 30, 2019 September 30, 2020
Investments in public-debt obligations sold only to the trust funds (special issues):
Certificates of indebtedness:
0.625 percent, 2021 ................................... —— $121,460,000.00
0.750 percent, 2021 ................................... —— $24,971,566,000.00
1.625 percent, 2020 ................................... $18,065,534,000.00 ——
2.125 percent, 2020 ................................... 2,151,068,000.00 ——
2.250 percent, 2020 ................................... 233,256,000.00 ——
Bonds:
0.750 percent, 2023–2024 ......................... —— 1,604,510,000.00
1.875 percent, 2029–2031 ......................... 13,543,136,000.00 13,543,136,000.00
2.250 percent, 2022–2025 ......................... 3,712,022,000.00 ——
2.250 percent, 2026–2034 ......................... 32,660,243,000.00 32,660,243,000.00
2.500 percent, 2022–2025 ......................... 7,560,780,000.00 ——
2.500 percent, 2026 ................................... —— 5,305,162,000.00
2.875 percent, 2022–2024 ......................... 1,786,042,000.00 ——
2.875 percent, 2025–2033 ......................... 12,244,852,000.00 9,270,982,000.00
3.250 percent, 2022–2024 ......................... 4,927,876,000.00 ——
4.000 percent, 2022–2023 ......................... 7,345,775,000.00 ——
5.000 percent, 2022 ................................... 485,441,000.00 ——
Total investments ................................................ $104,716,025,000.00 $87,477,059,000.00
Undisbursed balance........................................... 2,477,219,454.10 2,515,680,154.13
Total assets ......................................................... $107,193,244,454.10 $89,992,739,154.13
1
Certificates of indebtedness and bonds are carried at par value, which is the same as book value.
The effective annual rate of interest earned by the assets of the SMI
trust fund for the 12 months ending on December 31, 2020 was
1.7 percent. Interest on special issues is paid semiannually on June 30
and December 31. The interest rate on special issues purchased by the
account in June 2020 was 0.75 percent, payable semiannually.
240
Glossary
I. GLOSSARY
Accelerated and Advance Payments (AAP) Program. A Medicare
loan program that allows the Centers for Medicare & Medicaid
Services (CMS) to make accelerated payments to Part A and Part B
providers, and advance payments to Part B suppliers, when there is a
disruption in claims submission and/or claims processing. CMS can
also offer these payments in circumstances such as national
emergencies or natural disasters in order to accelerate cash flow to the
affected health care providers and suppliers.
Accountable care organizations (ACOs). Groups of clinicians,
hospitals, and other health care providers that choose to come together
to deliver coordinated, high-quality care to the Medicare patients they
serve.
Actuarial balance. The difference between the summarized income
rate and the summarized cost rate over a given valuation period.
Actuarial deficit. A negative actuarial balance.
Actuarial rates. One-half of the Part B expected monthly benefit and
administrative costs for each aged enrollee adjusted for interest earned
on the Part B account assets attributable to aged enrollees and a
contingency margin (for the aged actuarial rate), and one-half of the
expected monthly benefit and administrative costs for each disabled
enrollee adjusted for interest earned on the Part B account assets
attributable to disabled enrollees and a contingency margin (for the
disabled actuarial rate), for the duration the rate is in effect.
Actuarial status. A measure of the adequacy of the financing as
determined by the difference between assets and liabilities at the end
of the periods for which financing was established.
Administrative expenses. Expenses incurred by the Department of
Health and Human Services and the Department of the Treasury in
administering HI and SMI and the provisions of the Internal Revenue
Code relating to the collection of contributions. Such administrative
expenses, which are paid from the HI and SMI trust funds, include
expenditures for contractors to determine costs of, and make payments
to, providers, as well as salaries and expenses of CMS.
Advanced alternative payment model (advanced APM). An APM
that meets certain standards for risk-bearing, use of health
information technology, and quality.
241
Appendices
Aged enrollee. An individual, aged 65 or over, who is enrolled in HI
or SMI.
Allowed charge. Individual charge determined by a Medicare
Administrative Contractor for a covered Part B medical service or
supply.
Alternative payment model (APM). A program or model (except for
a health care innovation award model) implemented by the Center for
Medicare and Medicaid Innovation at CMS; a demonstration under the
Health Care Quality Demonstration Program; an ACO model
participating in the Medicare shared savings program; or a Medicare
demonstration required by law.
Annual out-of-pocket threshold. The amount of out-of-pocket
expenses that must be paid for prescription drugs before significantly
reduced Part D beneficiary cost sharing is effective. Amounts paid by
a third-party insurer are not included in testing this threshold, but
amounts paid by State or Federal assistance programs are included.
Assets. Treasury notes and bonds guaranteed by the Federal
Government, and cash held by the trust funds for investment purposes.
Assumptions. Values relating to future trends in certain key factors
that affect the balance in the trust funds. Demographic assumptions
include fertility, mortality, net immigration, marriage, divorce,
retirement patterns, disability incidence and termination rates, and
changes in the labor force. Economic assumptions include
unemployment, average earnings, inflation, interest rates, and
productivity. Three sets of economic assumptions are presented in the
Trustees Report:
(1) The low-cost alternative, with relatively rapid economic
growth, low inflation, and favorable (from the standpoint of
program financing) demographic conditions;
(2) The intermediate assumptions, which represent the
Trustees’ best estimates of likely future economic and
demographic conditions; and
(3) The high-cost alternative, with slow economic growth, more
rapid inflation, and financially disadvantageous
demographic conditions.
See also Hospital assumptions.
Average market yield. A computation that is made on all marketable
interest-bearing obligations of the United States. It is computed on the
242
Glossary
basis of market quotations as of the end of the calendar month
immediately preceding the date of such issue.
Baby boom. The period from the end of World War II through the
mid-1960s marked by unusually high birth rates.
Base estimate. The updated estimate of the most recent historical
year.
Beneficiary. A person enrolled in HI or SMI. See also Aged enrollee
and Disabled enrollee.
Benefit payments. The amounts disbursed for covered services after
the deductible and coinsurance amounts have been deducted.
Benefit period. An alternate name for spell of illness.
Board of Trustees. A Board established by the Social Security Act to
oversee the financial operations of the Federal Hospital Insurance
Trust Fund and the Federal Supplementary Medical Insurance Trust
Fund. The Board comprises six members, four of whom serve
automatically by virtue of their positions in the Federal Government:
the Secretary of the Treasury, who is the Managing Trustee; the
Secretary of Labor; the Secretary of Health and Human Services; and
the Commissioner of Social Security. Two other members are public
representatives whom the President appoints and the Senate confirms.
These positions are currently vacant. The Administrator of CMS serves
as Secretary of the Board of Trustees.
