OFFICE OF THE ACTUARY

The Financial Status of MedicarePresentation for the American Enterprise Institute

April 24, 2012

Richard S. Foster, FSAChief Actuary

Chart 1—Medicare enrollment, benefits, and

financing

Hospital Insurance (HI)

Supplementary Medical

Insurance (SMI)

Enrollment in CY 2011: Total .......................................... Proportion with services ...........

48 million 22%

Part B: 45 million Part D: 36 million Part B: 87% Part D: Approximately 86%

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 2012 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: $99.90 standard monthly premium Tied to beneficiary income in 2007 and later Fees on manufacturers, importers of

brand-name Rx drugs General revenues cover 76% of costs

Part D drug premiums, general revenues, and State transfers: Base premium in 2012 is $31.08; average

premium is about $30; covers 25.5% of standard benefit costs, 13% of total costs

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

beneficiaries cover about 12% of costs General revenues cover 75% of costs

Personal Health Care GDP0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1.0%1.7%

4.0%

4.0%

1.4%

0.4%

2.9%

1.2%

Chart 1a—Factors accounting for growth in Personal Health Care Spending and the economy, 1965-2010

Ave

rage

ann

ual

grow

th

Population Employment

Economy-wide inflation

Economy-wide inflation

Excessmedical inflation

Real GDPper worker

Health care use & intensity

Age-gender ef-fect

1990199219941996199820002002200420062008201020122014201620182020$0

$100

$200

$300

$400

$500

Chart 2—HI income and outgo (In billions)

Calendar year

In-come

Outgo

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Re-port.

Historical Estimated

1970 1980 1990 2000 2010 2020 20300%

50%

100%

150%

200%

Assets

Chart 3—HI fund ratios under alternative assumptions(Assets at beginning of year as percentage of annual

expenditures)

Beginning of January

Tru

st

fun

d r

ati

o

Note: Projections are based on the assumptions from the 2012 Trustees Report.

Historical Estimated

1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 20870%

1%

2%

3%

4%

5%

6%

7%

8%

Calendar year

Cost Rate

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Chart 4—Long-range HI income and cost rates (As a percentage of taxable payroll)

Historical Estimated

Deficit

Income Rate

1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 20870%

1%

2%

3%

4%

5%

6%

7%

8%

Calendar year

Cost Rate

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

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

Chart 4—Long-range HI income and cost rates (As a percentage of taxable payroll)

Historical Estimated

Deficit

Income Rate

1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 20870%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Calendar year

Historical Estimated

Cost Rate

Income Rate

Chart 4.a—Long-range HI Income and Cost Rates,Current Law and Illustrative Alternative

1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 20870%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Calendar year

Historical Estimated

Cost Rate

Income Rate

Chart 4.a—Long-range HI Income and Cost Rates,Current Law and Illustrative Alternative

2011 TR

1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 20870%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Calendar year

Historical Estimated

Cost Rate

Cost Rate underIllustr. Alt.

Income Rate

Chart 4.a—Long-range HI Income and Cost Rates,Current Law and Illustrative Alternative

2011 TR

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080

-20%

0%

20%

40%

60%

80%

100%

120%

Chart 5—Comparison of relative Medicare, Medicaid, and PHI prices for inpatient hospital services under current

law

Calendar Year

Pri

ce

as a

pe

rce

nta

ge

of

PH

I ra

tes Private health insurance (PHI)

Medicare

Medicaid

Past Projected

Current level of Medicaid relative to PHI

Projected level of Medicare and Medicaid

2000 2010 2020 2030 2040 2050 2060 2070 2080

-20%

0%

20%

40%

60%

80%

100%

120%

Chart 5a—Comparison of relative Medicare, Medicaid, andPHI prices for physician services under current law

Calendar year

Pri

ce

as p

erc

en

tag

e o

f P

HI

rate

s

Private health insurance (PHI)

Medicare

Medicaid

Past Pro-jected

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020$0

$100

$200

$300

$400

$500

Chart 6—SMI Part B income and outgo (In billions)

Calendar year

IncomeOutgo

(Current Law)

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Historical Estimated

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020$0

$100

$200

$300

$400

$500

Chart 6—SMI Part B income and outgo (In billions)

Calendar year

IncomeOutgo

(Current Law)

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Historical Estimated

Outgo (Illustr. Alt.)

2004 2006 2008 2010 2012 2014 2016 2018 2020$0

$50

$100

$150

$200

Chart 7—SMI Part D income and outgo(In billions)

Calendar YearNote: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Outgo

Income

Historical Estimated

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2110 21200%

1%

2%

3%

4%

5%

Chart 8—SMI expenditures and premium income [As a percentage of Gross Domestic Product (GDP)]

Calendar YearNote: Projections are based on the intermediate assumptions from the 2012

Trustees Report.

Historical Estimated

Part B ex-penditures

Part D ex-penditures

Totalexpenditures

B

D

Totalpremiums

2000 2010 2020 2030 2040 2050 2060 2070 2080 20900%

2%

4%

6%

8%

10%

12%

6.7%

Calendar year

Current Law

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Chart 9—Medicare Expenditures as a Percentage of GDP under Current Law and Illustrative Alternative Projections 

2000 2010 2020 2030 2040 2050 2060 2070 2080 20900%

2%

4%

6%

8%

10%

12%

3.7%

7.9 %

6.7%

Calendar year

Current Law

Alternative to SGR

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Chart 9—Medicare Expenditures as a Percentage of GDP under Current Law and Illustrative Alternative Projections 

Illustrative alternative to current law assumes:Physician payment “SGR” formula is overridden in all years

NB: This is an illustration, not a recommendation

2000 2010 2020 2030 2040 2050 2060 2070 2080 20900%

2%

4%

6%

8%

10%

12%

3.7%

7.9 %

10.4%

6.7%

Calendar year

Current Law

Alternative to SGR,Productivity Adjustments, and

IPAB

Alternative to SGR

Note: Projections are based on the intermediate assumptions from the 2012 Trustees Report.

Chart 9—Medicare Expenditures as a Percentage of GDP under Current Law and Illustrative Alternative Projections 

Illustrative alternative to current law assumes:Physician payment “SGR” formula is overridden in all yearsProductivity adjustments to other provider updates are phased down over 2020-2034IPAB requirements are not implementedNB: This is an illustration, not a recommendation