2023 Medicare Trustees Report

2023 ANNUAL REPORT OF

THE BOARDS OF TRUSTEES OF THE

FEDERAL HOSPITAL INSURANCE AND

FEDERAL SUPPLEMENTARY MEDICAL INSURANCE

TRUST FUNDS

COMMUNICATION

From

THE BOARDS OF TRUSTEES,

FEDERAL HOSPITAL INSURANCE AND

FEDERAL SUPPLEMENTARY MEDICAL INSURANCE

TRUST FUNDS

Transmitting

THE 2023 ANNUAL REPORT OF

THE BOARDS OF TRUSTEES OF THE

FEDERAL HOSPITAL INSURANCE AND

FEDERAL SUPPLEMENTARY MEDICAL INSURANCE

TRUST FUNDS

(III)

LETTER OF TRANSMITTAL

____________________

BOARDS OF TRUSTEES OF THE

FEDERAL HOSPITAL INSURANCE AND

FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS,

Washington, D.C., March 31, 2023

HONORABLE KEVIN MCCARTHY,

Speaker of the House of Representatives

HONORABLE KAMALA D. HARRIS,

President of the Senate

DEAR MR. SPEAKER AND MADAM PRESIDENT:

We have the honor of transmitting to you the 2023 Annual Report of the Boards of Trustees of the

Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust

Fund, the 58th such report.

Respectfully,

JANET YELLEN,

Secretary of the Treasury,

and Managing Trustee of the Trust Funds.

JULIE A. SU,

Acting Secretary of Labor,

and Trustee.

XAVIER BECERRA,

Secretary of Health and Human Services,

and Trustee.

KILOLO KIJAKAZI,

Acting Commissioner of Social Security,

and Trustee.

VACANT,

Public Trustee.

VACANT,

Public Trustee.

CHIQUITA BROOKS-LASURE,

Administrator,

Centers for Medicare & Medicaid Services,

and Secretary, Boards of Trustees.

(V)

CONTENTS

I. INTRODUCTION ............................................................................. 1

II. OVERVIEW ..................................................................................... 9

A. Highlights .................................................................................... 9

B. Medicare Data for Calendar Year 2022 ..................................... 13

C. Medicare Assumptions .............................................................. 15

D. Financial Outlook for the Medicare Program............................ 22

E. Financial Status of the HI Trust Fund ...................................... 28

F. Financial Status of the SMI Trust Fund ................................... 35

G. Conclusion ................................................................................. 44

III. ACTUARIAL ANALYSIS ............................................................. 47

A. Introduction ............................................................................... 47

B. HI Financial Status ................................................................... 48

1. Financial Operations in Calendar Year 2022 ........................ 48

2. 10-Year Actuarial Estimates (2023–2032) ............................. 55

3. Long-Range Estimates ........................................................... 64

4. Long-Range Sensitivity Analysis ........................................... 76

C. Part B Financial Status ............................................................. 81

1. Financial Operations in Calendar Year 2022 ........................ 81

2. 10-Year Actuarial Estimates (2023–2032) ............................. 88

3. Long-Range Estimates ......................................................... 101

D. Part D Financial Status .......................................................... 103

1. Financial Operations in Calendar Year 2022 ...................... 103

2. 10-Year Actuarial Estimates (2023–2032) ........................... 107

3. Long-Range Estimates ......................................................... 116

IV. ACTUARIAL METHODOLOGY AND PRINCIPAL ASSUMPTIONS 119

A. Hospital Insurance .................................................................. 119

B. Supplementary Medical Insurance .......................................... 131

1. Part B ................................................................................... 131

2. Part D ................................................................................... 144

C. Private Health Plans ............................................................... 155

D. Long-Range Medicare Cost Growth Assumptions ................... 165

V. APPENDICES ............................................................................. 174

A. Medicare Amendments since the 2022 Report ........................ 174

B. Total Medicare Financial Projections ...................................... 188

C. Illustrative Alternative Projections ......................................... 200

D. Average Medicare Expenditures per Beneficiary .................... 205

E. Medicare Cost-Sharing and Premium Amounts ...................... 208

F. Medicare and Social Security Trust Funds and the Federal

Budget ...................................................................................... 216

G. Infinite Horizon Projections .................................................... 223

H. Fiscal Year Historical Data and Projections through 2032..... 230

I. Glossary .................................................................................... 241

J. List of Tables ............................................................................ 262

J. List of Figures .......................................................................... 266

J. Statement of Actuarial Opinion ............................................... 267

I. INTRODUCTION

The Medicare program helps pay for health care services for the aged,

disabled, and individuals with end-stage renal disease (ESRD). It has

two separate trust funds, the Hospital Insurance trust fund (HI) and

the Supplementary Medical Insurance trust fund (SMI). HI, otherwise

known as Medicare Part A, helps pay for inpatient hospital services,

hospice care, and skilled nursing facility (SNF) and home health

services following hospital stays. SMI consists of Medicare Part B and

Part D. Part B helps pay for physician, outpatient hospital, home

health, and other services for individuals who have voluntarily

enrolled. Part D provides subsidized access to drug insurance coverage

on a voluntary basis for all beneficiaries and premium and cost-sharing

subsidies for low-income enrollees. Medicare also has a Part C, which

serves as an alternative to traditional Part A and Part B coverage.

Under this option, beneficiaries can choose to enroll in and receive care

from private Medicare Advantage and certain other health insurance

plans. Medicare Advantage and Program of All-Inclusive Care for the

Elderly (PACE) plans receive prospective, capitated payments for such

beneficiaries from the HI and SMI Part B trust fund accounts; the

other plans are paid from the accounts on the basis of their costs.

The Social Security Act established the Medicare Board of Trustees to

oversee the financial operations of the HI and SMI trust funds.

The

Board has six members. Four members serve by virtue of their

positions in the Federal Government: the Secretary of the Treasury,

who is the Managing Trustee; the Secretary of Labor; the Secretary of

Health and Human Services; and the Commissioner of Social Security.

Two other members are public representatives whom the President

appoints and the Senate confirms. These positions have been vacant

since 2015. The Administrator of the Centers for Medicare & Medicaid

Services (CMS) serves as Secretary of the Board.

The Social Security Act requires that the Board, among other duties,

report annually to the Congress on the financial and actuarial status

of the HI and SMI trust funds. The 2023 report is the 58th that the

Board has submitted.

With two exceptions, the projections are based on the current-law

provisions of the Social Security Act. The first exception is that the

Part A projections disregard payment reductions that would result

from the projected depletion of the Medicare HI trust fund. Under

The Social Security Act established separate boards for HI and SMI. Both boards have

the same membership, so for convenience they are collectively referred to as the

Medicare Board of Trustees in this report.

Introduction

current law, payments would be reduced to levels that could be covered

by incoming tax and premium revenues when the HI trust fund was

depleted. If the projections reflected such payment reductions, then

any imbalances between payments and revenues would be

automatically eliminated, and the report would not fulfill one of its

critical functions, which is to inform policymakers and the public about

the size of any trust fund deficits that would need to be resolved to

avert program insolvency. To date, lawmakers have never allowed the

assets of the Medicare HI trust fund to become depleted.

The second exception is that the elimination of the safe harbor

protection for manufacturer rebates, which was finalized in a rule

released in November of 2020, is not reflected in the Part D projections.

This final rule imposed a January 1, 2022 effective date; however,

implementation was initially delayed until January 1, 2023. Since

then, enacted legislation has three times imposed a moratorium on

implementation, and it is currently delayed until January 1, 2032.

Therefore, the likelihood of this rule taking effect is highly uncertain.

The Medicare projections have been significantly affected by the

enactment of the Inflation Reduction Act of 2022 (IRA). This legislation

has wide-ranging provisions, including those that restrain price

growth and negotiate drug prices for certain Part B and Part D drugs

and that redesign the Part D benefit structure to decrease beneficiary

out-of-pocket costs. The law takes several years to implement,

resulting in very different effects by year. The Part D benefit

enhancements are implemented by 2025, for example, before the

negotiation provisions that are effective in 2026 can have any spending

reduction impact. The total effect of the IRA is to reduce government

expenditures for Part B, to increase expenditures for Part D through

2030, and to decrease Part D expenditures beginning in 2031. Part B

savings are due to the substantial lowering of payments, relative to

current reimbursement, as a result of negotiated prices. Part D

ultimately generates cost savings at the end of the 10-year period, but

many of the gains from negotiated prices and lower trends are initially

more than offset by increased benefits and decreased manufacturer

rebates.

The Board of Trustees assumes that the IRA will affect the ultimate

long-range growth rates for Part B and Part D drug spending

differently. For Part B drugs, since the Trustees do not anticipate that

the market pricing dynamics will be much different from those prior to

the implementation of the IRA, they continue to assume that per capita

spending growth rates will be similar to those for overall per capita

national health expenditures. On the other hand, for Part D drugs, the

Introduction

Trustees assume that per capita spending will grow 0.2 percentage

point more slowly than per capita national health expenditures, since

the inflation provisions of the IRA are likely to result in a trend rate

that is lower than, and price growth that is closer to, the Consumer

Price Index (CPI).

Beginning in 2020, the Medicare program was dramatically affected by

the COVID-19 pandemic. Spending was directly affected by the

coverage of testing and treatment of the disease. In addition, several

regulatory policies and legislative provisions were enacted during the

public health emergency that increased spending, and the use of

telehealth was greatly expanded. More than offsetting these additional

costs in 2020, spending for non-COVID care declined significantly.

Actual fee-for-service per capita spending has been consistently below

the pre-pandemic projections throughout the public health emergency,

even into 2022 as the pandemic had diminishing effects on much of the

economy and the health care delivery system. A number of factors have

contributed to this lower spending, including the net effects of (i) lower

average morbidity among the surviving population from COVID-

related deaths; (ii) a greater share of dual-eligible beneficiaries

enrolling in the Medicare Advantage program; and (iii) the shift of joint

replacement procedures from an inpatient to an outpatient setting.

These reductions are partially offset by certain public health

emergency policies. All of these factors are discussed in more detail

below.

• To estimate the morbidity effect, COVID-related decedents were

matched to 2015 patients and were followed for 48 months. The

patients were matched

based on demographic, health status, and

acute/post-acute care patterns in the period prior to their

contracting COVID and were determined to have spending that

was much higher than average. This approach was replicated for

each year’s COVID decedents. As a result, the surviving population

had spending that was lower than average. This impact decreases

over time until there is no effect on the projections after 2029.

• The share of Medicare beneficiaries enrolled in the Medicare

Advantage program has increased considerably over the last two

The approach used a two-stage nearest-neighbor-match methodology. The first step

forced an exact match on gender, disability status, ESRD status, institutional status,

dual eligibility, 5-year age group, chronic condition count, inpatient payment grouping,

SNF payment grouping, and chronic kidney disease. The second step then chose a

comparison patient within cohort by minimizing a Euclidian distance metric on

quarterly fee-for-service Part A and Part B spending patterns.

Introduction

decades. This change would not have an impact on the average fee-

for-service cost if those enrolling in the program had average fee-

for-service spending. Over the last several years, however, a

greater proportion of those dually eligible for Medicaid and

Medicare have been enrolling, and dual-eligible beneficiaries have

a significantly higher average level of spending than non-dual

beneficiaries. As a result, the additional dual-eligible enrollments

have decreased the average fee-for-service per capita cost—

affecting, in turn, the trends for inpatient hospital, SNF, and home

health spending.

•

Over time, procedures that had previously been provided in the

more expensive inpatient setting have been shifting to the lower-

cost outpatient setting. These effects are reflected in the Medicare

service-level history and are similarly incorporated into the

expected trends for future years.

Prior to 2018, hip and knee replacement surgeries were performed

exclusively in the inpatient setting. Then a shift occurred on

January 1, 2018, when knee replacements were removed from the

inpatient-only list; similarly, on January 1, 2020, hip replacements

were removed from the inpatient-only list, and knee replacements

were allowed to be performed in ambulatory surgical centers. As a

result, the proportion of hip and knee replacement surgeries

performed in the inpatient setting reduced dramatically, causing a

greater shift in spending from the inpatient to outpatient setting

than implicitly assumed.

• A number of policies that are in effect during the public health

emergency affect Medicare spending. One such policy is that, for

inpatient stays for individuals with a COVID diagnosis, payments

to hospitals are increased by 20 percent. Another is that the 3-day

inpatient stay requirement for SNF services has been waived; this

policy has increased SNF spending and decreased spending for

home health services. These effects are assumed to be eliminated

at the end of the public health emergency.

While these factors account for a significant amount of the difference

between actual and expected experience for many of the categories,

others are still largely unexplained. For inpatient hospital, outpatient

hospital, and SNF spending, these unexplained differences are

expected to be eliminated by 2024; for home health services, they are

expected to be gradually eliminated by 2026.

Introduction

It should be noted that there is an unusually large degree of

uncertainty with the COVID-related impacts and that future

projections could change significantly as more information becomes

available. The Trustees will continue to monitor developments and

modify the projections in later reports as appropriate.

The Medicare Accelerated and Advance Payments (AAP) Program was

significantly expanded during the COVID-19 public health emergency

period, by both legislative provisions and administrative actions taken

by CMS early on during the emergency. Total payments of

approximately $107.2 billion were made from March 2020 through

June 2021: roughly $67.2 billion from the HI trust fund and

$40.1 billion from the SMI Part B trust fund account. As of January 1,

2023, roughly 99 percent of these amounts have been repaid. The

Trustees assume that the remaining balance will be fully repaid or

converted to an extended repayment schedule by March of 2023.

Although these payments and repayments significantly affected the

timing of expenditures from 2020 through 2022, they have no

cumulative net effect.

A more typical reason for uncertainty in projecting Medicare costs,

especially when looking out more than several decades, is that

scientific advances will make possible new interventions, procedures,

and therapies. Some conditions that are untreatable today may be

handled routinely in the future. Spurred by economic incentives, the

institutions through which care is delivered will evolve, possibly

becoming more efficient. While most health care technological

advances to date have tended to increase expenditures, the health care

landscape is shifting. No one knows whether future developments will,

on balance, increase or decrease costs.