Bond. A certificate of ownership of a specified portion of a debt due by
the Federal Government to holders, bearing a fixed rate of interest.
Callable. Subject to redemption upon notice, as is a bond.
Case mix index. A relative weight that captures the average
complexity of certain Medicare services.
Cash basis. The costs of the service when payment was made rather
than when the service was performed.
Certificate of indebtedness. A short-term certificate of ownership
(12 months or less) of a specified portion of a debt due by the Federal
Government to individual holders, bearing a fixed rate of interest.
243
Appendices
Closed-group population. Includes all persons currently
participating in the program as either taxpayers or beneficiaries, or
both. See also Open-group population.
Coinsurance. Portion of the costs for covered services paid by the
beneficiary after meeting the annual deductible. See also Hospital
coinsurance and SNF coinsurance.
Consumer Price Index (CPI). A measure of the average change in
prices over time in a fixed group of goods and services. In this report,
references to the CPI relate to the CPI for Urban Wage Earners and
Clerical Workers (CPI-W), except for those cases in which the CPI for
All Urban Consumers—all items (CPI-U) is indicated.
Contingency. Funds included in the SMI Part B trust fund account
to serve as a cushion in case actual expenditures are higher than those
projected at the time financing was established. Since the financing is
set prospectively, actual experience may be different from the
estimates used in setting the financing.
Contingency margin. An amount included in the actuarial rates to
provide for changes in the contingency level in the SMI Part B trust
fund account. Positive margins increase the contingency level, and
negative margins decrease it.
Contribution base. See Maximum tax base.
Contributions. See Payroll taxes.
Cost rate. The ratio of HI cost (or outgo or expenditures) on an
incurred basis during a given year to the taxable payroll for the year.
Covered earnings. Earnings in employment covered by HI.
Covered employment. All employment and self-employment
creditable for Social Security purposes. Almost every kind of
employment and self-employment is covered under HI. In a few
employment situations—for example, religious orders under a vow of
poverty, foreign affiliates of American employers, or State and local
governments—coverage must be elected by the employer. However,
effective July 1991, coverage is mandatory for State and local
employees who are not participating in a public employee retirement
system. All new State and local employees have been covered since
April 1986. In a few situations—for instance, ministers or self-
employed members of certain religious groups—workers can opt out of
coverage. Covered employment for HI includes all Federal employees
244
Glossary
(whereas covered employment for OASDI includes some, but not all,
Federal employees).
Covered Part D drugs. Prescription drugs covered under the
Medicaid program plus insulin-related supplies and smoking cessation
agents. Drugs covered in Parts A and B of Medicare will continue to be
covered there, rather than in Part D.
Covered services. Services for which HI or SMI pays, as defined and
limited by statute. Covered HI services are provided by hospitals
(inpatient care), skilled nursing facilities, home health agencies, and
hospices. Covered SMI Part B services include most physician services,
care in outpatient departments of hospitals, diagnostic tests, durable
medical equipment, ambulance services, and other health services that
are not covered by HI. See Covered Part D drugs for SMI Part D.
Covered worker. A person who has earnings creditable for Social
Security purposes on the basis of services for wages in covered
employment and/or on the basis of income from covered
self-employment. The number of HI covered workers is slightly larger
than the number of OASDI covered workers because of different
coverage status for Federal employment. See Covered employment.
Creditable prescription drug coverage. Prescription drug
coverage that meets or exceeds the actuarial value of Part D coverage
provided through a group health plan or otherwise.
Dedicated financing sources. The sum of HI payroll taxes, HI share
of income taxes on Social Security benefits, Part D State transfers,
Part B drug fees, and beneficiary premiums. This amount is used in
the test of excess general revenue Medicare funding.
Deductible. The annual amount payable by the beneficiary for
covered services before Medicare makes reimbursement. See also
Inpatient hospital deductible.
Deemed wage credit. See Non-contributory or deemed wage credits.
Demographic assumptions. See Assumptions.
Diagnosis-related groups (DRGs). A classification system that
groups patients according to diagnosis, type of treatment, age, and
other relevant criteria. Under the inpatient hospital prospective
payment system, hospitals are paid a set fee for treating patients in a
single DRG category, regardless of the actual cost of care for the
individual.
245
Appendices
Direct and indirect remuneration (DIR). Payments primarily
consisting of drug manufacturer rebates and pharmacy rebates that
Part D plans negotiate.
Direct subsidy. The amount paid to the prescription drug plans
representing the difference between the plan’s risk-adjusted bid and
the beneficiary premium for basic coverage.
Disability. For Social Security purposes, the inability to engage in
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death
or to last for a continuous period of not less than 12 months. Special
rules apply for workers aged 55 or older whose disability is based on
blindness. The law generally requires that a person be disabled
continuously for 5 months before he or she can qualify for a
disabled-worker cash benefit. An additional 24 months is necessary to
qualify for benefits under Medicare.
Disability Insurance (DI). See Old-Age, Survivors, and Disability
Insurance (OASDI).
Disabled enrollee. An individual under age 65 who has been entitled
to disability benefits under Title II of the Social Security Act or the
Railroad Retirement system for at least 2 years and who is enrolled in
HI or SMI.
Disproportionate share hospital (DSH). A hospital that serves a
significantly disproportionate number of low-income patients and
receives payments from Medicare to cover the costs of providing care
to uninsured patients.
DRG Coding. The DRG categories used by hospitals on discharge
billing. See also Diagnosis-related groups (DRGs).
Dual beneficiary. An individual who is eligible for both Medicare and
Medicaid.
Durable medical equipment (DME). Items such as iron lungs,
oxygen tents, hospital beds, wheelchairs, and seat lift mechanisms that
are used in the patient’s home and are either purchased or rented.
Earnings. Unless otherwise qualified, all wages from employment and
net earnings from self-employment, whether or not taxable or covered.
Economic assumptions. See Assumptions.
246
Glossary
Economy-wide private nonfarm business multifactor
productivity. A measure of real output per combined unit of labor and
capital, reflecting the contributions of all factors of production for the
private nonfarm business sector of the economy.
End-stage renal disease (ESRD). Permanent kidney failure.
Excess general revenue Medicare funding. A determination that
occurs when the difference between outlays and dedicated funding
sources exceeds or is projected to exceed 45 percent of outlays.
Extended care services. In the context of this report, an alternate
name for skilled nursing facility services.
Federal Insurance Contributions Act (FICA). Provision
authorizing taxes on the wages of employed persons to provide for
OASDI and HI. The tax is paid in equal amounts by covered workers
and their employers.
Financial interchange. Provisions of the Railroad Retirement Act
providing for transfers between the trust funds and the Social Security
Equivalent Benefit Account of the Railroad Retirement program in
order to place each trust fund in the same position as if railroad
employment had always been covered under Social Security.
