OFFICE OF THE ACTUARY

The Financial Status of Medicare

July 14, 2014

Paul SpitalnicCMS Chief Actuary

Agenda

• Current snapshot and evolution of the program• Different views on Medicare Financial Status

– Formal status of trust funds– Relative to other health expenditures– Relative to other federal expenditures

• Q&A

Medicare enrollment, benefits, and financing

Hospital Insurance (HI)

Supplementary Medical

Insurance (SMI)

Enrollment in CY 2013: Total .......................................... Proportion with services ...........

52 million 22%

Part B: 48 million Part D: 39 million Part B: 87% Part D: 93%

Benefits* ...................................... * Subject to certain

deductible and coinsurance requirements

Inpatient hospital care Skilled nursing care Home health care (post-institutional) Hospice care

Part B:

Physician services Outpatient hospital services Home health care (general) Other services, e.g. Diagnostic tests Medical equipment Ambulance

Part D: Prescription drug benefit

CY 2014 Financing .....................

HI tax on covered earnings:

1.45% payable by employees and employers, each

2.90% payable by self-employed Following elimination of HI contribution base

(effective 1994), HI tax applies to all earnings in covered employment

Tied to worker income in 2013 and later

Revenue from income taxation of OASDI benefits (portion between 50% & 85%)

Part B premiums and general revenue transfers: $104.90 standard monthly premium Tied to beneficiary income in 2007 and later Fees on manufacturers, importers of

brand-name Rx drugs General revenues cover 75% of costs

Part D drug premiums, general revenues, and State transfers: Base premium in 2014 is $32.42; average

premium is about $31; covers 25.5% of standard benefit costs, 15% of total costs

Tied to beneficiary income in 2011 and later State payments on behalf of certain

beneficiaries cover about 10% of costs General revenues cover 75% of costs

Medicare Sources of Non-Interest Income

as % of GDP

Medicare Spending by Category

Total Spending = $10.8B(0.76% of GDP)

Note: In 1991 there was a methodological change affecting Part B.

Formal Status of Trust Funds

• Evaluate HI separately from SMI

• HI

– Are assets plus projected income adequate to finance anticipated benefit costs?

• SMI

– Part B account financing set annually

– Part D account draws on General Fund of the Treasury on an as needed basis

– No long term solvency issues

– Growing strain on federal budget

Amount of deficit that would be covered by interest earnings and asset redemptions

75-year actuarial balance

• Present value of income rate less cost rate

– Rates compare income or costs to taxable payroll

75-year PV 2013 Report 2012 Report

Income rate 3.83% 3.86%

Cost rate 4.94% 5.21%

Actuarial balance -1.11% -1.35%

QUESTIONS ????