Certain features of current law may result in some challenges for the

Medicare program. Physician payment update amounts are specified

for all years in the future, and these amounts do not vary based on

underlying economic conditions, nor are they expected to keep pace

with the average rate of physician cost increases. These rate updates

could be an issue in years when levels of inflation are high and would

be problematic when the cumulative gap between the price updates

and physician costs becomes large. Payment rate updates for most non-

physician categories of Medicare providers are reduced by the growth

Introduction

in economy-wide private nonfarm business total factor productivity

although these health providers have historically achieved lower levels

of productivity growth. If the health sector cannot transition to more

efficient models of care delivery and if the provider reimbursement

rates paid by commercial insurers continue to be based on the same

negotiated process used to date, then the availability, particularly with

respect to physician services, and quality of health care received by

Medicare beneficiaries would, under current law, fall over time

compared to that received by those with private health insurance.

Since 1960, U.S. national health expenditure (NHE) growth rates

typically outpaced economic growth rates, though the magnitude of the

differences has been declining. The Trustees have long assumed that

this differential would continue to narrow over the long-term projection

period and that cost-reduction provisions required under current law

would further decrease this gap. Since 2008, average annual NHE

growth has been below historical averages, though it has generally

continued to outpace average annual growth of the economy. There is

some debate regarding whether this recent slower growth in national

health expenditures reflects the impact of economic factors that are

mostly cyclical in nature, such as modest income growth over the last

decade, or factors that would lead to a permanently slower growth

environment, such as structural changes to the health sector that could

result in lower health care cost growth. The Trustees’ outlook for long-

range NHE growth is consistent with the trajectory observed over the

past half century and has not been materially affected by this recent

experience.

Current-law projections indicate that Medicare still faces a substantial

financial shortfall that will need to be addressed with further

legislation. Such legislation should be enacted sooner rather than later

to minimize the impact on beneficiaries, providers, and taxpayers.

For convenience the term economy-wide private nonfarm business total factor

productivity will henceforth be referred to as economy-wide productivity. Beginning with

the November 18, 2021 release of the productivity data, the Bureau of Labor Statistics

(BLS) replaced the term multifactor productivity with the term total factor productivity,

a change in name only as the underlying methods and data were unchanged.

Introduction

Figure I.1 shows Medicare’s projected expenditures as a percentage of

the Gross Domestic Product (GDP) under two sets of assumptions:

current law and an illustrative alternative, described below.

Figure I.1.—Medicare Expenditures as a Percentage

of the Gross Domestic Product under Current Law

and Illustrative Alternative Projections

Note: Percentages are affected by economic cycles.

The expenditure projections reflect the cost-reduction provisions

required under current law but not the payment reductions and/or

delays that would result from the HI trust fund depletion. In the year

of asset depletion, which is projected to be 2031 in this report, HI

revenues are projected to cover 89 percent of incurred program costs.

The illustrative alternative shown in the top line of figure I.1 assumes

that (i) there would be a transition from current-law

payment updates

A set of illustrative alternative Medicare projections has been prepared under a

hypothetical modification to current law. A summary of the projections under the

illustrative alternative is contained in section V.C of this report, and a more detailed

discussion is available at https://www.cms.gov/files/document/illustrative-alternative-

scenario-2023.pdf. Readers should not infer any endorsement of the policies represented

by the illustrative alternative by the Trustees, CMS, or the Office of the Actuary.

Section V.C also provides additional information on the uncertainties associated with

productivity adjustments to specific provider payment updates and the scheduled

physician payment updates.

Medicare’s annual payment rate updates for most categories of provider services would

be reduced below the increase in providers’ input prices by the growth in economy-wide

productivity (1.0 percent over the long range).

10%

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar year

Current Law

Illustrative Alternative

Introduction

for providers affected by the economy-wide productivity adjustments to

payment updates that reflect adjustments for health care productivity;

(ii) the average physician payment updates would transition from

current law

to payment updates that reflect the Medicare Economic

Index; and (iii) the bonuses for qualified physicians in advanced

alternative payment models (advanced APMs), which are expected to

end after 2025, and the $500-million payments for physicians in the

merit-based incentive payment system (MIPS), which are set to expire

after 2024, would both continue indefinitely. The difference between

the illustrative alternative and the current-law projections continues

to demonstrate that the long-range costs could be substantially higher

than shown throughout much of the report if the cost-reduction

measures prove problematic and new legislation scales them back.

As figure I.1 shows, Medicare’s costs under current law rise steadily

from their current level of 3.7 percent of GDP in 2022 to 6.0 percent in

2047. Costs then rise more slowly before leveling off at around

6.1 percent in the final 25 years of the projection period. Under the

illustrative alternative, projected costs would continue rising steadily

throughout the projection period, reaching 6.4 percent of GDP in 2047

and 8.3 percent in 2097.

As the preceding discussion explains, and as the substantial

differences between current-law and illustrative alternative

projections demonstrate, Medicare’s actual future costs are highly

uncertain for reasons apart from the inherent challenges in projecting

health care cost growth over time. The Board recommends that readers

interpret the current-law estimates in the report as the outcomes that

would be experienced under the Trustees’ economic and demographic

assumptions if the required cost-reduction provisions can be sustained

in the long range. Readers are encouraged to review section V.C for

further information on this important subject. The key financial

outcomes under the illustrative alternative scenario are shown with

the current-law projections throughout this report.

The law specifies physician payment rate updates of 0.75 percent or 0.25 percent

annually thereafter for physicians in advanced alternative payment models (advanced

APMs) or the merit-based incentive payment system (MIPS), respectively. These updates

are notably lower than the projected physician cost increases, which are assumed to

average 2.05 percent per year in the long range.

II. OVERVIEW

A. HIGHLIGHTS

The major findings of this report under the intermediate set of

assumptions appear below. The balance of the Overview and the

following Actuarial Analysis section describe these findings in more

detail.

In 2022

In 2022, Medicare covered 65.0 million people: 57.1 million aged 65

and older, and 7.9 million disabled. About 46 percent of these

beneficiaries have chosen to enroll in Part C private health plans that

contract with Medicare to provide Part A and Part B health services.

Total expenditures in 2022 were $905.1 billion, and total income was

$988.6 billion, which consisted of $980.7 billion in non-interest income

and $7.9 billion in interest earnings. Assets held in special issue U.S.

Treasury securities increased by $83.4 billion to $409.1 billion. The

significant increase in assets was due to lower actual expenditures

than estimated in last year’s report.

Short-Range Results

The estimated depletion date for the HI trust fund is 2031, 3 years later

than projected in last year’s report. As in past years, the Trustees have

determined that the fund is not adequately financed over the next

10 years. HI income is projected to be higher than last year’s estimates

because both the number of covered workers and average wages are

projected to be higher. HI expenditures are projected to be lower than

last year’s estimates through the short-range period mainly as a result

of updated expectations for health care spending following the

COVID-19 pandemic, as described in section I.

In 2022, HI income exceeded expenditures by $53.9 billion. The

Trustees project deficits beginning in 2025 and continuing until the

trust fund becomes depleted in 2031. The assets were $196.6 billion at

the beginning of 2023, representing about 49 percent of expenditures

projected for 2023, which is below the Trustees’ minimum

recommended level of 100 percent. The HI trust fund has not met the

Trustees’ formal test of short-range financial adequacy since 2003.

Growth in HI expenditures has averaged 2.9 percent annually over the

last 5 years, compared with non-interest income growth of 6.1 percent.

Over the next 5 years, projected average annual growth rates for

expenditures and non-interest income are 8.9 percent and 5.0 percent,

respectively.

Overview

The SMI trust fund is expected to be adequately financed over the next

10 years and beyond because income from premiums and government

contributions for Parts B and D—which are contributions of the

Federal Government that the law authorizes to be appropriated and

transferred from the general fund of the Treasury—are reset each year

to cover expected costs and ensure a reserve for Part B contingencies.

The monthly Part B premium for 2023 is $164.90.

Part B and Part D costs have averaged annual growth rates of

6.8 percent and 4.7 percent, respectively, over the last 5 years, as

compared to growth of 5.5 percent for the Gross Domestic Product

(GDP). The Trustees project that cost growth over the next 5 years will

average 9.7 percent for Part B and 6.2 percent for Part D, faster than

the projected average annual GDP growth rate of 4.3 percent over the

period.

As required by law, the Trustees are issuing a determination of

projected excess general revenue Medicare funding in this report

because the difference between Medicare’s total outlays and its

dedicated financing sources

is projected to exceed 45 percent of outlays

within 7 years. Since this determination was made last year as well,

this year’s determination triggers a Medicare funding warning, which

(i) requires the President to submit to Congress proposed legislation to

respond to the warning within 15 days after the submission of the

Fiscal Year 2025 Budget and (ii) requires Congress to consider the

legislation on an expedited basis. This is the seventh consecutive year

that a determination of excess general revenue Medicare funding has

been issued, and the sixth consecutive year that a Medicare funding

warning has been issued.

Long-Range Results

For the 75-year projection period, the HI actuarial balance has

increased to −0.62 percent of taxable payroll from −0.70 percent in last

year’s report. (Under the illustrative alternative projections, the HI

actuarial balance would be −1.46 percent of taxable payroll.) Several

factors contributed to the change in the actuarial balance, most notably

lower-than-estimated 2022 expenditures (+0.19 percent); changes to

private health plan assumptions (+0.05 percent); and changes in

growth assumptions for skilled nursing, home health, and hospice care

(+0.03 percent). These improvements are partially offset by changes to

hospital assumptions (−0.07 percent); changes to economic and

Dedicated financing sources consist of HI payroll taxes, the HI share of income taxes on

Social Security benefits, Part D State payments, Part B drug fees, and beneficiary

premiums.

Highlights

demographic assumptions (−0.08 percent); lower-than-estimated 2022

incurred payroll tax income and income from the taxation of Social

Security benefits (−0.03 percent); and other minor changes

(−0.01 percent).

Part B outlays were 1.8 percent of GDP in 2022, and the Board projects

that they will grow to about 3.5 percent by 2097 under current law.

The long-range projections as a percent of GDP are lower than those

projected last year because of (i) lower projected spending on physician-

administered drugs resulting from the price negotiation provisions of

the Inflation Reduction Act of 2022 (IRA) and (ii) updated expectations

with regard to the pandemic recovery. (Part B costs in 2097 would be

4.6 percent under the illustrative alternative scenario.)

The Board estimates that Part D outlays will increase from 0.5 percent

of GDP in 2022 to about 0.7 percent by 2097. The long-range

expenditure projections as a percent of GDP are lower in the current

report largely due to the projected impact of drug price negotiations

and other price growth constraints included in the provisions of the

IRA.

Government contributions, which are transfers from the general fund

of the Treasury, and premium income constitute the vast majority of

SMI income. General fund transfers finance about three-quarters of

SMI costs and are central to the automatic financial balance of the

fund’s two accounts. Such transfers represent a large and growing

requirement for the Federal budget. SMI government contributions

were 1.7 percent of GDP in 2022 and are projected to increase to

approximately 3.0 percent in 2097. (SMI government contributions in

2097 would be 3.8 percent under the illustrative alternative scenario.)

Conclusion

Total Medicare expenditures were $905 billion in 2022. The Trustees

project that expenditures will increase in future years at a faster pace

than either aggregate workers’ earnings or the economy overall and

that, as a percentage of GDP, spending will increase from 3.7 percent

in 2022 to 6.1 percent by 2097 (based on the Trustees’ intermediate set

of assumptions). Under the relatively higher price increases for

physicians and other health services assumed for the illustrative

alternative projection, Medicare spending would represent roughly

8.3 percent of GDP in 2097. Growth under either of these scenarios

would substantially increase the strain on the nation’s workers, the

economy, Medicare beneficiaries, and the Federal budget.

Overview

The Trustees project that HI tax income and other non-interest income

will fall short of HI incurred expenditures beginning in 2025. The HI

trust fund does not meet either the Trustees’ test of short-range

financial adequacy or their test of long-range close actuarial balance.

The Part B and Part D accounts in the SMI trust fund are expected to

be adequately financed because income from premiums and

government contributions are reset each year to cover expected costs.

Such financing, however, would have to increase faster than the

economy to cover expected expenditure growth.

The financial projections in this report indicate a need for substantial

changes to address Medicare’s financial challenges. The sooner

solutions are enacted, the more flexible and gradual they can be. The

early introduction of reforms increases the time available for affected

individuals and organizations—including health care providers,

beneficiaries, and taxpayers—to adjust their expectations and

behavior. The Trustees recommend that Congress and the executive

branch work closely together to expeditiously address these challenges.

Medicare Data

B. MEDICARE DATA FOR CALENDAR YEAR 2022

HI (Part A) and SMI (Parts B and D) have separate trust funds, sources

of revenue, and categories of expenditures. Table II.B1 presents

Medicare data for calendar year 2022, in total and for each part of the

program. For additional information, see section III.B for HI and

sections III.C and III.D for SMI.

For fee-for-service Medicare, the largest category of Part A

expenditures is inpatient hospital services, while the largest Part B

expenditure category is physician services. Payments to private health

plans for providing Part A and Part B services represented roughly

52 percent of total A and B benefit outlays in 2022.

Table II.B1.—Medicare Data for Calendar Year 2022

SMI

HI or Part A

Part B

Part D

Total

Assets at end of 2021 (billions)

$142.7

$163.3

$19.7

$325.7

Total income

$396.6

$467.6

$124.3

$988.6

Payroll taxes

352.8

—

352.8

Interest

4.1

3.6

0.1

7.9

Taxation of benefits

32.8

—

32.8

Premiums

4.8

131.3

17.6

153.7

Government contributions

1.1

329.7

92.4

423.2

Payments from States

—

13.7

Other

1.0

2.9

0.5

4.5

Total expenditures

$342.7

$436.7

$125.7

$905.1

Benefits

337.4

431.6

125.2

894.2

Hospital

142.6

63.0

—

205.5

Skilled nursing facility

28.3

—

28.3

Home health care

5.9

10.2

—

16.1

Physician fee schedule services

—

73.4

—

73.4

Private health plans (Part C)

169.3

234.0

—

403.3

Prescription drugs

—

125.2

Other

−8.6

51.1

—

42.4

Administrative expenses

5.3

5.1

0.5

11.0

Net change in assets

$53.9

$30.9

−$1.4

$83.4

Assets at end of 2022

$196.6

$194.2

$18.3

$409.1

Enrollment (millions)

Aged

56.7

52.2

44.8

57.1

Disabled

7.9

7.3

6.6

7.9

Total

64.7

59.5

51.4

65.0

Average benefit per enrollee

$5,217

$7,255

$2,437

$14,908

Includes repayments of $33.4 billion and $17.4 billion to Part A and Part B, respectively, for the Medicare

Accelerated and Advance Payments Program.