Fiscal year. The accounting year of the U.S. Government. Since 1976,
each fiscal year has begun October 1 of the prior calendar year and
ended the following September 30. For example, fiscal year 2021 began
October 1, 2020 and will end September 30, 2021.
Fixed capital assets. The net worth of facilities and other resources.
Frequency distribution. An exhaustive list of possible outcomes for
a variable, and the associated probability of each outcome. The sum of
the probabilities of all possible outcomes from a frequency distribution
is 100 percent.
General fund of the Treasury. Funds held by the U.S. Treasury,
other than revenue collected for a specific trust fund (such as HI or
SMI) and maintained in a separate account for that purpose. The
majority of this fund is derived from individual and business income
taxes.
General revenue. Income to the HI and SMI trust funds from the
general fund of the Treasury. Only a very small percentage of total HI
trust fund income each year is attributable to general revenue.
247
Appendices
Gross Domestic Product (GDP). The total dollar value of all goods
and services produced in a year in the United States, regardless of who
supplies the labor or property.
High-cost alternative. See Assumptions.
Hold-harmless provision. A provision limiting the dollar increase in
the Part B premium to the dollar increase in an individual’s Social
Security benefit. As a result, the person affected pays a lower Part B
premium, and the net amount of the individual’s Social Security
benefit does not decrease despite the greater increase in the premium.
Home health agency (HHA). A public agency or private organization
that is primarily engaged in providing the following services in the
home: skilled nursing services, other therapeutic services (such as
physical, occupational, or speech therapy), and home health aide
services.
Hospice. A provider of care for the terminally ill; delivered services
generally include home health care, nursing care, physician services,
medical supplies, and short-term inpatient hospital care.
Hospital assumptions. These include differentials between hospital
labor and non-labor indices compared with general economy labor and
non-labor indices; rates of admission incidence; the trend toward
treating less complicated cases in outpatient settings; and continued
improvement in DRG coding.
Hospital coinsurance. For the 61st through 90th day of
hospitalization in a benefit period, a daily amount for which the
beneficiary is responsible, equal to one-fourth of the inpatient hospital
deductible; for lifetime reserve days, a daily amount for which the
beneficiary is responsible, equal to one-half of the inpatient hospital
deductible (see Lifetime reserve days).
Hospital input price index. An alternate name for hospital market
basket.
Hospital Insurance (HI). The Medicare trust fund that covers
specified inpatient hospital services, posthospital skilled nursing care,
home health services, and hospice care for aged and disabled
individuals who meet the eligibility requirements. Also known as
Medicare Part A.
Hospital market basket. The cost of the mix of goods and services
(including personnel costs but excluding nonoperating costs)
248
Glossary
comprising routine, ancillary, and special care unit inpatient hospital
services.
Income rate. The ratio of HI income (including payroll taxes, income
from taxation of Social Security benefits, premiums, general revenue
transfers for uninsured beneficiaries, and monies from fraud and abuse
control activities, but excluding interest income) to taxable payroll for
the year.
Incurred basis. The costs based on when the service was performed
rather than when the payment was made.
Infinite horizon. The period extending into the indefinite future.
Independent laboratory. A free-standing clinical laboratory
meeting conditions for participation in the Medicare program.
Initial coverage limit. The amount up to which the coinsurance
applies under the standard prescription drug benefit.
Inpatient hospital deductible. An amount of money that is
deducted from the amount payable by Medicare Part A for inpatient
hospital services furnished to a beneficiary during a spell of illness.
Inpatient hospital services. These services include bed and board,
nursing services, diagnostic or therapeutic services, and medical or
surgical services.
Interest. A payment for the use of money during a specified period.
Intermediate assumptions. See Assumptions.
Late enrollment penalty. Additional beneficiary premium amounts
for those who either do not enroll in Part D at the first opportunity or
fail to maintain other creditable coverage for more than 63 days.
Lifetime reserve days. Under HI, each beneficiary has 60 lifetime
reserve days that he or she may opt to use when regular inpatient
hospital benefits are exhausted. The beneficiary pays one-half of the
inpatient hospital deductible for each lifetime reserve day used.
Long range. The next 75 years.
Low-cost alternative. See Assumptions.
249
Appendices
Low-income beneficiaries. Individuals meeting income and assets
tests who are eligible for prescription drug coverage subsidies to help
finance premiums and out-of-pocket payments.
Managed care. See Private Health Plans.
Market basket. See Hospital market basket.
Maximum tax base. Annual dollar amount above which earnings in
employment covered under HI are not taxable. In 1994, the maximum
tax base was eliminated under HI.
Maximum taxable amount of annual earnings. See Maximum tax
base.
Medicare. A nationwide, federally administered health insurance
program authorized in 1965 under Title XVIII of the Social Security
Act to cover the cost of hospitalization, medical care, and some related
services for most people aged 65 and over. In 1972, lawmakers
extended coverage to people receiving Social Security Disability
Insurance payments for 2 years and people with end-stage renal
disease. (For beneficiaries whose primary or secondary diagnosis is
Amyotrophic Lateral Sclerosis, the 2-year waiting period is waived.) In
2010, people exposed to environmental health hazards within areas
under a corresponding emergency declaration became Medicare-
eligible. In 2006, prescription drug coverage was added as well.
Medicare consists of two separate but coordinated trust funds: Hospital
Insurance (HI, or Part A) and Supplementary Medical Insurance
(SMI). The SMI trust fund comprises two separate accounts: the Part B
account and the Part D account. Almost all persons who are aged 65
and over or disabled and who are entitled to HI are eligible to enroll in
Part B and Part D on a voluntary basis by paying monthly premiums.
Medicare Administrative Contractor (MAC). A private health
care insurer that processes Part A and Part B medical claims or DME
claims for fee-for-service beneficiaries.
Medicare Advantage (formerly called Medicare+Choice). An
expanded set of options, established in 2006, for the delivery of health
care under Medicare. Most Medicare beneficiaries can choose to receive
benefits through the original fee-for-service program or through one of
the following Medicare Advantage plans: (i) coordinated care plans
(such as health maintenance organizations, provider-sponsored
organizations, and preferred provider organizations); (ii) medical
250
Glossary
savings account (MSA)/high-deductible plans; (iii) private fee-for-
service plans; or (iv) special needs plans.
Medicare Advantage Prescription Drug Plan (MA-PD).
Prescription drug coverage provided by Medicare Advantage plans.
Medicare Advantage ratebook. A set of statutory capitation
payment rates, by county, originally used directly to establish
payments to private health insurance plans contracting with Medicare.
