Medicare: Financing the Part A Hospital Insurance Program
Publication Date: May 1998
Publisher: Library of Congress. Congressional Research Service
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Research Area: Health
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Abstract:
Medicare is the nationwide health insurance program for the aged and certain disabled persons. Medicare consists of two distinct parts — Part A (Hospital Insurance (HI)) and Part B (Supplementary Medical Insurance (SMI)). Part A is financed primarily through payroll taxes levied on current workers and their employers. Income from these taxes is credited to the HI trust fund. Part B is financed through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. Each fund is overseen by a Board of Trustees who make annual reports to Congress concerning their financial status. The 1998 HI report, issued April 28, 1998, projected that, under its intermediate assumptions, the HI trust fund would become insolvent in 2008. The SMI fund does not face exhaustion because of the way it is financed; however, the trustees are concerned about the rapid growth of Part B.
The trustees noted that to bring the HI fund into financial solvency over 25 years (CY1998-2022), either outlays would have to be reduced by 18% or income increased by 22% (or some combination thereof). The trustees do not give a dollar estimate for the outlay reductions needed to maintain financial solvency over this 25-year period.
The 1998 estimates represent a significant improvement over the 1997 projections. This reflects the impact of the Balanced Budget Act of 1997 (BBA 97) which provided for reductions in Medicare program outlays and transferred some Part A spending to Part B. BBA 97 also provided for the establishment of the National Bipartisan Commission on the Future of Medicare. This Commission is charged with making recommendations by March 1, 1999 concerning financing, benefit structure, and other program issues. This product will be updated upon receipt of the 1999 trustees report.