Note: Totals do not necessarily equal the sums of rounded components.

For HI, the primary source of financing is the payroll tax on covered

earnings. Employers and employees each pay 1.45 percent of a

worker’s wages, while self-employed workers pay 2.9 percent of their

net earnings. Starting in 2013, high-income workers pay an additional

0.9-percent tax on their earnings above an unindexed threshold

($200,000 for single taxpayers and $250,000 for married couples).

Overview

Other HI revenue sources include a portion of the Federal income taxes

that Social Security recipients with incomes above certain unindexed

thresholds pay on their benefits, as well as interest earned on the

securities held in the HI trust fund.

For SMI, transfers from the general fund of the Treasury represent the

largest source of income. The transfers covered about 75 percent of

program costs in 2022. Also, beneficiaries pay monthly premiums for

Parts B and D that finance a portion of the total cost. As with HI, the

securities held in the SMI trust fund earn interest.

Medicare Assumptions

C. MEDICARE ASSUMPTIONS

Future Medicare expenditures will depend on a number of factors,

including the size and composition of the population eligible for

benefits, changes in the volume and intensity of services, and increases

in the price per service. Future HI trust fund income will depend on

the size of the covered work force and the level of workers’ earnings,

and future SMI trust fund income will depend on projected program

costs. These factors will depend in turn upon future birth rates, death

rates, labor force participation rates, wage increases, and many other

economic and demographic factors affecting Medicare. To illustrate the

uncertainty and sensitivity inherent in estimates of future Medicare

trust fund operations, the Board has prepared current-law projections

under a low-cost and a high-cost set of economic and demographic

assumptions as well as under an intermediate set. In addition, the

Trustees asked the CMS Office of the Actuary to develop the

illustrative alternative projections to demonstrate the potential effect

on the Medicare financial status if certain current-law features are not

fully implemented in the future.

Table II.C1 summarizes the key assumptions used in this report. Many

of the demographic and economic variables that determine Medicare

costs and income are common to the Old-Age, Survivors, and Disability

Insurance (OASDI) program, and the OASDI annual report explains

these variables in detail. These variables include changes in the

Consumer Price Index (CPI) and wages, real interest rates, fertility

rates, mortality rates, and net immigration levels. (Real indicates that

the effects of inflation have been removed.) The assumptions vary, in

most cases, from year to year during the first 5 to 25 years before

reaching the ultimate values

assumed for the remainder of the 75-year

projection period.

The assumptions do not include economic cycles beyond the first 10 years.

Overview

Table II.C1.—Key Assumptions, 2047–2097

Intermediate

Low-Cost

High-Cost

Economic:

Annual percentage change in:

Gross Domestic Product (GDP) per capita

..............

3.7

4.8

2.5

Average wage in covered employment .....................

3.56

4.79

2.35

Private nonfarm business total factor productivity

...

1.0

—

Consumer Price Index (CPI) .....................................

2.4

3.0

1.8

Real-wage growth (percent) ..........................................

1.14

1.74

0.54

Real interest rate (percent) ...........................................

2.3

2.8

1.8

Demographic:

Total fertility rate (children per woman).........................

1.99

2.19

1.69

Annual percentage reduction in total

age-sex adjusted death rates ....................................

0.74

0.28

1.24

Net lawful permanent resident (LPR) immigration ........

788,000

1,000,000

595,000

Net other-than-LPR immigration ...................................

457,000

683,000

234,000

Health cost growth:

Annual percentage change in per beneficiary

Medicare expenditures (excluding demographic

impacts)

HI (Part A) ..................................................................

3.5

SMI Part B .................................................................

3.7

SMI Part D .................................................................

4.0

Total Medicare ...........................................................

3.7

The assumed ultimate increases in per capita GDP and per beneficiary Medicare expenditures can also

be expressed in real terms, adjusted to remove the impact of assumed inflation. When adjusted by the

chain-weighted GDP price index, assumed real per capita GDP growth under the intermediate

assumptions is 1.7 percent, and real per beneficiary Medicare cost growth is 1.4 percent, 1.6 percent, and

1.9 percent for Parts A, B, and D, respectively.

Private nonfarm business total factor productivity is published by the Bureau of Labor Statistics and is

used as the economy-wide private nonfarm business total factor productivity to adjust certain provider

payment updates.

See section III.B3 for further explanation of the Part A alternative (low-cost and high-cost) assumptions.

Long-range alternative projections are not prepared for Parts B and D.

Other assumptions are specific to Medicare. As with all of the

assumptions underlying the financial projections, the Trustees review

the Medicare-specific assumptions annually and update them based on

the latest available data and analysis of trends. In addition, the

assumptions and projection methodology are subject to periodic review

by independent panels of expert actuaries and economists. The most

recent completed review occurred with the 2016–2017 Technical

Review Panel on the Medicare Trustees Report.

Section IV.D describes the methodology used to derive the long-range

Medicare cost growth assumptions,

which reflect the annual percent

change in per beneficiary Medicare expenditures (excluding

demographic effects), for the following five categories of provider

services:

The Panel’s final report is available at https://aspe.hhs.gov/system/files/pdf/257821/

MedicareTechPanelFinalReport2017.pdf.

When Medicare cost growth rates are compared to the per capita increase in GDP, they

are characterized as GDP plus X percent.

Medicare Assumptions

(i) All HI, and some SMI Part B, services that are updated annually

by provider input price increases less the increase in economy-wide

productivity.

HI services are inpatient hospital, skilled nursing facility, home

health, and hospice. The primary Part B services affected are

outpatient hospital, home health, and dialysis. Under the

Trustees’ intermediate economic assumptions, the year-by-year

cost growth rates for these provider services start at 3.7 percent

in 2047, or GDP plus 0.1 percent, declining gradually to

3.4 percent in 2097, or GDP minus 0.3 percent.

(ii) Physician services

Payment rate updates are 0.75 percent per year for those qualified

physicians assumed to be participating in advanced alternative

payment models (advanced APMs) and 0.25 percent for those

assumed to be participating in the merit-based incentive payment

system (MIPS). The year-by-year cost growth rates for physician

payments are assumed to decline from 3.3 percent in 2047, or

GDP minus 0.3 percent, to 2.9 percent in 2097, or GDP minus

0.8 percent.

(iii) Certain SMI Part B services that are updated annually by the CPI

increase less the increase in productivity.

Such services include durable medical equipment that is not

subject to competitive bidding,

care at ambulatory surgical

centers, ambulance services, and medical supplies. The Trustees

assume the year-by-year cost growth rates for these services to

decline from 2.9 percent in 2047, or GDP minus 0.7 percent, to

2.6 percent in 2097, or GDP minus 1.1 percent.

(iv) The remaining Part B services, which consist mostly of physician-

administered drugs, laboratory tests, and small facility services.

Payments for these Part B services, which constitute an estimated

33 percent of total Part B expenditures in 2032, are established

through market processes and are not affected by the productivity

adjustments. For physician-administered Part B drugs, the key

inflation provisions in the Inflation Reduction Act (IRA) are not

anticipated to affect such payments over the long range. The long-

The portion of durable medical equipment that is subject to competitive bidding is

included with all other Medicare services since the price is determined by a competitive

bidding process. For more information on the bidding process, see section IV.B.

Overview

range cost growth rates for these services are assumed to equal

the growth rates as determined from the “factors contributing to

growth” model. The corresponding year-by-year cost growth rates

decline from 4.4 percent in 2047, or GDP plus 0.8 percent, to

4.1 percent by 2097, or GDP plus 0.4 percent.

(v) Prescription drugs provided through Part D.

Medicare payments to Part D plans are based on a competitive-

bidding process but are influenced by key provisions in the IRA

linking drug price growth to the rate of overall inflation. As a

result, they are assumed to grow over the long range slightly more

slowly than would be the case if they were determined strictly

through market processes. The corresponding year-by-year cost

growth rates decline from 4.2 percent in 2047, or GDP plus

0.6 percent, to 3.9 percent by 2097, or GDP plus 0.2 percent.

After combining the rates of growth from the four long-range

assumptions, the weighted average cost growth rate for Part B is

3.8 percent in 2047, or GDP plus 0.2 percent, declining to 3.7 percent

by 2097, or GDP plus 0.0 percent. When Parts A, B, and D are

combined, the weighted average cost growth rate for Medicare is

3.8 percent, or GDP plus 0.2 percent in 2047, declining to 3.6 percent,

or GDP minus 0.1 percent by 2097.

In addition, these cost growth rates must be modified to account for

demographic impacts, which reflect the changing distribution of the

Medicare population by age, sex, and time-to-death.

Those who are

closer to death have higher health spending, regardless of age. The

Trustees assume that as mortality rates for Medicare beneficiaries

continue to improve in the future, a smaller portion of the population

will be closer to death at a given age, which somewhat offsets the effect

of individuals getting older and spending more on health care. This is

particularly the case for Part A services—such as inpatient hospital,

skilled nursing, and home health services—for which the distribution

of spending is more concentrated in the period right before death. For

Part B services and Part D, the incorporation of the time-to-death

adjustment has a smaller effect.

As in the past, the Trustees establish detailed growth rate assumptions

for the initial 10 years (2023 through 2032) by individual type of

service (for example, inpatient hospital care and physician services).

More information on the time-to-death adjustment is available at

https://www.cms.gov/files/document/incorporation-time-death-medicare-demographic-

assumptions.pdf.

Medicare Assumptions

These assumptions reflect recent trends and the impact of all

applicable statutory provisions. For each of Parts A, B, and D, the

assumed cost growth rates for years 11 through 25 of the projection

period (adjusted to reflect discontinuities in yearly payment policies)

are set by interpolating between the rate at the end of the short-range

projection period and the rate at the start of the last 50 years of the

long-range period described above. The 2016–2017 Medicare Technical

Review Panel concluded that both the current length of the transition

period and the current approach to the transition are reasonable, and

they recommended that the Trustees continue to use the same

approach to transition between short-range and long-range projections

for both HI and SMI.

The basis for the Medicare cost growth rate assumptions, described

above, has been chosen primarily to incorporate the productivity

adjustments and the physician payment structure in a relatively

simple, straightforward manner and with the assumption that these

elements of current law will operate in all future years as specified.

The Trustees use this approach in part due to the uncertainty

associated with these provisions and in part due to the difficulty of

modeling such consequences as access to care, health status, and

utilization if these provisions of current law do not operate as

intended.

They have incorporated the effects of changes in payment

mechanisms, delivery systems, and other aspects of health care that

have been implemented recently, including modest savings from

accountable care organizations. However, they have not considered the

possible effects of future changes that could arise in response to the

payment limitations or future innovative payment models, nor have

they taken into account the potential effects of sustained slower

payment increases on provider participation, beneficiary access to care,

quality of services, and other factors.

Consistent with the practice in recent reports, a set of illustrative

alternative Medicare projections has been developed. This information

is presented in section V.C. An actuarial memorandum on the

illustrative alternative is available on the CMS website.

The

illustrative alternative projection assumes that (i) there would be a

transition from current-law payment updates for providers affected by

the economy-wide productivity adjustments to payment updates that

See Findings 6-2 and 6-3 and Recommendation 6-1.

For a detailed discussion of uncertainty, see section V.C.

The 2016–2017 Medicare Technical Review Panel considered these issues at some

length. Their final report contains a discussion of the delivery system changes to date

and the impact on the Medicare projections.

See https://www.cms.gov/files/document/illustrative-alternative-scenario-2023.pdf.

Overview

reflect adjustments for health care productivity; (ii) the average

physician payment updates would transition from current law to

payment updates that reflect the Medicare Economic Index; and

(iii) the bonuses for qualified physicians in advanced APMs, which are

expected to end after 2025, and the $500-million payments for

physicians in MIPS, which are set to expire after 2024, would both

continue indefinitely. The transition from current law to the ultimate

illustrative alternative assumptions starts at the same dates that were

assumed in last year’s report. The year-by-year cost growth rate

assumptions for HI and SMI Part B under the illustrative alternative

projections decline from approximately 4.4 percent in 2047, or GDP

plus 0.8 percent, to 4.1 percent by 2097, or GDP plus 0.4 percent. On

average over this period, the growth rate of per beneficiary

expenditures for these services is equal to the growth rate for per

capita national health expenditures, as described previously (in the

fourth category of provider services) for other Medicare services for

which price updates are based on market processes.

For the HI low-cost and high-cost projections, Medicare expenditures

are determined by changing the assumption for the ratio of aggregate

costs to taxable payroll (the cost rate). These changes are intended to

provide an indication of how Medicare expenditures could vary in the

future as a result of different economic, demographic, and health care

trends.

For the HI high-cost assumptions, the assumed annual

increase in the cost rate during the initial 25-year period is

2 percentage points greater than under the intermediate assumptions.

Under the low-cost assumptions, the assumed annual rate of increase

in the cost rate for the initial period is 2 percentage points less than

under the intermediate assumptions. The Trustees assume that, after

25 years, the 2-percentage-point differentials will decline gradually to

zero in 2072, after which the growth in cost rates is the same under all

three sets of assumptions.

While it is possible that actual economic, demographic, and health cost-

growth experience will fall within the range defined by the three

alternative sets of assumptions, there can be no assurances that it will

do so in light of the wide variations in these factors over past decades.

In general, readers can place a greater degree of confidence in the

assumptions and estimates for the earlier years than for the later

years. Nonetheless, even for the earlier years, the estimates are only

an indication of the expected trends and the general ranges of future

Under the automatic financing provisions for the SMI programs, Parts B and D will be

adequately financed. Accordingly, the Trustees have not conducted high-cost and

low-cost analyses of the general fund transfers.