Under current law, the ratebook amounts are used as benchmarks,
against which plan costs are compared in the calculation of plan
payments.
Medicare Economic Index (MEI). An index often used in the
calculation of the increases in the prevailing charge levels that help to
determine allowed charges for physician services. In 1992 and later,
this index is considered in connection with the update factor for the
physician fee schedule.
Medicare funding warning. A warning triggered when a
determination of excess general revenue Medicare funding has
occurred in 2 consecutive years. Such a warning requires the President
to submit to Congress, within 15 days after the date of the Budget
submission for the succeeding year, proposed legislation to respond to
the warning. The law also requires Congress to consider the legislation
proposed in response to Medicare funding warnings on an expedited
basis. See also Excess general revenue Medicare funding.
Medicare Payment Advisory Commission (MedPAC). A
commission established by Congress in 1997 to replace the Prospective
Payment Assessment Commission and the Physician Payment Review
Commission. MedPAC is directed to provide the Congress with advice
and recommendations on policies affecting the Medicare program.
Medicare Prescription Drug Account. The separate account
within the SMI trust fund to manage revenues and expenditures of the
Part D drug benefit.
Medicare severity diagnosis-related groups (MS-DRGs). A
refinement of the diagnosis-related group classification system that
groups patients according to diagnosis, type of treatment, age, and
other relevant criteria. Under the inpatient hospital prospective
payment system, hospitals are paid a set fee for treating patients in a
single MS-DRG category, regardless of the actual cost of care for the
individual.
251
Appendices
Merit-based incentive payment system (MIPS). A system for
adjusting payments under the Medicare physician fee schedule to non-
advanced APM providers based on metrics assessing provider quality,
resource use, meaningful use of electronic health records, and clinical
practice improvement activities.
Military service wage credits. Credits recognizing that military
personnel receive other cash payments and wages in kind (such as food
and shelter) in addition to their basic pay. Noncontributory wage
credits of $160 were provided for each month of active military service
from September 16, 1940 through December 31, 1956. For years after
1956, the basic pay of military personnel is covered under the Social
Security program on a contributory basis. In addition to contributory
credits for basic pay, noncontributory wage credits of $300 were
granted for each calendar quarter in which a person received pay for
military service from January 1957 through December 1977. Deemed
wage credits of $100 were granted for each $300 of military wages, up
to a maximum of $1,200 per calendar year, from January 1978 through
December 2001. See also Quinquennial military service determinations
and adjustments.
National average monthly bid. The weighted average of all Part D
drug bids including all of the bids from Prescription Drug Plans (PDPs)
and the drug portion of bids from MA-PDs.
Noncontributory or deemed wage credits. Wages and wages in
kind that were not subject to the HI tax but are deemed as having been.
Deemed wage credits exist for the purposes of (i) determining HI
eligibility for individuals who might not be eligible for HI coverage
without payment of a premium were it not for the deemed wage credits
and (ii) calculating reimbursement due the HI trust fund from the
general fund of the Treasury. The first purpose applies in the case of
providing coverage to persons during the transitional periods when HI
began and when it was expanded to cover Federal employees; both
purposes apply in the cases of military service wage credits and
deemed wage credits granted for the internment of persons of Japanese
ancestry during World War II.
Old-Age, Survivors, and Disability Insurance (OASDI). The
Social Security programs that pay for (i) monthly cash benefits to
retired-worker (old-age) beneficiaries, their spouses and children, and
survivors of deceased insured workers (OASI); and (ii) monthly cash
benefits to disabled-worker beneficiaries and their spouses and
children, and for providing rehabilitation services to the disabled (DI).
252
Glossary
Open-group population. Includes all persons who will ever
participate in the program as either taxpayers or beneficiaries, or both.
See also Closed-group population.
Open-group unfunded obligation. See Unfunded obligation.
Outpatient hospital. Part of the hospital providing services covered
by SMI Part B, including, for example, services in an emergency room
or outpatient clinic, ambulatory surgical procedures, medical supplies
such as splints, and laboratory tests billed by the hospital.
Part A. The Medicare Hospital Insurance trust fund.
Part A premium. A monthly premium paid by or on behalf of
individuals who wish for and are entitled to voluntary enrollment in
Medicare HI. These individuals are those who are aged 65 and older,
are uninsured for Social Security or Railroad Retirement, and do not
otherwise meet the requirements for entitlement to Part A. Disabled
individuals who have exhausted other entitlement are also qualified.
These individuals are those not now entitled but who have been
entitled under section 226(b) of the Social Security Act, who continue
to have the disabling impairment upon which their entitlement was
based, and whose entitlement ended solely because the individuals had
earnings that exceeded the substantial gainful activity amount (as
defined in section 223(d)(4) of the Social Security Act).
Part B. The account within the Medicare Supplementary Medical
Insurance trust fund that pays for a portion of the costs of physician
services, outpatient hospital services, and other related medical and
health services for voluntarily enrolled aged and disabled individuals.
Part B premium. The monthly amount paid by those individuals who
have voluntarily enrolled in Part B. Most enrollees pay the standard
premium amount, which currently represents approximately
25 percent of the average program costs for an aged beneficiary.
Beneficiaries with high income are also required to pay an income-
related monthly adjustment amount starting in 2007, and those who
enroll late are required to pay a penalty. In addition, beneficiaries who
are affected by the hold-harmless provision pay a lower premium. See
section V.E for more details about the Part B premium.
Part C. See Private health plans.
Part D. The account within the Medicare Supplementary Medical
Insurance trust fund that pays private plans to provide prescription
drug coverage.
253
Appendices
Pay-as-you-go financing. A financing scheme in which taxes are
scheduled to produce just as much income as required to pay current
benefits, with trust fund assets built up only to the extent needed to
prevent depletion of the fund by random fluctuations.
Payroll taxes. Taxes levied on the gross wages of employees and net
earnings of self-employed workers.
Peer Review Organization (PRO). A group of practicing physicians
and other health care professionals paid by the Federal Government to
review the care given to Medicare patients. Starting in 2002, these
organizations are called Quality Improvement Organizations.
Percentile. A number that corresponds to one of the equal divisions
of the range of a variable in a given sample and that characterizes a
value of the variable as not exceeded by a specified percentage of all
the values in the sample. For example, a score higher than 97 percent
of those attained is said to be in the 97th percentile.
Prescription Drug Plans (PDPs). Stand-alone prescription drug
plans offered to beneficiaries in traditional fee-for-service Medicare
and to beneficiaries in Medicare Advantage plans that do not offer a
prescription drug benefit.
Present value. The present value of a future stream of payments is
the lump-sum amount that, if invested today, together with interest
earnings would be just enough to meet each of the payments as it fell
due. At the time of the last payment, the invested fund would be exactly
zero.
