office of the actuary

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OFFICE OF THE ACTUARY

The Financial Status of MedicarePresentation for the American Enterprise Institute

June 3, 2013

Paul Spitalnic, ASAActing Chief Actuary

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Medicare enrollment, benefits, and financing

Hospital Insurance (HI)

Supplementary Medical

Insurance (SMI) Enrollment in CY 2012: Total .......................................... Proportion with services ...........

50 million 22%

Part B: 46 million Part D: 37 million Part B: 87% Part D: 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 2013 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 74% of costs

Part D drug premiums, general revenues, and State transfers: Base premium in 2013 is $31.17; average

premium is about $30; covers 25.5% of standard benefit costs, 14% 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 74% of costs

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2012 Medicare experience ($ billions)

2013 Report 2012 Report DifferenceHI

Income $243.0 $241.5 $1.5

Expenditures $266.8 $270.4 -$3.6

Surplus/(Deficit) -$23.8 -$28.9 $5.1

SMI - Part B

Income $227.0 $230.0 -$3.0

Expenditures $240.5 $246.9 -$6.4

Surplus/(Deficit) -$13.5 -$16.9 $3.4

SMI - Part D

Income $66.9 $68.5 -$1.6

Expenditures $66.9 $68.8 -$1.9

Surplus/(Deficit) $0.0 -$0.3 $0.3

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1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

$0

$100

$200

$300

$400

$500

Short-range HI income and outgo (In billions)

Calendar year

In-come

Outgo

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

Historical Esti-mated

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1970 1980 1990 2000 2010 2020 20300%

50%

100%

150%

200%

HI fund ratio(Assets at beginning of year as percentage of annual

expenditures)

Beginning of January

Trus

t fu

nd r

atio

Note: Projections are based on the assumptions from the 2013 Trustees Report.

Assets

Historical Estimated

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

2%

4%

6%

8%

Calendar year

Cost Rate

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

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

Historical Estimated

Deficit

Income Rate

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

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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 ReportIncome rate 3.83% 3.86%

Cost rate 4.94% 5.21%

Actuarial balance -1.11% -1.35%

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Factors of change in 75-year actuarial balance

Actuarial balance – 2012 report -1.35%

Changes:

a. Valuation period -0.03%

b. Base estimate 0.05%

c. Private health plan assumptions 0.07%

d. Hospital assumptions 0.02%

e. Other provider assumptions 0.11%

f. Economic and demographic assumptions 0.02%

Net effect of changes 0.24%

Actuarial balance – 2013 report -1.11%

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1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 2087

-2%

0%

2%

4%

6%

8%

10%

Calendar year

Historical Estimated

Cost Rate

Income Rate

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

Long-range HI income and cost rates,2013 Report compared to 2012 Report

2012 TR

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1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 2087

-2%

0%

2%

4%

6%

8%

10%

Calendar year

Historical Estimated

Cost Rate

Cost rate under il-lustrative alternative

Income Rate

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

Long-range HI income and cost rates,current law and illustrative alternative

2012 TR

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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022$0

$100

$200

$300

$400

$500

SMI Part B income and outgo (In billions)

Calendar year

Income

Outgo (Current Law)

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

Historical Estimated

12

19901992199419961998200020022004200620082010201220142016201820202022$0

$100

$200

$300

$400

$500

SMI Part B income and outgo (In billions)

Calendar year

Income

Outgo (Current Law)

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

Historical Estimated

Outgo (Illustr. Alt.)

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2004 2006 2008 2010 2012 2014 2016 2018 2020 2022$0

$50

$100

$150

$200

SMI Part D income and outgo(In billions)

Calendar YearNote: Projections are based on the intermediate assumptions from the 2013 Trustees Re-port.

Outgo

Income

Historical Estimated

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1960 1980 2000 2020 2040 2060 2080 2100 21200%

1%

2%

3%

4%

5%

SMI expenditures and premium income [As a percentage of Gross Domestic Product

(GDP)]

Calendar YearNote: Projections are based on the intermediate assumptions from the 2013 Trustees Re-port.

Historical Estimated

Part B ex-penditures

Part D ex-penditures

Totalexpenditures

B

D

Totalpremiums

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SMI change from 2012 report

2013 Report 2012 ReportPart B

2012 % of GDP 1.51% 1.58%

2085 % of GDP 2.56% 2.52%

Part D

2012 % of GDP 0.45% 0.45%

2085 % of GDP 1.42% 1.50%

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2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

-2%

0%

2%

4%

6%

8%

10%

12%

Medicare expenditures as a percentage of GDP under current law and illustrative alternative projections

Calendar year

Current Law

Note: Projections are based on the intermediate assumptions from the 2013 Trustees Report.

Alternative to SGR,Productivity Adjustments, and IPAB

Illustrative alternative to current law assumes:- Physician payment updates based on Medicare Economic In-dex- Productivity adjustments to other provider updates are phased out over 2020-2034- IPAB provisions do not apply

Note: This is an illustration, not a recommendation

6.5%

9.8%

Alternative to SGR 7.2%

3.7%