Medicare Assumptions

Medicare experience. Also, as a result of the uncertain long-range

adequacy of physician payments and payments affected by the

statutory productivity adjustments, actual future Medicare

expenditures could exceed the intermediate projections shown in this

report, possibly by large amounts. Reference to key results under the

illustrative alternative projection demonstrates this potential

understatement.

Overview

D. FINANCIAL OUTLOOK FOR THE MEDICARE PROGRAM

This report evaluates the financial status of the HI and SMI trust

funds. For HI, the Trustees apply formal tests of financial status for

both the short range and the long range; for SMI, the Trustees assess

the ability of the trust fund to meet incurred costs over the period for

which financing has been set.

HI and SMI are financed in very different ways. Within SMI, current

law provides for the annual determination of Part B and Part D

beneficiary premiums and government contributions to cover expected

costs for the following year. In contrast, HI is subject to substantially

greater variation in asset growth, since employee and employer tax

rates under current law do not change or adjust to meet expenditures

except through new legislation.

Despite the significant differences in benefit provisions and financing,

the two components of Medicare are closely related. HI and SMI

operate in an interdependent health care system. Most Medicare

beneficiaries are enrolled in HI and SMI Parts B and D, and many

receive services from all three. Accordingly, efforts to improve and

reform either component must necessarily have repercussions for the

other component. In view of the anticipated growth in Medicare

expenditures, it is also important to consider the distribution among

the various sources of revenues for financing Medicare and the manner

in which this distribution will change over time.

This section reviews the projected total expenditures for the Medicare

program, along with the primary sources of financing. Figure II.D1

shows projected costs as a percentage of GDP. Medicare expenditures

represented 3.7 percent of GDP in 2022. Under current law, costs

increase to 6.0 percent of GDP by 2047, largely due to the rapid growth

in the number of beneficiaries, and then to 6.1 percent of GDP in 2097,

with growth in health care cost per beneficiary becoming the larger

factor later in the valuation period, particularly for Part D costs, which

are not affected by legislated price reductions. (If the payment update

constraints were phased down as in the illustrative alternative

projections, then Medicare expenditures would reach an estimated

8.3 percent of GDP in 2097.)

Medicare Financial Outlook

Figure II.D1.—Medicare Expenditures as a Percentage

of the Gross Domestic Product

Note: Percentages are affected by economic cycles.

Table II.D1 shows five components of Medicare expenditure growth

over three valuation periods: (i) growth of overall prices as measured

by the CPI; (ii) growth of Medicare prices relative to growth in the CPI;

(iii) growth in the number of beneficiaries; (iv) change in the

demographic composition of the beneficiaries; and (v) change in the

volume and intensity of services. The price growth for Part A is

projected to be below CPI growth initially, close to CPI growth in the

2033–2047 period, and below in the long run, and for Part B it is

projected to be below CPI growth during each of the three valuation

periods. As discussed in section IV.D, prices for all of Part A and some

of Part B are constrained by the payment updates specified under

current law, and Part B prices are further constrained by the current-

law physician payment updates. For all parts of Medicare, growth in

the number of beneficiaries is highest over the next 10 years, as the

baby boom generation continues to enter Medicare, and slows

continually thereafter.

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar year

Total

Part B

Part D

Overview

Table II.D1.—Components of Increase in Medicare Incurred Expenditures by Part

[In percent]

Average annual percentage change

Prices

Valuation

period

CPI

Medicare

relative to

CPI

Overall

Medicare

Number of

beneficiaries

Beneficiary

demographic

mix

Volume and

intensity

Total

increase

Part A:

2023–2032

3.2 %

−0.2 %

3.0 %

1.9 %

0.1 %

1.8 %

7.0 %

2033–2047

2.4

0.1

2.5

0.6

0.4

1.3

4.8

2048–2097

2.4

−0.2

2.2

0.5

−0.1

1.3

3.9

Part B:

2023–2032

3.2

−1.1

2.0

0.1

4.2

8.5

2033–2047

2.4

−0.3

2.1

0.6

0.0

2.7

5.5

2048–2097

2.4

−0.2

2.2

0.5

−0.1

1.5

4.2

Part D:

2023–2032

3.2

2.4

−0.2

5.8

2033–2047

2.4

0.6

−0.2

4.3

2048–2097

2.4

0.5

−0.1

4.5

Volume and intensity and price components are not available for Part D due to the current methodology

used to incorporate the provisions of the Inflation Reduction Act of 2022.

Notes: 1. Price reflects annual updates, total factor productivity reductions, and any other reductions

required by law or regulation.

2. Volume and intensity is the residual after the other four factors shown in the table (CPI, excess

Medicare price, number of beneficiaries, and beneficiary demographic mix) are removed.

3. Totals do not necessarily equal the sums of rounded components.

Most beneficiaries have the option to enroll in private health insurance

plans that contract with Medicare to provide Part A and Part B medical

services. The share of Medicare beneficiaries in such plans has risen

rapidly in recent years; it reached 46 percent in 2022 from 12.8 percent

in 2004. Payments to Medicare Advantage plans are based on

benchmarks that range from 95 to 115 percent of local fee-for-service

Medicare costs, with bonus amounts payable for plans meeting high

quality-of-care standards. The Trustees project that the overall

participation rate for private health plans will continue to increase—

from about 49 percent in 2023 to about 56 percent in 2032 and

thereafter.

Figure II.D2 shows the past and projected amounts of Medicare

revenues under current law excluding interest income, which will not

be a significant part of program financing in the long range as trust

fund assets decline. The figure compares total Medicare expenditures

to Medicare non-interest income—from HI payroll taxes, HI income

from the taxation of Social Security benefits, HI and SMI premiums,

SMI Part D State payments for certain Medicaid beneficiaries, fees on

manufacturers and importers of brand-name prescription drugs

(allocated to Part B), and HI and SMI general fund transfers. The

For more detail on the Medicare Advantage program, see section IV.C.

Medicare Financial Outlook

Trustees expect total Medicare expenditures to exceed non-interest

revenue for all future years.

Figure II.D2.—Medicare Sources of Non-Interest Income and Expenditures

as a Percentage of the Gross Domestic Product

Note: Percentages are affected by economic cycles.

As shown in figure II.D2, for most of the historical period, payroll tax

revenues increased steadily as a percentage of GDP due to increases in

the HI payroll tax rate and in the limit on taxable earnings, the latter

of which lawmakers eliminated in 1994. Beginning in 2013, the HI

trust fund receives an additional 0.9-percent tax on earnings in excess

of a threshold amount.

The Trustees project that, as a result of this

provision, payroll taxes will grow slightly faster than GDP.

Beginning

in 2022, HI revenue from income taxes on Social Security benefits is

Current law also specifies that individuals with incomes greater than $200,000 per

year and couples above $250,000 pay an additional Medicare contribution of 3.8 percent

on some or all of their non-work income (such as investment earnings). However, the

revenues from this tax are not allocated to the Medicare trust funds.

Although the Trustees expect total worker compensation to grow at the same rate as

GDP after the first 10 years of the projection, wages and salaries are projected to increase

more slowly than fringe benefits (health insurance costs in particular). Thus, projected

taxable earnings (wages and salaries) gradually decline as a percentage of GDP. Absent

any change to the tax rate scheduled under current law, HI payroll tax revenue would

similarly decrease as a percentage of GDP. Over time, however, a growing proportion of

workers will have earnings that exceed the fixed earnings thresholds specified in the law

($200,000 and $250,000), and an increasing portion of taxable earnings will therefore

become subject to the additional 0.9-percent HI payroll tax. The net effect of these factors

is an increasing trend in payroll taxes as a percentage of GDP.

1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 2066 2076 2086 2096

Calendar year

Historical

Payroll taxes

Tax on OASDI benefits

Premiums

General revenue

transfers

Total expenditures

Deficit

State payments and drug fees

Estimated

Overview

expected to gradually increase as a share of GDP as the share of

benefits subject to such taxes increases.

The Trustees expect growth in SMI Part B and Part D premiums and

transfers from the general fund of the Treasury to continue to outpace

GDP growth and HI payroll tax growth in the future. This phenomenon

occurs primarily because SMI revenue increases at the same rate as

expenditures, whereas HI revenue does not. Accordingly, as the HI

sources of revenue become increasingly inadequate to cover HI costs,

SMI revenues will represent a growing share of total Medicare

revenues. Government contributions are projected to gradually

increase from 43 percent of Medicare financing in 2022 to about

49 percent in 2040, stabilizing thereafter. Growth in these

contributions as a share of GDP adds significantly to the Federal

budget pressures. SMI premiums will also increase at the same rate as

SMI expenditure growth, placing a growing burden on beneficiaries.

High-income beneficiaries have paid an income-related premium for

Part B since 2007 and for Part D since 2011.

The interrelationship between the Medicare program and the Federal

budget is an important topic—one that will become increasingly

critical over time as the general fund requirements for SMI continue to

grow. Transfers from the general fund of the Treasury are the major

source of financing for the SMI trust fund and are central to the

automatic financial balance of the fund’s two accounts, while

representing a large and growing requirement for the Federal budget.

SMI government contributions equaled 1.7 percent of GDP in 2022 and

will increase to an estimated 3.0 percent in 2097 under current law.

Moreover, in the absence of legislation to address the financial

imbalance, interest earnings on trust fund assets and redemption of

those assets will cover the difference between HI dedicated revenues

and expenditures until 2031.

In 2030, this funding shortfall for the

HI trust fund represents 0.2 percent of GDP. Section V.F describes the

interrelationship between the Federal budget and the Medicare and

Social Security trust funds; it illustrates the programs’ long-range

financial outlook from both a trust fund perspective and a budget

perspective.

Federal law requires that the Trustees issue a determination of excess

general revenue Medicare funding if they project that under current

See section V.C7 of the 2023 OASDI Trustees Report for more detailed information on

the projection of income from taxation of Social Security benefits.

After asset depletion in 2031, as described in section II.E, no provision exists to use

transfers from the general fund of the Treasury or any other means to cover the HI

deficit.

Medicare Financial Outlook

law the difference between program outlays and dedicated financing

sources

will exceed 45 percent of Medicare outlays within the first

7 fiscal years of the projection. For this year’s report, the difference

between program outlays and dedicated revenues is expected to exceed

45 percent in fiscal year 2025, and therefore the Trustees are issuing

this determination. (Section V.B contains additional details on these

tests.) Since this determination was made last year as well, this year’s

determination triggers a Medicare funding warning, which (i) requires

the President to submit to Congress proposed legislation to respond to

the warning within 15 days after the submission of the Fiscal

Year 2025 Budget and (ii) requires Congress to consider the legislation

on an expedited basis. Such funding warnings were previously issued

in each of the 2007 through 2013 reports and in the 2018 through 2022

reports.

This section has summarized the total financial obligation posed by

Medicare and the manner in which it is financed. However, the HI and

SMI components of Medicare have separate and distinct trust funds,

each with its own sources of revenues and mandated expenditures.

Accordingly, it is necessary to assess the financial status of each

Medicare trust fund separately. Sections II.E and II.F present such

assessments for the HI trust fund and the SMI trust fund, respectively.

The dedicated financing sources are HI payroll taxes, the HI share of income taxes on

Social Security benefits, Part B receipts from the fees on manufacturers and importers

of brand-name prescription drugs, Part D State payments, and beneficiary premiums.

These sources are the first four layers depicted in figure II.D2.

Overview

E. FINANCIAL STATUS OF THE HI TRUST FUND

1. 10-Year Actuarial Estimates (2023–2032)

Expenditures from the HI trust fund exceeded income each year from

2008 through 2015. In 2016 and 2017, however, there were fund

surpluses amounting to $5.4 billion and $2.8 billion, respectively. In

2018, 2019, and 2020, expenditures again exceeded income, with trust

fund deficits of $1.6 billion, $5.8 billion, and $60.4 billion, respectively.

The large deficit in 2020 was mostly due to accelerated and advance

payments to providers from the trust fund. In 2021, there was a small

surplus of $8.5 billion as these payments began to be repaid to the trust

fund, and this continued repayment resulted in a larger surplus in

2022 of $53.9 billion. Deficits are projected to return beginning in 2025

and to persist for the remainder of the projection period, requiring

redemption of trust fund assets until the trust fund’s depletion in 2031.

Table II.E1 presents the projected operations of the HI trust fund

under the intermediate assumptions for the next decade. At the

beginning of 2023, HI assets represented 49 percent of annual

expenditures. This ratio has declined from 150 percent since 2007. The

Board has recommended an asset level at least equal to annual

expenditures, to serve as an adequate contingency reserve in the event

of adverse economic or other conditions.

The Trustees apply an explicit test of short-range financial adequacy,

described in section III.B2 of this report. Based on the 10-year

projection shown in table II.E1, the HI trust fund does not meet this

test because estimated assets are below 100 percent of annual

expenditures and are not projected to attain this level under the

intermediate assumptions. This outlook indicates the need for prompt

legislative action to achieve financial adequacy for the HI trust fund

throughout the short-range period.

HI Financial Outlook

Table II.E1.—Estimated Operations of the HI Trust Fund

under Intermediate Assumptions, Calendar Years 2022–2032

[Dollar amounts in billions]

Calendar year

Total income

Total

expenditures

Change in

fund

Fund at year end

Ratio of assets to

expenditures

2022

$396.6

$342.7

$53.9

$196.6

42%

2023

406.9

401.8

5.1

201.7

2024

427.1

421.9

5.2

206.8

2025

452.5

453.0

−0.5

206.3

2026

479.7

487.3

−7.6

198.7

2027

508.0

524.7

−16.7

181.9

2028

533.4

563.9

−30.5

151.4

2029

559.1

606.6

−47.5

103.9

2030

584.9

648.0

−63.1

40.8

2031

612.1

691.5

−79.3

−38.5

2032

639.3

737.3

−97.9

−136.5

Includes interest income.

Ratio of assets in the fund at the beginning of the year to expenditures during the year.

Figures for 2022 represent actual experience.

Includes net repayments of $33.4 billion and $1.1 billion in calendar years 2022 and 2023, respectively,

for the Medicare Accelerated and Advance Payments Program.

Estimates for 2031 and later are hypothetical since the HI trust fund would be depleted in those years.