Private health plans. Plans offered by private companies that
contract with Medicare to provide coverage for Part A and Part B
services. Medicare Advantage plans, cost plans, and Program of All-
Inclusive Care for the Elderly (PACE) plans are all private health
plans.
Projection error. Degree of variation between estimated and actual
amounts.
Prospective payment system (PPS). A method of reimbursement in
which Medicare payment is made based on a predetermined, fixed
amount. The payment amount for a particular service is derived based
on the classification system of that service (for example, DRGs for
inpatient hospital services).
254
Glossary
Provider. Any organization, institution, or individual who provides
health care services to Medicare beneficiaries. Hospitals (inpatient
services), skilled nursing facilities, home health agencies, and hospices
are the providers of services covered under Medicare Part A.
Physicians, ambulatory surgical centers, and outpatient clinics are
some of the providers of services covered under Medicare Part B.
Quality Improvement Organization (QIO). See Peer Review
Organization.
Quinquennial military service determination and adjustments.
Prior to the Social Security Amendments of 1983, quinquennial
determinations (that is, estimates made once every 5 years) were made
of the costs arising from the granting of deemed wage credits for
military service prior to 1957; annual reimbursements were made from
the general fund of the Treasury to the HI trust fund for these costs.
The Social Security Amendments of 1983 provided for (i) a lump-sum
transfer in 1983 for (a) the costs arising from the pre-1957 wage credits
and (b) amounts equivalent to the HI taxes that would have been paid
on the deemed wage credits for military service for 1966 through 1983,
inclusive, if such credits had been counted as covered earnings;
(ii) quinquennial adjustments to the pre-1957 portion of the 1983
lump-sum transfer; (iii) general fund transfers equivalent to HI taxes
on military deemed wage credits for 1984 and later, to be credited to
the fund on July 1 of each year; and (iv) adjustments as deemed
necessary to any previously transferred amounts representing HI
taxes on military deemed wage credits.
Railroad Retirement. A Federal insurance program similar to Social
Security designed for workers in the railroad industry. The provisions
of the Railroad Retirement Act provide for a system of coordination and
financial interchange between the Railroad Retirement program and
the Social Security program.
Ratebook. See Medicare Advantage ratebook.
Real-wage differential. The difference between the percentage
increases, before rounding, in (i) the average annual wage in covered
employment and (ii) the average annual CPI.
Reasonable-cost basis. The calculation to determine the reasonable
cost incurred by individual providers when furnishing covered services
to beneficiaries. The reasonable cost is based on the actual cost of
providing such services, including direct and indirect costs of
255
Appendices
providers, and excluding any costs that are unnecessary in the efficient
delivery of services covered by a health insurance program.
Reinsurance subsidy. Payments to the prescription drug plans in
the amount of 80 percent of drug expenses that exceed the annual out-
of-pocket threshold.
Residual factors. Factors other than price, including volume of
services, intensity of services, and age/sex changes.
Risk corridor. Triggers that are set to protect Part D prescription
drug plans from unexpected losses and that allow the government to
share in unexpected gains.
Self-employment. Operation of a trade or business by an individual
or by a partnership in which an individual is a member.
Self-Employment Contributions Act (SECA). Provision
authorizing taxes on the net income of most self-employed persons to
provide for OASDI and HI.
Sequester. The reduction of funds to be used for benefits or
administrative costs from a Federal account, based on the legislated
requirements.
Short range. The next 10 years.
Skilled nursing facility (SNF). An institution that is primarily
engaged in providing skilled nursing care and related services for
residents who require medical or nursing care or that is engaged in the
rehabilitation of injured, disabled, or sick persons.
SNF coinsurance. For the 21st through 100th day of extended care
services in a benefit period, a daily amount for which the beneficiary is
responsible, equal to one-eighth of the inpatient hospital deductible.
Social Security Act. Public Law 74-271, enacted on August 14, 1935,
with subsequent amendments. The Social Security Act consists of
20 titles, four of which have been repealed. The HI and SMI trust funds
are authorized by Title XVIII of the Social Security Act.
Special public-debt obligation. Securities of the U.S. Government
issued exclusively to the OASI, DI, HI, and SMI trust funds and other
Federal trust funds. Sections 1817(c) and 1841(a) of the Social Security
Act provide that the public-debt obligations issued for purchase by the
HI and SMI trust funds, respectively, shall have maturities fixed with
256
Glossary
due regard for the needs of the funds. The usual practice in the past
has been to spread the holdings of special issues, as of every June 30,
so that the amounts maturing in each of the next 15 years are
approximately equal. Special public-debt obligations are redeemable at
par at any time.
Spell of illness. A period of consecutive days, beginning with the first
day on which a beneficiary is furnished inpatient hospital or extended
care services, and ending with the close of the first period of
60 consecutive days thereafter in which the beneficiary is in neither a
hospital nor a skilled nursing facility.
Standard prescription drug coverage. Part D prescription drug
coverage that includes a deductible, coinsurance up to an initial
coverage limit, and protection against high out-of-pocket expenditures
by having reduced coinsurance provisions for individuals exceeding the
out-of-pocket threshold.
Stochastic model. An analysis involving a random variable. For
example, a stochastic model may include a frequency distribution for
one assumption. From the frequency distribution, possible outcomes
for the assumption are selected randomly for use in an illustration.
Summarized cost rate. The ratio of the present value of expenditures
to the present value of the taxable payroll for the years in a given
period. The summarized cost rate includes the cost of reaching and
maintaining a target trust fund level, known as a contingency fund
ratio. Because a trust fund level of about 1 year’s expenditures is
considered to be an adequate reserve for unforeseen contingencies, the
targeted contingency fund ratio used in determining summarized cost
rates is 100 percent of annual expenditures. Accordingly, the
summarized cost rate is equal to the ratio of (i) the sum of the present
value of the outgo during the period, plus the present value of the
targeted ending trust fund level, plus the beginning trust fund amount,
to (ii) the present value of the taxable payroll during the period.
Summarized income rate. The ratio of the present value of HI
income (including payroll taxes, income from taxation of Social
Security benefits, premiums, general revenue transfers for uninsured
beneficiaries, and monies from fraud and abuse control activities, but
excluding interest income) incurred during a given period to the
present value of the taxable payroll for the years in the period.
Supplemental prescription drug coverage. Coverage in excess of
the standard prescription drug coverage.
257
Appendices
Supplementary Medical Insurance (SMI). The Medicare trust
fund comprising the Part B account, the Part D account, and the
Transitional Assistance Account. The Part B account pays for a portion
of the costs of physician services, outpatient hospital services, and
other related medical and health services for voluntarily enrolled aged
and disabled individuals. The Part D account pays private plans to
provide prescription drug coverage, beginning in 2006. The
Transitional Assistance Account paid for transitional assistance under
the prescription drug card program in 2004 and 2005.
