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Date: Wednesday, June 5, 1996 FOR IMMEDIATE RELEASE Contact: HCFA Press Office(202)690-6145
The Medicare trustees today reported that, because expenditures were slightly higher and revenues slightly lower than expected, the estimated depletion of the Hospital Insurance trust fund will occur in the year 2001, based on most probable economic and demographic assumptions.
The projected depletion date is one year earlier than had been forecast by the trustees last year. However, two years ago, the trustees had also projected that the fund would be depleted in 2001.
To address the short-term financial problems facing the Hospital Insurance (HI) trust fund, the trustees recommended the earliest possible enactment of legislation to reduce growth in HI program costs and extend the date of exhaustion of the HI trust fund.
Second, the trustees recommended the establishment of a national advisory group on Medicare reform. This group would develop recommendations for effective solutions to the HI program's long-range financial problems.
HHS Secretary Donna E. Shalala, a trustee, said, "This report confirms what we have long been saying: that Congress and the Administration must join together to enact legislation that prolongs the life of the trust fund and keeps faith with Medicare beneficiaries. As we say in our report, `prompt, effective, and decisive action is necessary.'"
Treasury Secretary Robert E. Rubin, managing trustee, said: "For the third year running, today's report is a reminder that the Medicare trust fund can and should be strengthened now. The President has offered an effective plan and we want to work with Congress to get this job done."
Shalala and Rubin noted that in 1993, the Administration put forward and the Congress enacted a plan that extended the life of the trust fund by two to three years.
They added that President Clinton has proposed a plan that guarantees the life of the HI trust fund for about a decade -- without imposing new costs on beneficiaries or reducing beneficiary protection under current law.
As part of his comprehensive plan to balance the federal budget, President Clinton has proposed Medicare savings provisions totaling $124 billion over the next seven years.
The trustees issue annual reports to Congress on the HI and Supplementary Medical Insurance (SMI) trust funds.
Today's HI Trust Fund report said the fund currently does not meet the short-range test of financial adequacy. Income and assets, the trustees said, are not sufficient to support projected expenditures beyond five years, under a set of intermediate cost assumptions.
Last year, it was estimated that the fund would be depleted in 2002. Two years ago, the trustees said depletion would occur in 2001, and three years ago, fund depletion was estimated to happen in 1999.
Because trust fund depletion is not an acceptable option, the trustees call for prompt, effective and decisive action to ensure short-term solvency.
Under the worst-case scenario for trust fund depletion, the HI program could continue to pay claims with revenues received each month from the HI payroll tax. Income from the payroll tax and other revenues would be sufficient to pay a significant portion of Medicare expenditures.
Medicare hospital insurance helps pay for care given by hospitals, skilled nursing facilities, hospices and home health agencies. The HI trust fund (Medicare Part A) is financed mainly by the Medicare portion of the Social Security payroll tax. The Medicare payroll tax rate of 2.9 percent consists of equal contributions of 1.45 percent from employers and employees.
The SMI trust fund (Medicare Part B) helps pay for the services of physicians and other health care professionals, outpatient services, independent laboratory services and durable medical equipment. The SMI program is financed mostly by general revenues of the government and by premiums paid by beneficiaries. The 1996 premium is $42.50 a month, a drop from the 1995 premium of $46.10 a month.
The trustees said the SMI fund was expected to remain adequately financed for the future. This is because current law provides for automatic increases in beneficiary premiums and government general revenue contributions to meet expected costs.
The trustees expressed concern that, in the past five years, SMI program expenditures have grown about 22 percent faster than the overall economy, despite efforts to control SMI costs, and this trend is expected to continue under current law. Another concern, they said, is that premium income after 1998 is projected to cover a smaller fraction of SMI spending. That will shift a greater share of program financing from beneficiaries to the general public.
The trustees urged Congress to take additional actions designed to control SMI costs in the near future and to develop legislative proposals to deal with SMI's long-term problems.
The six-member boards include, in addition to Secretaries Rubin and Shalala, two other trustees who serve automatically because of their positions: Labor Secretary Robert B. Reich and Social Security Commissioner Shirley S. Chater.
Two other members, the public trustees, are appointed by the President with Senate confirmation. The public trustees are Stephen G. Kellison and Marilyn Moon. They serve four-year terms and represent the general public. Bruce C. Vladeck, administrator of the Health Care Financing Administration, serves as secretary to the board of trustees.