Trust fund reserves would be depleted at the beginning of this year.

Note: Totals do not necessarily equal the sums of rounded components.

The short-range financial outlook for the HI trust fund is more

favorable than the projections in last year’s annual report. HI income

is projected to be higher throughout the projection period because both

the number of covered workers and average wages are projected to be

higher. HI expenditures are projected to be lower through the short-

range period mainly as a result of updated expectations for health care

spending following the COVID-19 pandemic, as described in section I.

Under the intermediate assumptions, after 2023 the assets of the HI

trust fund would steadily decrease as a percentage of annual

expenditures throughout the remainder of the short-range projection

period, as illustrated in figure II.E1. The ratio declines until the fund

is depleted in 2031, 3 years later than projected last year. If assets were

depleted, Medicare could pay health plans and providers of Part A

services only to the extent allowed by ongoing tax revenues—and these

revenues would be inadequate to fully cover costs. Beneficiary access

to health care services could rapidly be curtailed. To date, Congress

has never allowed the HI trust fund to become depleted.

Overview

Figure II.E1.—HI Trust Fund Balance at Beginning of Year as a Percentage

of Annual Expenditures

There is substantial uncertainty in the economic, demographic, and

health care projection factors for HI trust fund expenditures and

revenues. Accordingly, the date of HI trust fund depletion could differ

substantially in either direction from the 2031 intermediate estimate.

As shown in greater detail in section III.B, trust fund assets would

increase throughout the entire projection period under the low-cost

assumptions. Under the high-cost assumptions, however, asset

depletion would occur in 2027.

2. 75-Year Actuarial Estimates (2023–2097)

Each year, the Board prepares 75-year estimates of the financial and

actuarial status of the HI trust fund. Although financial outcomes are

inherently uncertain, particularly over periods as long as 75 years,

such estimates are helpful for assessing the trust fund’s long-term

financial condition.

Due to the difficulty in comparing dollar values for different periods

without some type of relative scale, the Trustees show income and

expenditure amounts relative to the earnings in covered employment

that are taxable under HI (referred to as taxable payroll). The ratio of

HI income (including payroll taxes, income from taxation of Social

Security benefits, premiums, general fund transfers for uninsured

beneficiaries, and monies from fraud and abuse control activities, but

50%

100%

150%

200%

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Beginning of January

Estimated

Historical

HI Financial Outlook

excluding interest income) to taxable payroll is called the income rate,

and the ratio of expenditures to taxable payroll is the cost rate.

The standard HI payroll tax rate is scheduled to remain constant at

2.90 percent (for employees and employers, combined). In addition,

starting in 2013, high-income workers pay an additional 0.9 percent of

their earnings above $200,000 (for single workers) or $250,000 (for

married couples filing joint income tax returns). Since income

thresholds for determining eligibility for the additional HI tax are not

indexed, over time an increasing proportion of workers and their

earnings will become subject to a higher HI tax rate. (By the end of the

long-range projection period, an estimated 80 percent of workers would

be subject to this additional tax.) Thus, HI payroll tax revenues will

increase steadily as a percentage of taxable payroll. Similarly, HI

income from taxation of Social Security benefits will also increase

faster than taxable payroll because the income thresholds determining

taxable benefits are not indexed for inflation and because the income

tax brackets are indexed to the chained CPI (C-CPI-U), which

increases at a slower rate than average wages. After the 10th year of

the projection period, income tax brackets are assumed to rise with

average wages, rather than with the C-CPI-U as specified in the

Internal Revenue Code. As a result of this assumption, income from

the taxation of Social Security benefits increases at a similar rate as,

rather than significantly faster than, taxable payroll.

The cost rate has mostly been declining over the last decade largely

due to expenditure growth that was constrained in part by low

utilization and low payment updates. The cost rate increased in 2019,

as taxable payroll growth slowed, and in 2020, as taxable payroll

growth slowed because of the pandemic, but then it declined again in

2021 and 2022 as a result of a decrease in expenditures attributable to

the impact of the pandemic. In 2023 and beyond, the cost rate is

projected to rise primarily due to the continued retirements of those in

the baby boom generation and partly due to an acceleration of health

services cost growth. This cost rate increase is moderated by the

accumulating effect of the productivity adjustments to provider price

updates, which are estimated to reduce annual HI per capita cost

growth by an average of 0.5 percent through 2032 and 1.0 percent

thereafter. After 25, 50, and 75 years, for example, the prices paid to

HI providers under current law would be 17 percent, 35 percent, and

The Trustees estimate these costs on an incurred basis.

See section V.C7 of the 2022 OASDI Trustees Report for more detailed information on

the projection of income from taxation of Social Security benefits.

Overview

50 percent lower, respectively, than prices absent the productivity

reductions.

Figure II.E2 shows projected income and cost rates under the

intermediate assumptions. As indicated, estimated HI incurred

expenditures continue to exceed non-interest income for all projected

years. (The projected excess of costs over non-interest income until

2031 is covered by interest earnings and the redemption of trust fund

assets.)

The HI cost rate increases more rapidly than the income rate through

about 2046. The projected annual deficits expressed as a share of

taxable payroll increase from 0.05 percent in 2025 to a high of

0.92 percent in 2045 and then gradually decrease to 0.19 percent by

the end of the projection period. The convergence of growth rates for

income and costs reflects the continuing effects of slower payment rate

updates, assumed decelerating growth in the volume and intensity of

services, and the increasing portion of earnings that are subjected to

the additional 0.9-percent payroll tax. The percentage of expenditures

covered by non-interest income is projected to decrease from 89 percent

in 2031 to 81 percent in 2047 and then to increase to about 96 percent

by the end of the projection period. (Under the illustrative alternative,

the expenditures covered by non-interest income are projected to

decline from 89 percent in 2031 to 76 percent in 2047 and then to

decrease to about 64 percent by the end of the projection period.)

HI Financial Outlook

Figure II.E2.—Long-Range HI Non-Interest Income and Cost as a Percentage

of Taxable Payroll, Intermediate Assumptions

It is possible to summarize the year-by-year cost rates and income

rates shown in figure II.E2 into single values

representing, in effect,

the average value over a given period. Based on the intermediate

assumptions, the Trustees project an HI actuarial deficit of

0.62 percent of taxable payroll for the 75-year period under current

law, which represents the difference between the summarized income

rate of 4.05 percent and the corresponding cost rate of 4.67 percent. As

a result, the HI trust fund fails the Trustees’ test for long-range

financial balance, as it has every year since 1991 when this test was

first applied. (Under the illustrative alternative projections, the long-

range HI deficit would be 1.46 percent of payroll.)

The following two examples illustrate the magnitude of the changes

needed to eliminate the deficit. For the HI trust fund to remain solvent

throughout the 75-year projection period, (i) the standard 2.90-percent

payroll tax could be immediately increased by the amount of the

actuarial deficit to 3.52 percent, or (ii) expenditures could be reduced

See section III.B3 for details on the summarized income and cost rates.

1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 2087 2097

Calendar year

Cost rate

Income rate

Income rate (Payable benefits)

Payable benefits as a

percentage of cost:

2022–30: 100%

2031: 89%

2047: 81%

2097: 96%

Overview

immediately by 13 percent.

More realistically, the tax and/or

benefit changes could occur gradually but would require ultimate

adjustments that would be higher than adjustments that were done

immediately. Lawmakers have many options to address the long-range

financial imbalance.

The projected HI cost rates shown in this report are lower than those

from the 2022 report for all years because of (i) lower health care

utilization through 2032 due to updated expectations for health care

spending following the COVID-19 pandemic, as described in section I,

and (ii) higher taxable payroll in most years resulting from the

changing economic and demographic assumptions.

Under the illustrative alternative projection, the corresponding immediate changes

would be (i) an increase from 2.90 percent to 4.36 percent in the standard tax rate or

(ii) a decrease in expenditure levels of 26 percent.

Under the two examples for addressing the actuarial deficit, tax income would initially

be substantially greater than expenditures, and trust fund assets would accumulate

rapidly. Subsequently, however, tax income would be inadequate, and assets would be

drawn down to cover the difference. This example illustrates that if lawmakers designed

legislative solutions to eliminate only the 75-year actuarial deficit, without consideration

of such year-by-year patterns, then a substantial financial imbalance could still remain

at the end of the period, and the long-range sustainability of the program could still be

in doubt.

SMI Financial Outlook

F. FINANCIAL STATUS OF THE SMI TRUST FUND

SMI comprises two parts, Part B and Part D, each with its own

separate account within the SMI trust fund. The Trustees must

determine the financial status of the SMI trust fund by evaluating the

financial status of each account separately, since there is no provision

in the law for transferring assets or income between the Part B and

Part D accounts. The nature of the financing for both parts of SMI is

similar in that the law establishes a mechanism by which income from

the Part B premium and the Part D premium, and the corresponding

general fund transfers for each part, are sufficient to cover the

following year’s estimated expenditures. Accordingly, each account

within SMI is automatically in financial balance under current law.

Parts B and D differ fundamentally from HI and OASDI in regard to

the nature of their financing and the method by which their financial

status is evaluated. Both parts of SMI are voluntary and are mostly

financed by premiums from participants and contributions from the

general fund of the Treasury. OASDI and HI are generally compulsory

and are primarily financed from payroll taxes. The financial

assessment of the SMI program in this section therefore differs in

important ways from that for OASDI or HI.

1. 10-Year Actuarial Estimates (2023–2032)

Table II.F1 shows the estimated operations of the Part B account, the

Part D account, and the total SMI trust fund under the intermediate

assumptions during calendar years 2022 through 2032. For Part B,

expenditures grew at an average annual rate of 6.8 percent over the

past 5 years, exceeding GDP growth by 1.3 percentage points annually,

on average. Estimated Part B cost increases average about 9.7 percent

over the next 5 years, faster than the GDP growth rate of 4.4 percent.

Overview

Table II.F1.—Estimated Operations of the SMI Trust Fund

under Intermediate Assumptions, Calendar Years 2022–2032

[Dollar amounts in billions]

Calendar year

Total income

Total expenditures

Change in fund

Fund at year end

Part B account:

2022

$467.6

$436.7

$30.9

$194.2

2023

484.0

493.4

−9.4

184.8

2024

534.2

535.8

−1.6

183.2

2025

588.9

583.1

5.8

189.0

2026

649.7

635.8

13.9

202.9

2027

699.6

694.7

4.9

207.8

2028

768.6

758.0

10.6

218.4

2029

838.5

822.4

16.1

234.5

2030

901.5

884.3

17.2

251.6

2031

970.9

952.2

18.8

270.4

2032

1,044.9

1,023.2

21.8

292.2

Part D account:

2022

124.3

125.7

−1.4

18.3

2023

122.9

130.1

−7.1

11.2

2024

140.7

139.3

1.4

12.6

2025

153.1

152.5

0.7

13.3

2026

162.5

162.1

0.4

13.6

2027

169.9

169.6

0.2

13.9

2028

174.5

174.0

0.5

14.3

2029

183.7

183.2

0.5

14.8

2030

191.5

191.0

0.5

15.3

2031

197.2

196.5

0.7

16.0

2032

207.3

206.6

0.8

16.8

Total SMI:

2022

591.9

562.4

29.5

212.6

2023

606.9

623.4

−16.6

196.0

2024

674.9

675.1

−0.2

195.8

2025

742.0

735.6

6.4

202.2

2026

812.2

798.0

14.3

216.5

2027

869.5

864.3

5.2

221.7

2028

943.0

932.0

11.0

232.7

2029

1,022.3

1,005.7

16.6

249.3

2030

1,092.9

1,075.3

17.7

266.9

2031

1,168.1

1,148.6

19.5

286.4

2032

1,252.2

1,229.7

22.5

309.0

Includes interest income.

Figures for 2022 represent actual experience.

Includes repayments of $21.7 billion and $1.9 billion in calendar years 2022 and 2023, respectively, from

Part B to the general fund of the Treasury for the Medicare Accelerated and Advance Payments (AAP)

Program.

Includes net repayments of $17.4 billion and $0.4 billion in calendar years 2022 and 2023, respectively,

from providers to Part B for the AAP program.

Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits

when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those

benefits normally due January 3, 2027 will occur on December 31, 2026. Consequently, the Part B and

Part D premiums withheld from these benefits and the associated Part B government contributions will be

added to the respective Part B (about $6.1 billion) or Part D (about $0.2 billion) account on

December 31, 2026.

Due to the nature of Part B financing, Part B income growth is

normally quite close to expenditure growth. The financing for 2023 was

set to ensure that the assets held in the Part B account would be within

SMI Financial Outlook

the customary range by the end of 2023.

The projected short-range

Part B expenditures shown in table II.F1 reflect the expected impact

of the pandemic, including the effects of the Accelerated and Advance

Payments Program and the changes in the utilization of services.

For the Part D account, the Trustees project that income and

expenditures will grow at an average annual rate of 6.2 percent over

the 5-year period 2023–2027, mainly due to expected increases in

enrollment and an expansion of benefits under the Part D benefit

redesign in 2025. The impact of the benefit expansion will be partially

offset by a reduction in per capita drug cost growth resulting from price

negotiations. Compared with last year’s report, income and

expenditures will be higher starting in 2024, partially because of the

implementation of a pharmacy price concessions policy

and partly

due to the redesign of Part D benefits mentioned previously. As with

Part B, income and outgo would remain in balance as a result of the

annual adjustment of income from premiums and general fund

transfers to cover costs. The appropriation for Part D government

contributions has generally been set such that amounts can be

transferred to the Part D account on an as-needed basis; under this

process, there is no need to maintain a contingency reserve. The Part D

account reflects a policy to transfer amounts from the Treasury into

the account 5 business days before the benefit payments to the plans.

The projected Part D costs for the short-range period shown in

table II.F1 and elsewhere in this report are slightly higher than those

in the 2022 report primarily because the impact of the implementation

of the pharmacy price concessions policy slightly outweighs the impact

from the Inflation Reduction Act (IRA).