Sustainable growth rate (SGR). A system for establishing goals for
the rate of growth in Medicare Part B expenditures for physician
services. The Medicare Access and CHIP Reauthorization Act of 2015
permanently repealed the SGR formula.
Tax rate. The percentage of taxable earnings, up to the maximum tax
base, that is paid for the HI tax. Currently, the percentages are 1.45
for employees and employers, each. The self-employed pay 2.9 percent.
There is an additional 0.9-percent tax on earnings above $200,000 (for
those who file an individual tax return) or $250,000 (for those who file
a joint income tax return).
Taxable earnings. Taxable wages and/or self-employment income
under the prevailing annual maximum taxable limit.
Taxable payroll. A weighted average of taxable wages and taxable
self-employment income. When multiplied by the combined employee-
employer tax rate, it yields the total amount of taxes incurred by
employees, employers, and the self-employed for work during the
period.
Taxable self-employment income. Net earnings from
self-employment—generally above $400 and below the annual
maximum taxable amount for a calendar or other taxable year—less
any taxable wages in the same taxable year.
Taxable wages. Wages paid for services rendered in covered
employment up to the annual maximum taxable amount.
Taxation of benefits. Beginning in 1994, up to 85 percent of an
individual’s or a couple’s OASDI benefits are potentially subject to
Federal income taxation under certain circumstances. The revenue
derived from taxation of benefits in excess of 50 percent, up to
85 percent, is allocated to the HI trust fund.
Taxes. See Payroll taxes.
258
Glossary
Term insurance. A type of insurance that is in force for a specified
period of time.
Test of Long-Range Close Actuarial Balance. The conditions
required to meet this test are as follows: (i) The trust fund satisfies the
short-range test of financial adequacy; and (ii) the trust fund ratios
stay above zero throughout the 75-year projection period, such that
benefits would be payable in a timely manner throughout the period.
This test is applied to HI trust fund projections made under the
intermediate assumptions.
Test of Short-Range Financial Adequacy. The conditions required
to meet this test are as follows: (i) If the trust fund ratio for a fund
exceeds 100 percent at the beginning of the projection period, then it
must be projected to remain at or above 100 percent throughout the
10-year projection period; (ii) alternatively, if the fund ratio is initially
less than 100 percent, it must be projected to reach a level of at least
100 percent within 5 years (and not be depleted at any time during this
period), and then remain at or above 100 percent throughout the rest
of the 10-year period. This test is applied to HI trust fund projections
made under the intermediate assumptions.
Transitional assistance. An interim benefit for 2004 and 2005 that
provided up to $600 per year to assist low-income beneficiaries who
had no drug insurance coverage with prescription drug purchases. This
benefit also paid the enrollment fee in the Medicare Prescription Drug
Discount Card program.
Transitional Assistance Account. The separate account within the
SMI trust fund that managed revenues and expenditures for the
transitional assistance drug benefit in 2004 and 2005.
Trust fund. Separate accounts in the U.S. Treasury, mandated by
Congress, whose assets may be used only for a specified purpose. For
the HI and SMI trust funds, monies not withdrawn for current benefit
payments and administrative expenses are invested in interest-
bearing Federal securities, as required by law; the interest earned is
also deposited in the trust funds.
Trust fund ratio. A short-range measure of the adequacy of the HI
and SMI trust fund level; defined as the assets at the beginning of the
year expressed as a percentage of the outgo during the year.
Unfunded obligation. A measure of the shortfall of trust fund income
to fully cover program cost over a specified time period after depletion
259
Appendices
of trust fund asset reserves. This measure can be expressed in present
value dollars, discounted to the beginning of the valuation period, by
computing the excess of the present value of the projected cost of the
program over the sum of (i) the value of trust fund reserves at the
beginning of the valuation period and (ii) the present value of the
projected non-interest income of the program, assuming scheduled tax
rates and benefit levels. This measure can apply for all participants
over a specified time period—that is, the open-group population—or be
limited to a specified subgroup of participants, referred to as the closed-
group population.
Uninsured beneficiaries. HI beneficiaries who do not have
40 quarters of covered earnings but are entitled to HI coverage either
because (i) they were deemed additional wage credits during the
transitional periods when the HI program began or when it was
expanded to cover Federal employees, or because (ii) they pay a
monthly premium that is intended to cover their full cost. See Part A
premium.
Unit input intensity allowance. The amount added to, or subtracted
from, the hospital input price index to yield the prospective payment
system update factor.
Valuation period. A period of years that is considered as a unit for
purposes of calculating the status of a trust fund.
Voluntary enrollees. Certain individuals, aged 65 or older or
disabled, who are not otherwise entitled to Medicare and who opt to
obtain coverage under Part A by paying a monthly premium.
Year of depletion. The first year in which a trust fund is unable to
pay full benefits when due because the assets of the fund are depleted.
