SN800 Medicare's Financial Condition

Question 1

Discuss the financial condition of the SMI trust fund

Answer 1

1. The SMI trust fund includes accounts for the Medicare Part B and Part D
2. One quarter of SMI spending is financed though beneficiary premiums, with federal general tax revenues covering the remainder
3. The SMI trust fund is expected to remain solvent because it’s financing is reset each year to meet projected costs
   
   3. 1 increasing general revenue contributions puts pressure on the federal budget
   4. 2 Premium increases will place pressure on beneficiaries
   5. 3 SMI spending will continue to grow faster than GDP
   6. Greater shares of economy will be devoted to Medicare meaning smaller shares will be available for other priorities

Question 2

Discuss the financial condition of the HI trust fund

Answer 2

1. Medicare HI trust fund income less than the amount needed to fund HI benefits
2. HI trust fund (i.e. for hospital services) is funded primarily through payroll taxes
3. HI expenditures exceed revenues, including interest income, throughout the 75-year projection period (with the exception of a few years of surplus)
4. funding will require that money be borrowed, increasing the federal debt
5. The HI trust fund is projected to be depleted in 2026
6. There is no current provision for general fund transfers to cover HI expenditures