The primary test of financial adequacy for Parts B and D pertains to

the level of the financing established for a given period (normally,

through the end of the current calendar year). The financing for each

part of SMI is considered satisfactory if it is sufficient to fund all

services, including benefits and administrative expenses, provided

through a given period. In addition, to protect against the possibility

that cost increases under either part of SMI will be higher than

The traditional measure used to evaluate the status of the Part B account of the SMI

trust fund is defined as the ratio of the excess of Part B assets over Part B liabilities to

the next year’s Part B incurred expenditures. The customary range for this ratio is 15 to

20 percent, and the minimally financially adequate level is 14 percent; the CMS Office

of the Actuary developed these amounts based on private health insurance standards

and past studies indicating that this asset reserve level is sufficient to protect against

adverse events.

See https://www.govinfo.gov/content/pkg/FR-2022-05-09/pdf/2022-09375.pdf.

Overview

expected, the accounts of the trust fund would normally need assets

adequate to cover a reasonable degree of variation between actual and

projected costs. For Part B, the Trustees estimate that the financing

established through December 2023 will be sufficient to cover benefits

and administrative costs incurred through that time period, and they

estimate that assets will be adequate to cover potential variations in

costs as a result of new legislation or cost growth factors that exceed

expectations. The estimated financing established for Part D, together

with the flexible appropriation authority for this trust fund account,

would be sufficient to cover benefits and administrative costs incurred

through 2023.

The amount of the contingency reserve needed in Part B is normally

much smaller (both in absolute dollars and as a fraction of annual

costs) than in HI or OASDI. A smaller reserve is adequate because the

premium rate and corresponding general fund transfers for Part B are

determined annually based on estimated future costs, while the HI and

OASDI payroll tax rates are fixed under law and are therefore much

more difficult to adjust should circumstances change. A statutory

competitive bidding process establishes Part D revenues annually to

cover estimated costs. Moreover, the flexible appropriation authority

established by lawmakers for Part D allows additional general fund

financing if costs are higher than anticipated.

2. 75-Year Actuarial Estimates (2023–2097)

Figure II.F1 shows past and projected total SMI expenditures and

premium income as a percentage of GDP. Total SMI expenditures

amounted to 2.2 percent of GDP in 2022 and are projected to grow to

about 4.0 percent of GDP within 40 years and to 4.2 percent by the end

of the projection period. (Under the illustrative alternative, total SMI

expenditures in 2096 would be 5.5 percent of GDP.)

The projected Part B expenditures as a share of GDP shown in

figure II.F1 are lower than the projections in the 2022 Trustees Report

due to the anticipated effects of drug price negotiations and updated

expectations with regard to the pandemic recovery. For Part D,

projected expenditures as a percentage of GDP are lower than the

corresponding amounts in the 2022 report largely because of the

impact of drug price negotiations and other price growth constraints

included in the provisions of the IRA.

SMI Financial Outlook

Figure II.F1.—SMI Expenditures and Premiums as a Percentage

of the Gross Domestic Product

Note: Percentages are affected by economic cycles.

3. Implications of SMI Cost Growth

Financing for the SMI trust fund is adequate because beneficiary

premiums and government contributions, for both Part B and Part D,

are established annually to cover the expected costs for the upcoming

year. Should actual costs exceed those anticipated when the financing

is determined, future financing rates can include adjustments to

recover the shortfall. Likewise, should actual costs be less than those

anticipated, the savings would result in lower future financing rates.

As long as the future financing rates continue to cover the following

year’s estimated costs, both parts of the SMI trust fund will remain

financially solvent.

A critical issue for the SMI program is the impact of the rapid growth

of SMI costs, which places steadily increasing demands on

beneficiaries and taxpayers. This section compares the past and

projected growth in SMI costs with GDP growth; it also assesses the

implications of the rapid growth on beneficiaries and the budget of the

Federal Government.

Table II.F2 compares the growth in SMI expenditures with that of the

economy as a whole. SMI costs are expected to continue to outpace

growth in GDP throughout the projection period, but eventually at a

slower rate compared to the last 10 years or prior periods. The

1960 1980 2000 2020 2040 2060 2080 2100 2120

Calendar year

Total

expenditures

Historical

Estimated

Total

premiums

Part B

expenditures

Part D

expenditures

Overview

relatively high growth during 2023–2032 is due to the continuing

retirement of the baby boom generation and modest increases in cost

trends. Growth rates are projected to decline during 2033–2047

primarily as a result of a deceleration in beneficiary population growth.

For the last 50 years of the projection period, cost growth moderates

further because of the continued deceleration in beneficiary population

growth and lower health care cost growth rate assumptions. On a per

capita basis, SMI expenditure growth has substantially exceeded GDP

growth historically, but it is projected to slow and increase only slightly

faster than GDP after 2050 as a result of several legislatively specified

payment updates, including those for physician prices.

Table II.F2.—Average Annual Rates of Growth in SMI and the Economy

[In percent]

SMI

U.S. Economy

Calendar

years

Beneficiary

population

Per capita

expenditures

Total

expenditures

Total

population

Per capita

GDP

Total GDP

Growth

differential

Historical data:

1968–2002

2.2 %

11.0 %

13.4 %

1.0 %

6.5 %

7.5 %

5.4 %

2003–2012

2.0

8.4

10.6

0.8

3.2

4.0

6.3

2013–2022

2.5

3.7

6.3

0.5

4.0

4.6

1.7

Intermediate estimates:

2023–2032

2.0

5.9

8.0

0.6

3.6

4.2

3.6

2033–2047

0.6

4.7

5.3

0.5

3.5

4.0

1.2

2048–2072

0.7

3.7

4.4

0.4

3.6

4.1

0.3

2073–2097

0.4

3.7

4.1

0.4

3.7

4.1

0.0

Excess of total SMI expenditure growth above total GDP growth, calculated as a multiplicative differential.

Includes the addition of the prescription drug benefit to the SMI program in 2006. Excluding 2006, the

average annual per capita expenditure increase is 5.6 percent, the total expenditure increase is

7.8 percent, and the growth differential is 3.8 percent.

As SMI per capita benefits grow faster than average income or per

capita GDP, the premiums and coinsurance amounts paid by

beneficiaries represent a growing share of their total income.

Figure II.F2 compares past and projected growth in average benefits

for SMI versus Social Security. The figure also shows amounts for the

average SMI premium payments and average cost-sharing payments.

To facilitate comparison across long time periods, all values are in

constant 2021 dollars.

Over time, the average Social Security benefit tends to increase at

about the rate of growth in average earnings. Health care costs

generally reflect increases in the earnings of health care professionals,

growth in the utilization and intensity of services, and other medical

cost inflation. As indicated in figure II.F2, average SMI benefits in

1970 were only about one-twelfth the level of average Social Security

benefits but had grown to more than one-third by 2005. With the

introduction of the Part D prescription drug benefit in 2006, this ratio

grew to almost one-half. Under the intermediate projections, SMI

benefits would continue increasing at a faster rate and would represent

SMI Financial Outlook

about three-quarters of the average Social Security retired-worker

benefit in 2097.

Figure II.F2.—Comparison of Average Monthly SMI Benefits, Premiums,

and Cost Sharing to the Average Monthly Social Security Benefit

[Amounts in constant 2022 dollars]

Average beneficiary premiums and cost-sharing payments for SMI will

increase at about the same rate as average SMI benefits.

Thus, a

growing proportion of most beneficiaries’ Social Security and other

income would be necessary over time to pay total out-of-pocket costs

for SMI, including both premiums and cost-sharing amounts. Most

SMI enrollees have other income in addition to Social Security benefits.

Other possible sources include earnings from employment, employer-

sponsored pension benefits, and investment earnings. In addition,

most draw down their accumulated assets to supplement their income

in retirement. For simplicity, the comparisons in figure II.F2 apply to

Social Security benefits only; a comparison of average SMI premiums

and cost-sharing amounts to average total beneficiary income would

likely lead to similar conclusions. For illustration, the Trustees

estimate that the average Part B plus Part D premium in 2023 would

equal about 13 percent of the average Social Security benefit but would

increase to an estimated 19 percent in 2097. Similarly, an average cost-

sharing amount in 2023 would be equivalent to about 15 percent of the

Social Security benefit but would increase to about 23 percent in 2097.

As a result, the projected ratio of average SMI out-of-pocket payments to average SMI

benefits is nearly constant over time.

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

1970 1990 2010 2030 2050 2070 2090

Historical

Estimated

Average SMI

benefit

Average

SS benefit

Total SMI

out-of-pocket

Average SMI

premium

Average SMI

cost sharing

Overview

The combination of premium and cost-sharing amounts for Parts B and

D would equal about 28 percent of the average Social Security benefit

in 2023 and would increase to an estimated 42 percent in 2097.

The availability of SMI Part B and Part D benefits greatly reduces the

costs that beneficiaries would otherwise pay for health care services.

The introduction of the prescription drug benefit increased

beneficiaries’ costs for SMI premiums and cost sharing, but it reduced

their costs for previously uncovered services by substantially more.

Figure II.F2 highlights the impact of rapid cost growth for a given SMI

benefit package.

The average OASI benefit amount for all retired workers is the basis

for the Social Security benefits shown in figure II.F2; individual

retirees may receive significantly more or less than the average,

depending on their past earnings and other factors. For purposes of

illustration, figure II.F2 shows the average SMI benefit value and cost-

sharing liability for all beneficiaries. The value of SMI benefits to

individual enrollees and their cost-sharing payments vary even more

substantially than OASI benefits, depending on their income, assets,

and use of covered health services in a given year. In particular,

Medicaid pays Part B premiums and cost-sharing amounts for

beneficiaries with very low incomes, and the Medicare low-income drug

subsidy pays the corresponding Part D amounts (except for nominal

copayments). Moreover, high-income beneficiaries have paid an

income-related premium for Part B since 2007 and for Part D since

2011. Further information on the nature of this comparison, and on the

variations from the average results, is available in a memorandum by

the CMS Office of the Actuary at http://www.cms.gov/Research-

Statistics-Data-and-Systems/Statistics-Trends-and-Reports/

ReportsTrustFunds/Beneficiaryoop.html.

Another way to evaluate the implications of rapid SMI cost growth is

to compare transfers from the general fund of the Treasury to the SMI

trust fund with total Federal income taxes (personal and corporate

income taxes). Table II.F3 shows SMI government contributions as a

percentage of total Federal income taxes. Should such taxes in the

future maintain their historical average level of the last 50 years

relative to the national economy, then, based on the intermediate

assumptions, SMI government contributions in 2097 would represent

about 29.9 percent of total income taxes.

SMI Financial Outlook

Table II.F3.—SMI Government Contributions as a Percentage

of Personal and Corporate Federal Income Taxes

Fiscal year

Percentage of income taxes

Historical data:

1970

0.8 %

1980

2.2

1990

5.9

2000

5.4

2010

19.6

2015

14.0

2016

16.2

2017

16.4

2018

16.8

2019

17.0

2020

19.6

2021

18.5

2022

13.3

Intermediate estimates:

2030

22.0

2040

26.9

2050

28.0

2060

29.1

2070

30.1

2080

30.5

2090

30.0

2097

29.9

Includes the Part D prescription drug benefit beginning in 2006.

These examples illustrate the significant impact of SMI expenditure

growth on beneficiaries, taxpayers, and the Federal budget. The

projected SMI expenditure increases associated with the cost of

providing health care, plus the impact of the baby boom generation

reaching eligibility age, would continue to require a growing share of

the economic resources available to finance these costs. This outlook

reinforces the Trustees’ recommendation for development and

enactment of further reforms to address the rate of growth in SMI

expenditures.

Overview

G. CONCLUSION

Total Medicare expenditures were $905 billion in 2022, and the Board

projects that they will increase in most future years at a somewhat

faster pace than either aggregate workers’ earnings or the economy

overall. The faster increase is primarily due to the number of

beneficiaries increasing more rapidly than the number of workers,

coupled with an increase in the volume and intensity of services

delivered. Based on the intermediate set of assumptions under current

law, expenditures as a percentage of GDP would increase from the

current 3.7 percent to a projected 6.1 percent by 2097.

As it has since 2004, the HI trust fund fails to meet the Board of

Trustees’ short-range test of financial adequacy. In addition, as in all

past reports, the HI trust fund fails to meet the Trustees’ long-range

test of close actuarial balance.

HI experienced small surpluses in 2016 and 2017 after having deficits

from 2008 through 2015. In 2018 and 2019 small deficits returned, and

in 2020 a large deficit occurred due to the expansion of the Accelerated

and Advance Payments Program during the COVID-19 public health

emergency. Payments made to providers under this program are

assumed to be repaid in 2021 and 2022, resulting in a surplus in those

years. After this, surpluses are expected to continue through 2024 and

then turn to deficits for the remainder of the 75-year projection period.

The projected trust fund depletion date is 2031, 3 years later than

estimated in last year’s report. HI income is projected to be higher than

last year’s estimates because both the number of covered workers and

average wages are projected to be higher. HI expenditures are

projected to be lower than last year’s estimates through the short-

range period, mainly due to updated expectations for health care

spending following the COVID-19 pandemic as described in section I,

but are projected to become larger after 2032 because of higher

projected provider payment updates.

The HI actuarial deficit in this year’s report is 0.62 percent of taxable

payroll, down from 0.70 percent in last year’s report. This result is

largely due to lower-than-estimated 2022 expenditures and changes in

private health plan assumptions that were partially offset by changes

in hospital assumptions and economic and demographic assumptions.

The financial outlook for SMI is fundamentally different than for HI as

a result of the statutory differences in the methods of financing for

these two components of Medicare.

Conclusion

The Trustees project that both the Part B and Part D accounts of the

SMI trust fund will remain in financial balance for all future years

because beneficiary premiums and general fund transfers are assumed

to be set at a level to meet expected costs each year. However, SMI

costs are projected to increase significantly as a share of GDP over the

next 75 years, from 2.2 percent to 4.2 percent under current law. The

projected Part B costs as a share of GDP are lower than the estimates

in the 2022 report due to the expected impact of drug price negotiations

of the Inflation Reduction Act (IRA) and updated expectations for

medical care use after the peak of the COVID-19 pandemic. The Part D

projections as a percentage of GDP are lower than in last year’s report

primarily as a result of the impact of drug price negotiations and other

price growth constraints included in the provisions of the IRA.