260
List of Tables
TABLES
II.B1.— Medicare Data for Calendar Year 2020 ............................... 12
II.C1.— Key Assumptions, 2045–2095 .............................................. 15
II.D1.— Components of Increase in Medicare Incurred
Expenditures by Part ............................................................ 22
II.E1.— Estimated Operations of the HI Trust Fund under
Intermediate Assumptions, Calendar Years 2020–2030 .... 27
II.F1.— Estimated Operations of the SMI Trust Fund under
Intermediate Assumptions, Calendar Years 2020–2030 .... 33
II.F2.— Average Annual Rates of Growth in SMI and the
Economy ................................................................................. 37
II.F3.— SMI General Revenues as a Percentage of Personal and
Corporate Federal Income Taxes ......................................... 40
III.B1.— Statement of Operations of the HI Trust Fund during
Calendar Year 2020 .............................................................. 46
III.B2.— Tax Rates and Maximum Tax Bases ................................... 48
III.B3.— Comparison of Actual and Estimated Operations of the
HI Trust Fund, Calendar Year 2020.................................... 51
III.B4.— Operations of the HI Trust Fund during Calendar Years
1970–2030 .............................................................................. 56
III.B5.— Estimated Operations of the HI Trust Fund during
Calendar Years 2020–2030, under Alternative Sets of
Assumptions .......................................................................... 59
III.B6.— Ratio of Assets at the Beginning of the Year to
Expenditures during the Year for the HI Trust Fund ........ 61
III.B7.— HI Cost and Income Rates .................................................... 64
III.B8.— HI Actuarial Balances under Three Sets of Assumptions .. 69
III.B9.— Components of 75-Year HI Actuarial Balance under
Intermediate Assumptions (2021–2095).............................. 70
III.B10.— Change in the 75-Year Actuarial Balance since the
2020 Report ........................................................................... 74
III.B11.— Estimated HI Income Rates, Cost Rates, and Actuarial
Balances, Based on Intermediate Estimates with
Various Real-Wage Assumptions ......................................... 76
III.B12.— Estimated HI Income Rates, Cost Rates, and Actuarial
Balances, Based on Intermediate Estimates with
Various CPI-Increase Assumptions ..................................... 77
III.B13.— Estimated HI Income Rates, Cost Rates, and Actuarial
Balances, Based on Intermediate Estimates with
Various Real-Interest Assumptions ..................................... 78
III.B14.— Estimated HI Income Rates, Cost Rates, and Actuarial
Balances, Based on Intermediate Estimates with
Various Health Care Cost Growth Rate Assumptions ....... 79
III.C1.— Statement of Operations of the Part B Account in the
SMI Trust Fund during Calendar Year 2019 ...................... 81
III.C2.— Standard Part B Monthly Premium Rates, Actuarial
Rates, and Premium Rates as a Percentage of Part B
Cost ........................................................................................ 84
261
List of Tables
III.C3.— Comparison of Actual and Estimated Operations of the
Part B Account in the SMI Trust Fund, Calendar Year
2020 ........................................................................................ 87
III.C4.— Operations of the Part B Account in the SMI Trust
Fund (Cash Basis) during Calendar Years 1970–2030 ...... 91
III.C5.— Growth in Part B Benefits (Cash Basis) through
December 31, 2030 ................................................................ 94
III.C6.— Estimated Operations of the Part B Account in the SMI
Trust Fund during Calendar Years 2020–2030, under
Alternative Sets of Assumptions .......................................... 95
III.C7.— Estimated Part B Income and Expenditures (Incurred
Basis) for Financing Periods through December 31,
2021 ........................................................................................ 98
III.C8.— Summary of Estimated Part B Assets and Liabilities as
of the End of the Financing Period, for Periods through
December 31, 2021 ................................................................ 99
III.C9.— Actuarial Status of the Part B Account in the SMI Trust
Fund under Three Cost Sensitivity Scenarios for
Financing Periods through December 31, 2021 ................ 101
III.C10.— Part B Expenditures (Incurred Basis) as a Percentage
of the Gross Domestic Product ........................................... 102
III.D1.— Statement of Operations of the Part D Account in the
SMI Trust Fund during Calendar Year 2020 .................... 105
III.D2.— Comparison of Actual and Estimated Operations of the
Part D Account in the SMI Trust Fund, Calendar Year
2020 ...................................................................................... 108
III.D3.— Operations of the Part D Account in the SMI Trust
Fund (Cash Basis) during Calendar Years 2004–2030 .... 111
III.D4.— Growth in Part D Benefits (Cash Basis) through
December 31, 2030 .............................................................. 112
III.D5.— Estimated Operations of the Part D Account in the SMI
Trust Fund during Calendar Years 2020–2030, under
Alternative Sets of Assumptions ........................................ 114
III.D6.— Part D Expenditures (Incurred Basis) as a Percentage
of the Gross Domestic Product ........................................... 117
IV.A1.— Components of Historical and Projected Increases in HI
Inpatient Hospital Payments ............................................. 121
IV.A2.— Relationship between Increases in HI Expenditures and
Increases in Taxable Payroll .............................................. 125
IV.A3.— Aggregate Part A Reimbursement Amounts on an
Incurred Basis ..................................................................... 128
IV.A4.— Summary of HI Alternative Projections ............................ 129
IV.B1.— Increases in Total Allowed Charges per Fee-for-Service
Enrollee for Practitioner Services ...................................... 134
IV.B2.— Incurred Reimbursement Amounts per Fee-for-Service
Enrollee for Practitioner Services ...................................... 135
IV.B3.— Increases Costs per Fee-for-Service Enrollee for
Institutional Services .......................................................... 138
262
List of Tables
IV.B4.— Incurred Reimbursement Amounts per Fee-for-Service
Enrollee for Institutional Services ..................................... 139
IV.B5.— Fee-for-Service Enrollment and Incurred
Reimbursement for Beneficiaries under Age 65 with
End-Stage Renal Disease.................................................... 140
IV.B6.— Aggregate Part B Reimbursement Amounts on an
Incurred Basis ..................................................................... 142
IV.B7.— Part D Enrollment .............................................................. 147
IV.B8.— Key Factors for Part D Expenditure Estimates ................ 149
IV.B9.— Incurred Reimbursement Amounts per Enrollee for
Part D Expenditures ........................................................... 151
IV.B10.—Aggregate Part D Reimbursements on an Incurred
Basis ..................................................................................... 152
IV.B11.—Part D Assumptions under Alternative Scenarios for
Calendar Years 2020–2030................................................. 153
IV.C1.— Private Health Plan Enrollment ........................................ 157
IV.C2.— Medicare Payments to Private Health Plans, by Trust
Fund ..................................................................................... 161
IV.C3.— Incurred Expenditures per Private Health Plan
Enrollee ................................................................................ 162
V.B1.— Total Medicare Income, Expenditures, and Trust Fund
Assets during Calendar Years 1970–2030......................... 189
V.B2.— Hl and SMI Incurred Expenditures as a Percentage of
the Gross Domestic Product ............................................... 191
V.B3.— Medicare Enrollment .......................................................... 193
V.B4.— Medicare Sources of Income as a Percentage of Total
Non-Interest Income ........................................................... 194
V.B5.— Comparative Growth Rates of Medicare, Private Health
Insurance, National Health Expenditures, and GDP ....... 197
V.D1.— HI and SMI Average per Beneficiary Costs ...................... 207
V.E1.— HI Cost-Sharing and Premium Amounts .......................... 209
V.E2.— SMI Cost-Sharing and Premium Amounts ....................... 210
V.E3.— Part B Income-Related Premium Information .................. 211
V.E4.— Part D Income-Related Premium Information.................. 214
V.F1.— Annual Revenues and Expenditures for Medicare and
Social Security Trust Funds and the Total Federal
Budget, Fiscal Year 2020 .................................................... 218
V.F2.— Present Values of Projected Revenue and Cost
Components of 75-Year Open-Group Obligations for HI,
SMI, and OASDI ................................................................. 220
V.G1.— Unfunded HI Obligations from Program Inception
through the Infinite Horizon .............................................. 224
V.G2.— Unfunded HI Obligations for Current and Future
Program Participants through the Infinite Horizon ......... 225
V.G3.— Unfunded Part B Obligations from Program Inception
through the Infinite Horizon .............................................. 226
V.G4.— Unfunded Part B Obligations for Current and Future
Program Participants through the Infinite Horizon ......... 227
263
List of Tables
V.G5.— Unfunded Part D Obligations from Program Inception
through the Infinite Horizon .............................................. 228
V.G6.— Unfunded Part D Obligations for Current and Future
Program Participants through the Infinite Horizon ......... 229
V.H1.— Statement of Operations of the HI Trust Fund during
Fiscal Year 2020 .................................................................. 230
V.H2.— Statement of Operations of the Part B Account in the
SMI Trust Fund during Fiscal Year 2020 ......................... 231
V.H3.— Statement of Operations of the Part D Account in the
SMI Trust Fund during Fiscal Year 2020 ......................... 232
V.H4.— Total Medicare Income, Expenditures, and Trust Fund
Assets during Fiscal Years 1970–2030 .............................. 233
V.H5.— Operations of the HI Trust Fund during Fiscal Years
1970–2030 ............................................................................ 234
V.H6.— Operations of the SMI Trust Fund (Cash Basis) during
Fiscal Years 1970–2030 ...................................................... 236
V.H7.— Operations of the Part B Account in the SMI Trust
Fund (Cash Basis) during Fiscal Years 1970–2030 .......... 237
V.H8.— Operations of the Part D Account in the SMI Trust
Fund (Cash Basis) during Fiscal Years 2004–2030 .......... 238
V.H9.— Assets of the HI Trust Fund, by Type, at the End of
Fiscal Years 2019 and 2020 ................................................ 239
V.H10.— Assets of the SMI Trust Fund, by Type, at the End of
Fiscal Years 2019 and 2020 ................................................ 240
264
List of Figures
FIGURES
I.1.— Medicare Expenditures as a Percentage of the Gross
Domestic Product under Current Law and Illustrative
Alternative Projections ........................................................... 6
II.D1.— Medicare Expenditures as a Percentage of the Gross
Domestic Product .................................................................. 21
II.D2.— Medicare Sources of Non-Interest Income and
Expenditures as a Percentage of the Gross Domestic
Product ................................................................................... 23
II.E1.— HI Trust Fund Balance at Beginning of Year as a
Percentage of Annual Expenditures .................................... 28
II.E2.— Long-Range HI Non-Interest Income and Cost as a
Percentage of Taxable Payroll, Intermediate
Assumptions .......................................................................... 30
II.F1.— SMI Expenditures and Premiums as a Percentage of the
Gross Domestic Product ........................................................ 36
II.F2.— Comparison of Average Monthly SMI Benefits,
Premiums, and Cost Sharing to the Average Monthly
Social Security Benefit .......................................................... 38
III.B1.— HI Expenditures and Income ............................................... 53
III.B2.— HI Trust Fund Balance at the Beginning of the Year as
a Percentage of Annual Expenditures ................................. 62
III.B3.— Estimated HI Cost and Income Rates as a Percentage of
Taxable Payroll ..................................................................... 65
III.B4.— Workers per HI Beneficiary.................................................. 67
III.B5.— Present Value of Cumulative HI Taxes Less
Expenditures through Year Shown, Evaluated under
Current-Law Tax Rates and Legislated Expenditures ....... 71
III.B6.— Comparison of HI Cost and Income Rate Projections:
Current versus Prior Year’s Reports ................................... 72
III.C1.— Part B Aged and Disabled Monthly Per Capita Income ..... 85
III.C2.— Premium Income as a Percentage of Part B
Expenditures ......................................................................... 93
III.C3.— Actuarial Status of the Part B Account in the SMI Trust
Fund through Calendar Year 2021 .................................... 101
III.C4.— Comparison of Part B Projections as a Percentage of the
Gross Domestic Product: Current versus Prior Year’s
Reports ................................................................................. 103
III.D1.— Comparison of Part D Projections as a Percentage of the
Gross Domestic Product: Current versus Prior Year’s
Reports ................................................................................. 118
V.B1.— Projected Difference between Total Medicare Outlays
and Dedicated Financing Sources, as a Percentage of
Total Outlays ....................................................................... 196
V.C1.— Medicare Expenditures as a Percentage of the Gross
Domestic Product under Current Law and Illustrative
Alternative Projections ....................................................... 204
265
Appendices
STATEMENT OF ACTUARIAL OPINION
It is my opinion that (1) the techniques and methodology used herein
to evaluate the financial status of the Federal Hospital Insurance
Trust Fund and the Federal Supplementary Medical Insurance Trust
Fund are based upon sound principles of actuarial practice and are
generally accepted within the actuarial profession; and (2) with the
important caveats noted below, the principal assumptions used and the
resulting actuarial estimates are, individually and in the aggregate,
reasonable for the purpose of evaluating the financial status of the
trust funds under current law, taking into consideration the past
experience and future expectations for the population, the economy,
and the program. I am a member of the American Academy of
Actuaries and I meet the Qualification Standards of the American
Academy of Actuaries to render the actuarial opinion contained herein.
The Trustees construct high-cost and low-cost projections as a share of
GDP over time to demonstrate the variability in program costs under
different scenarios. The projections in this report are subject to greater
uncertainty than in typical years given the potential impacts of the
COVID-19 pandemic on the Medicare program. It is also worth noting
that the projections do not reflect the potential effects of Medicare
coverage of Aduhelm, the Alzheimer’s disease drug that has been
recently approved by the Food and Drug Administration. The scope of
Medicare coverage for this drug is unknown, and it is not possible to
accurately estimate the effects on the program at this time. Because of
these uncertainties, actual program experience could be worse than
projected in the high-cost scenario.
The annual reports of the Board of Trustees and the accompanying
Actuarial Opinions have cautioned for a number of years about the
challenges of adhering to current-law Medicare payment updates. For
physician services, current law specifies payment rate updates that are
expected to be lower than overall inflation and not keep up with
underlying physician costs. For most categories of non-physician
health services, current law specifies that annual price updates be
adjusted downward each year by the growth in economy-wide
productivity. Sustaining these price reductions will be challenging for
health care providers, as the best available evidence indicates that
most providers cannot improve their productivity to this degree for a
prolonged period given the labor-intensive nature of these services.
Should these price updates prove to be inadequate, beneficiaries’ access
to and the quality of Medicare benefits would deteriorate over time, or
future legislation would need to be enacted that would likely increase
program costs beyond those projected under current law in this report.
266
Statement of Actuarial Opinion
For more information, I encourage readers to review the illustrative
alternative projection, which provides the potential magnitude of the
understatement of Medicare costs relative to the current-law
projections.108
Paul Spitalnic
Associate, Society of Actuaries
Member, American Academy of Actuaries
Chief Actuary, Centers for Medicare & Medicaid Services
108 See https://www.cms.gov/files/document/illustrative-alternative-scenario-2021.pdf.
267
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