The financial projections shown for the Medicare program in this

report reflect substantial, but very uncertain, cost savings deriving

from current-law provisions that lower increases in Medicare payment

rates to most categories of health care providers. Without fundamental

change in the current delivery system, these adjustments would

probably not be viable indefinitely.

In view of these issues with provider payment rates, the Trustees note

that the actual future costs for Medicare could exceed those shown in

this report. Projections under an alternative scenario, as provided in

section V.C and in a memorandum from the Office of the Actuary,

can

help illustrate the potential magnitude of the understatement. For

example, the total cost of Medicare in 2097 would be 8.3 percent of GDP

under the alternative projections (versus 6.1 percent under current

law), and the HI actuarial deficit would be 1.46 percent of taxable

payroll (versus 0.62 percent). The projected depletion date for the HI

trust fund would be unchanged. Readers should interpret the

projections shown in this report as illustrations of the very favorable

impact of permanently slower growth in health care costs, if such

slower growth is achievable. The illustrative alternative projections

show the higher costs if not for these elements of current law.

Policymakers should determine effective solutions to the long-range HI

financial imbalance. Even assuming that the provider payment rates

will be adequate, the HI program does not meet either the Trustees’

short-range test of financial adequacy or long-range test of close

actuarial balance. HI revenues would cover 89 percent of estimated

expenditures in 2031 and 81 percent in 2047. By the end of the 75-year

projection period, HI revenues could pay 96 percent of HI costs.

See https://www.cms.gov/files/document/illustrative-alternative-scenario-2023.pdf.

Overview

Policymakers should also consider the likelihood that the price

adjustments in current law may prove difficult to adhere to fully and

may require even more changes to address the financial imbalance.

The projections in this year’s report continue to demonstrate the need

for timely and effective action to address Medicare’s remaining

financial challenges—including the projected depletion of the HI trust

fund, this fund’s long-range financial imbalance, and the rapid growth

in Medicare expenditures. Furthermore, if the growth in Medicare

costs is comparable to growth under the illustrative alternative

projections, then policy reforms will have to address much larger

financial challenges than those assumed under current law. The Board

of Trustees believes that solutions can and must be found to ensure the

financial integrity of HI in the short and long term and to reduce the

rate of growth in Medicare costs through viable means. The sooner

solutions are enacted, the more flexible and gradual they can be.

Moreover, the early introduction of reforms increases the time

available for affected individuals and organizations—including health

care providers, beneficiaries, and taxpayers—to adjust their

expectations and behavior. The Board recommends that Congress and

the executive branch work together expeditiously to address these

challenges.

III. ACTUARIAL ANALYSIS

A. INTRODUCTION

The Actuarial Analysis section focuses on the costs and financing of the

individual HI and SMI trust fund accounts. The Trustees perform an

analysis for each trust fund individually, to determine whether each

account’s income and expenditures are balanced as necessary to

maintain solvency. (It is also valuable to consider Medicare’s total

expenditures and the sources and relative magnitudes of the program’s

revenues. Section V.B presents such information for Medicare overall.)

For this report, projections are shown in two different ways. The cash

basis reflects the date when payment for the service was made,

whereas the incurred basis reflects the date when the service was

performed. The projections are first prepared on an incurred basis, and

then adjustments are made to account for costs on a cash basis.

Generally, trust fund operations show the actual or projected income

and expenditures on a cash basis, while analysis and methodology are

presented on an incurred basis.

The HI and SMI trust funds are separate and distinct, each with its

own sources of financing. There are no provisions for using HI revenues

to finance SMI expenditures, or vice versa, or for lending assets

between the two trust funds. Moreover, the benefit provisions,

financing methods, and, to a lesser degree, eligibility rules are very

different between these Medicare components. In particular, both

accounts of the SMI trust fund are automatically in financial balance,

whereas the HI fund is not.

For these reasons, the Trustees can evaluate the financial status of the

Medicare trust funds only by separately assessing the status of each

fund. Sections III.B, III.C, and III.D of this report present such

assessments for HI (Part A), SMI Part B, and SMI Part D, respectively.

The Trustees also provide key results based on an illustrative

alternative scenario in section V.C.

Actuarial Analysis

B. HI FINANCIAL STATUS

This section presents actual HI trust fund operations in 2022 and HI

trust fund projections for the next 75 years. Section III.B1 discusses HI

financial results for 2022, and sections III.B2 and III.B3 discuss the

short-range HI projections and the long-range projections,

respectively. The projections shown in sections III.B2 and III.B3

assume no changes will occur in the statutory provisions and

regulations under which HI now operates.

1. Financial Operations in Calendar Year 2022

On July 30, 1965, the Social Security Act established the Federal

Hospital Insurance Trust Fund as a separate account in the U.S.

Treasury. All the HI financial operations occur within this fund.

Table III.B1 presents a statement of the revenue and expenditures of

the fund in calendar year 2022, and of its assets at the beginning and

end of the calendar year.

The total assets of the trust fund amounted to $142.7 billion on

December 31, 2021. During calendar year 2022, total revenue

amounted to $396.6 billion, and total expenditures were $342.7 billion.

Total assets thus increased by $53.9 billion during the year to

$196.6 billion on December 31, 2022.

The one exception is that the projections disregard payment reductions that would

result from the projected depletion of the HI trust fund.

HI Financial Status

Table III.B1.—Statement of Operations of the HI Trust Fund

during Calendar Year 2022

[In thousands]

Total assets of the trust fund, beginning of period...............................................................

$142,661,618

Revenue:

Payroll taxes ...............................................................................................................

$352,813,996

Income from taxation of OASDI benefits ....................................................................

32,775,000

Interest on investments...............................................................................................

4,110,130

Premiums collected from voluntary participants.........................................................

4,549,568

Premiums collected from Medicare Advantage participants ......................................

251,445

ACA Medicare shared savings program receipts .......................................................

16,335

Transfer from Railroad Retirement account ...............................................................

505,300

Reimbursement, transitional uninsured coverage ......................................................

82,000

Reimbursement, program management general fund ...............................................

661,876

Interfund interest payments to OASDI

......................................................................

−514

CMS Interfund interest receipts

.................................................................................

1,408

Interest on reimbursements, Railroad Retirement .....................................................

10,566

Other ...........................................................................................................................

1,186

Reimbursement, union activity ...................................................................................

1,067

Fraud and abuse control receipts:

Criminal fines .........................................................................................................

8,551

Civil monetary penalties .........................................................................................

18,782

Civil penalties and damages, Department of Justice ............................................

290,802

Asset forfeitures, Department of Justice ................................................................

140,237

3% administrative expense reimbursement, Department of Justice .....................

20,902

General fund appropriation fraud and abuse, FBI .................................................

152,924

General fund transfer, Discretionary ......................................................................

237,945

Total revenue ...................................................................................................................

$396,649,506

Expenditures:

Net benefit payments

............................................................................................

$337,400,135

Administrative expenses:

Treasury administrative expenses ....................................................................

139,807

Salaries and expenses, SSA

...........................................................................

1,079,091

Salaries and expenses, CMS

...........................................................................

1,510,086

Salaries and expenses, Office of the Secretary, HHS ......................................

153,457

Medicare Payment Advisory Commission ........................................................

7,975

Medicare Access Children’s Health Insurance Program (CHIP) ......................

−7

ACL State Health Insurance Assistance Program

...........................................

39,559

Fraud and abuse control expenses:

HHS Medicare integrity program .......................................................................

1,063,631

HHS Office of Inspector General.......................................................................

250,024

Department of Justice .......................................................................................

79,885

FBI .....................................................................................................................

144,920

HCFAC Discretionary, CMS ..............................................................................

689,750

HCFAC Other HHS Discretionary, CMS ...........................................................

34,003

HCFAC Department of Justice Discretionary, CMS .........................................

81,786

HCFAC Office of Inspector General Discretionary, CMS .................................

64,338

Total administrative expenses ...............................................................................

5,338,305

Total expenditures................................................................................................................

$342,738,440

Net addition to the trust fund ................................................................................................

53,911,066

Total assets of the trust fund, end of period ........................................................................

$196,572,685

Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust

funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from

the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A

positive figure represents a transfer to the HI trust fund from the other trust funds. A negative figure

represents a transfer from the HI trust fund to the other funds.

Reflects repayments of $33.4 billion made through the Medicare Accelerated and Advance Payments

Program from providers to Part A.

For facilities, goods, and services provided by the Social Security Administration (SSA).

Includes expenses of the Medicare Administrative Contractors.

Reflects amount transferred from the HI trust fund to the Administration for Community Living (ACL) for

administration of the State Health Insurance Assistance program, as authorized by the Consolidated

Appropriations Act of 2014.

Note: Totals do not necessarily equal the sums of rounded components.

Actuarial Analysis

a. Revenues

The trust fund’s primary source of income consists of amounts

appropriated to it, under permanent authority, on the basis of taxes

paid by workers, their employers, and individuals with

self-employment earnings, in work covered by HI. Included in HI are

workers covered under the OASDI program, those covered under the

Railroad Retirement program, and certain Federal, State, and local

employees not otherwise covered under the OASDI program.

HI taxes are payable without limit on a covered individual’s total

wages and self-employment earnings. For calendar years prior to 1994,

taxes were computed on a person’s annual earnings up to a specified

maximum annual amount called the maximum tax base. Table III.B2

presents the maximum tax bases for 1966–1993. Legislation enacted

in 1993 removed the limit on taxable income beginning in calendar

year 1994.

Table III.B2 also shows the HI tax rates applicable in each of calendar

years 1966 and later. For 2024 and thereafter, the tax rates shown are

the rates scheduled in current law. As indicated in the footnote to the

table, in 2013 and later employees and self-employed individuals pay

an additional HI tax of 0.9 percent on their earnings above certain

thresholds.

HI Financial Status

Table III.B2.—Tax Rates and Maximum Tax Bases

Tax rate

(Percentage of taxable earnings)

Calendar years

Maximum tax base

Employees and

employers, each

Self-employed

Past experience:

1966

$6,600

0.35%

1967

6,600

0.50

1968–71

7,800

0.60

1972

9,000

0.60

1973

10,800

1.00

1974

13,200

0.90

1975

14,100

0.90

1976

15,300

0.90

1977

16,500

0.90

1978

17,700

1.00

1979

22,900

1.05

1980

25,900

1.05

1981

29,700

1.30

1982

32,400

1.30

1983

35,700

1.30

1984

37,800

1.30

2.60

1985

39,600

1.35

2.70

1986

42,000

1.45

2.90

1987

43,800

1.45

2.90

1988

45,000

1.45

2.90

1989

48,000

1.45

2.90

1990

51,300

1.45

2.90

1991

125,000

1.45

2.90

1992

130,200

1.45

2.90

1993

135,000

1.45

2.90

1994–2012

no limit

1.45

2.90

2013–2023

no limit

1.45

2.90

Scheduled in current law:

2024 & later

no limit

1.45

2.90

Beginning in 2013, workers pay an additional 0.9 percent of their earnings above $200,000 (for those

who file an individual tax return) or $250,000 (for those who file a joint income tax return).

Total HI payroll tax income in calendar year 2022 amounted to

$352.8 billion—an increase of 16.6 percent over the amount of

$302.5 billion for the preceding 12-month period. This increase

occurred primarily because both the number of covered workers and

average wages were higher.

Up to 85 percent of an individual’s or couple’s OASDI benefits may be

subject to Federal income taxation if their income exceeds certain

thresholds. The income tax revenue attributable to the first 50 percent

of OASDI benefits is allocated to the OASI and DI trust funds. The

revenue associated with the amount between 50 and 85 percent of

benefits is allocated to the HI trust fund. Income from the taxation of

OASDI benefits amounted to $32.8 billion in calendar year 2022.

Another substantial source of trust fund income is interest credited

from investments in government securities held by the fund. In

calendar year 2022, the fund received $4.1 billion in such interest. A

Actuarial Analysis

description of the trust fund’s investment procedures appears later in

this section.

Section 1818 of the Social Security Act provides that certain persons

not otherwise eligible for HI protection may obtain coverage by

enrolling in HI and paying a monthly premium. In 2022, premiums

collected from such voluntary participants (or paid on their behalf by

Medicaid) amounted to about $4.5 billion.

The Railroad Retirement Act provides for a system of coordination and

financial interchange between the Railroad Retirement program and

the HI trust fund. This financial interchange requires a transfer that

would place the HI trust fund in the same position in which it would

have been if the Social Security Act had always covered railroad

employment. In accordance with these provisions, a transfer of

$505 million in principal and about $5 million in interest from the

Railroad Retirement program’s Social Security Equivalent Benefit

Account to the HI trust fund balanced the two systems as of

September 30, 2021. The trust fund received this transfer, together

with interest to the date of transfer totaling about $6 million, in

June 2022.

Legislation in 1982 added transitional entitlement for those Federal

employees who retire before having had a chance to earn sufficient

quarters of Medicare-qualified Federal employment. The general fund

of the Treasury provides reimbursement for the costs of this coverage,

including administrative expenses. In calendar year 2022, such

reimbursement amounted to $82 million for estimated benefit

payments for these beneficiaries.

Legislation in 1996 established a health care fraud and abuse control

account within the HI trust fund. Monies derived from the fraud and

abuse control program are transferred from the general fund of the

Treasury to the HI trust fund. During calendar year 2022, the trust

fund received about $0.9 billion from this program.

b. Expenditures

The HI trust fund pays expenditures for HI benefit payments and

administrative expenses. All HI administrative expenses incurred by

the Department of Health and Human Services, the Social Security

Administration, the Department of the Treasury (including the

Internal Revenue Service), and the Department of Justice in

administering HI are charged to the trust fund. Such administrative

duties include payment of benefits, the collection of taxes, fraud and

HI Financial Status

abuse control activities, and experiments and demonstration projects

designed to determine various methods of increasing efficiency and

economy in providing health care services, while maintaining the

quality of such services, under HI and SMI.

In addition, Congress has authorized expenditures from the trust

funds for construction, rental and lease, or purchase contracts of office

buildings and related facilities for use in connection with the

administration of HI. Although trust fund expenditures include these

costs, the statement of trust fund assets presented in this report does

not carry the net worth of facilities and other fixed capital assets

because the proceeds of sales of such assets revert to the General

Services Administration. Since the value of fixed capital assets does

not represent funds available for benefit or administrative

expenditures, the Trustees do not consider it in assessing the actuarial

status of the funds.

Of the $342.7 billion in total HI expenditures, $337.4 billion

represented net benefits paid from the trust fund for health services.

Net benefit payments increased 4.3 percent in calendar year 2022 over

the corresponding amount of $323.6 billion paid during the preceding

calendar year. These payments reflect the large amount of accelerated

and advance repayments to providers (which constituted $29.1 billion

and $33.4 billion of net repayments for 2021 and 2022, respectively),

as well as the change in the number of beneficiaries, the price of health

services, and the volume and intensity of services. Further information

on HI benefits by type of service is available in section IV.A.

The remaining $5.3 billion in expenditures was for net HI

administrative expenses, after adjustments to the preliminary

allocation of administrative costs among the Social Security and

Medicare trust funds and the general fund of the Treasury. The

expenditure amount of $5.3 billion also included $2.4 billion for the

health care fraud and abuse control program.

c. Actual experience versus prior estimates

Table III.B3 compares the actual experience in calendar year 2022

with the estimates presented in the 2021 and 2022 annual reports. A

number of factors can contribute to differences between estimates and

subsequent actual experience. In particular, actual values for key

economic and other variables can differ from assumed levels, and

Net benefits equal the total gross amounts initially paid from the trust fund during the

year, less recoveries of overpayments identified through fraud and abuse control

activities.

Actuarial Analysis

legislative and regulatory changes may occur after a report’s

preparation.

As shown in table III.B3, actual HI payroll tax income in 2022 was

higher than estimated in the 2021 and 2022 reports because

adjustments that were made for prior periods in 2022 were greater

than anticipated and the economy recovered more rapidly from the

2020 recession than expected in the 2021 report. Actual HI benefit

payments in calendar year 2022 were much lower than projected in

2021 and 2022 primarily as a result of a slower rebound in the

utilization of services.

Table III.B3.—Comparison of Actual and Estimated Operations of the HI Trust Fund,

Calendar Year 2022

[Dollar amounts in millions]

Comparison of actual experience with estimates for

calendar year 2022 published in—

2022 report

2021 report

Item

Actual

amount

Estimated

amount

Actual as a

percentage

of estimate

Estimated

amount

Actual as a

percentage

of estimate

Payroll taxes

$352,814

$342,263

103%

$330,655

107%

Benefit payments

337,400

351,032

359,090

Under the intermediate assumptions.

Benefit payments include (i) additional premiums for Medicare Advantage plans that are deducted from

beneficiaries’ Social Security benefits, (ii) costs of Quality Improvement Organizations, and (iii) health

information technology payments.

See footnote 2 of table III.B1.

d. Assets

The Department of the Treasury invests, on a daily basis, the portion

of the trust fund not needed to meet current expenditures for benefits

and administration in interest-bearing obligations of the U.S.

Government. The Social Security Act authorizes the issuance of special

public-debt obligations for purchase exclusively by the trust fund. The

law requires that these special public-debt obligations bear interest at

a rate based on the average market yield (computed on the basis of

market quotations as of the end of the calendar month immediately

preceding the date of such issue) for all marketable interest-bearing

obligations of the United States forming a part of the public debt that

are not due or callable until after 4 years from the end of that month.

Currently, all invested assets of the HI trust fund are in the form of

such special-issue securities.

Table V.H9, presented in section V.H,

shows the assets of the HI trust fund at the end of fiscal years 2021

and 2022.

The Department of the Treasury may also make investments in obligations guaranteed

as to both principal and interest by the United States, including certain federally

sponsored agency obligations.

Actuarial Analysis

108

detailed in the OASDI Trustees Report, as well as other assumptions

unique to Part D. Section IV.B2 presents an explanation of the effects

of the Trustees’ intermediate assumptions and other assumptions

unique to Part D on the estimates in this report.

Generally, the income to the Part D account includes the beneficiary

premiums described previously and transfers from the general fund of

the Treasury to cover each year’s incurred benefit costs and other

expenditures. The language that has been included in the Part D

appropriation provides, without further Congressional action,

resources for benefit payments under the Part D drug benefit program

on an as-needed basis. The transfers from the Treasury reflect the

direct premium subsidy payments, government subsidies,

amounts of

reinsurance payments, RDS amounts, low-income subsidies, net risk-

sharing payments, administrative expenses, and advanced discount

payments. This income requirement is reduced by inflation rebates

and by State payments for the full-benefit dually eligible beneficiaries

who were covered under Medicaid prior to the implementation of

Part D.

Until 2015, actual cash transfers from the Treasury were made on the

day the benefit payments to plans were due, typically the first business

day of a month, causing the Part D account balance at the end of a

month to include only a modest amount from State payments to the

account after the benefit payments were made. Then in 2015 a policy

was implemented to transfer amounts from the Treasury into the

account 5 business days before the benefit payments to the plans, and

therefore the Part D account now includes a more substantial balance

at the end of most months. For the past 2 years, the account balance at

the end of the year was unusually high due to the delayed settlement

of the year-end reconciliation payments.

The beneficiary premiums and direct subsidy rate are calculated based

on the national average monthly bid amounts and defined prior to each

year’s operations. The base beneficiary premium constitutes

Under the Inflation Reduction Act of 2022 (IRA), the drug manufacturers’ discount for

costs below the catastrophic threshold will be replaced by government subsidies if the

drugs are selected for price negotiation. In addition, there will be a one-time government

subsidy for the $35 insulin copayment policy, which became effective after the 2023 bids

were submitted.

The IRA provided for the assessment of inflation rebates for those drugs for which

prices are increasing more rapidly than the Consumer Price Index (CPI-U). However,

the Trustees project that the inflation rebates will be modest while other price growth

constraints will be more effective.

Part D Financial Status

109

25.5 percent

of the expected total plan costs for basic Part D coverage.

The actual premium a beneficiary pays is calculated as the difference

between the plan bid and the national average monthly bid amount,

which is then applied to the base beneficiary premium. Beginning in

2011, beneficiaries with modified adjusted gross incomes exceeding a

specified threshold pay income-related premiums in addition to the

premiums charged by the plans in which the individuals have enrolled.

The extra premiums are credited to the Part D trust fund account and

reduce the financing amounts from the general fund.

Starting in 2011, the drug manufacturers provide a 50-percent

ingredient cost discount for brand-name drugs in the coverage gap that

reduces beneficiary out-of-pocket expenses. In 2019, the Bipartisan

Budget Act of 2018 increased the brand-name drug discount in the

coverage gap to 70 percent, with a corresponding decrease in plan

benefits. Medicare Part D pays advanced discount payments

prospectively to the non-employer Part D plans and will be reimbursed

for these amounts once the plans receive the discounts from the drug

manufacturers. Although the net cashflow for this arrangement is zero,

the timing of the cashflow has an impact on the yearly financing

amounts.

Expenditures from the account include the premiums withheld from

beneficiaries’ Social Security benefits and transferred to the private

drug plans, the direct premium subsidy payments, reinsurance

payments, RDS amounts, low-income subsidy payments, net risk-

sharing payments, government subsidies, administrative expenses,

and advanced discount payments. As noted previously, the Trustees

supplement these expenditures to include the amount of enrollee

premiums paid directly to Part D plans, thereby providing an estimate

of total Part D benefit payments and other expenditures.

Part D expenditures on direct premium subsidy payments, RDS

amounts, advanced discount payments, and administrative expenses

are affected by the sequestration required by current law, which

reduces benefit payments by the following percentages: 2 percent from

April 1, 2013 through April 30, 2020; 1 percent from April 1, 2022

through June 30, 2022; and 2 percent from July 1, 2022 through

September 30, 2032.

Reinsurance, the low-income cost-sharing subsidy, net risk-sharing

payments, and government subsidies are not affected by sequestration.

Beginning in 2030, the base beneficiary premium percentage will be reset according to

the specifications of the IRA.

Actuarial Analysis

110

(See section V.A for recent legislative changes affecting the

sequestration of Medicare expenditures.)

Table III.D3 shows the estimated operations of the Part D account

under the intermediate assumptions on a calendar-year basis through

2032.

Table III.D3.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis)

during Calendar Years 2004–2032

[In billions]

Income

Expenditures

Account

Calendar

year

Premium

income

Govern-

ment

contribu-

tion

Payments

from

States

Interest

and

other

Total

Benefit

payments

Adminis-

trative

expense

Total

Net

change

Balance

at end

of year

Historical data:

2004

—

$0.4

—

$0.4

—

$0.4

—

2005

—

1.1

—

1.1

—

1.1

—

2006

$3.5

39.2

$5.5

$0.0

48.2

47.1

$0.3

47.4

$0.8

2007

4.1

38.8

6.9

0.0

49.7

48.8

0.9

49.7

0.0

0.8

2008

5.0

37.3

7.1

0.0

49.4

49.0

0.3

49.3

0.1

0.9

2009

6.3

47.1

7.6

0.0

61.0

60.5

0.3

60.8

0.1

1.1

2010

6.5

51.1

4.0

0.0

61.7

0.4

62.1

−0.4

0.7

2011

7.7

52.6

7.1

0.0

67.4

66.7

0.4

67.1

0.3

1.0

2012

8.3

50.1

8.4

0.0

66.9

66.5

0.4

66.9

0.0

1.0

2013

9.9

51.0

8.8

0.0

69.7

69.3

0.4

69.7

0.0

1.0

2014

11.4

58.1

8.7

0.0

78.2

77.7

0.4

78.1

0.1

1.1

2015

12.7

68.4

8.9

0.0

90.0

89.4

0.3

89.8

0.3

1.3

2016

13.8

82.4

10.0

0.0

106.2

99.5

0.5

99.9

6.3

7.6

2017

15.5

73.2

11.4

0.1

100.2

100.1

−0.1

100.0

0.2

7.8

2018

15.9

67.8

11.7

0.1

95.4

94.7

0.5

95.2

0.2

8.0

2019

15.7

70.2

12.3

0.5

98.7

97.0

0.5

97.5

1.2

9.2

2020

15.8

77.7

11.6

0.7

105.8

104.6

0.4

105.0

0.8

10.0

2021

17.0

85.3

12.1

0.3

114.7

104.5

0.5

105.0

9.7

19.7

2022

17.6

92.4

13.7

0.7

124.3

125.2

0.5

125.7

−1.4

18.3

Intermediate estimates:

2023

18.6

88.3

15.7

0.4

122.9

129.5

0.6

130.1

−7.1

11.2

2024

19.5

101.7

19.1

0.4

140.7

138.7

0.6

139.3

1.4

12.6

2025

20.0

113.1

19.7

0.4

153.1

151.8

0.6

152.5

0.7

13.3

2026

22.2

119.7

20.3

0.4

162.5

161.5

0.7

162.1

0.4

13.6

2027

24.2

124.8

20.5

0.4

169.9

168.9

0.7

169.6

0.2

13.9

2028

26.8

127.1

20.1

0.4

174.5

173.3

0.7

174.0

0.5

14.3

2029

29.4

134.0

19.9

0.5

183.7

182.5

0.7

183.2

0.5

14.8

2030

33.8

137.2

20.0

0.5

191.5

190.2

0.8

191.0

0.5

15.3

2031

35.0

141.7

20.4

0.2

197.2

195.7

0.8

196.5

0.7

16.0

2032

36.9

149.3

20.9

0.2

207.3

205.7

0.8

206.6

0.8

16.8

Premiums include both amounts withheld from Social Security benefits or other Federal payments and

those paid directly to Part D plans.

Includes, net of payments from States, all government transfers required to fund benefit payments,

inflation rebates as specified under the Inflation Reduction Act of 2022 (IRA), administrative expenses,

and State expenses for making low-income eligibility determinations.

Payments from States with respect to the Federal assumption of Medicaid responsibility for drug

expenditures for full-benefit dually eligible individuals.

Includes payments to Part D plans, government subsidies under the IRA, payments to retiree drug

subsidy plans, payments to States for making low-income eligibility determinations, Part D drug premiums

collected from beneficiaries, and transfers to Medicare Advantage plans and private drug plans. Includes

amounts for the Transitional Assistance program of $0.4, $1.0, and $0.1 billion in 2004–2006, respectively.

As noted in section III.D2, a new policy was developed in 2015 under which amounts from the Treasury

are transferred into the Part D account 5 business days before the benefit payments to the plans, rather

than on the day the benefit payments are due—typically the first business day of a month—as had

previously been the case. Accordingly, the Part D account includes a balance at the end of the previous

year that is more substantial than it would have been prior to implementation of the new policy. For 2021

Part D Financial Status

111

and 2022, the balances were larger due to delayed settlement of the year-end reconciliation amounts from

November to January.

Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits

when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those

benefits normally due January 3, 2010 actually occurred on December 31, 2009, payment of benefits

normally due January 3, 2016 occurred on December 31, 2015, and payment of benefits normally due

January 3, 2021 occurred on December 31, 2020. Consequently, the Part D premiums withheld from

these benefits were added to the Part D account on December 31, 2009 (about $0.2 billion),

December 31, 2015 (about $0.2 billion), and December 31, 2020 (about $0.1 billion), respectively.

Similarly, the expected payment date for those benefits normally due January 3, 2027 is December 31,

2026. Accordingly, an estimated $0.2 billion will be added to the Part D account on December 31, 2026.

Reflects a larger-than-usual downward adjustment of $0.3 billion for prior-year allocations among Part A,

Part B, and Part D.

Note: Totals do not necessarily equal the sums of rounded components.

Table III.D4 shows prescription drug payment amounts in the

aggregate, on a per capita basis, and relative to the Gross Domestic

Product (GDP). The benefit amounts are shown on a cash basis and

reflect net reconciliation payments that are made to adjust for prior-

year differences between prospective payments made to plans and

actual prescription drug expenditures. The magnitude and timing of

the reconciliation payments can cause a volatile pattern of annual

growth rates. For example, the 2020 plan bid amounts were less than

the actual costs experienced by the plans in 2021, resulting in year-end

reconciliation payments of $8.4 billion from the Medicare program to

plans. However, due to a deadline extension for plans to submit risk

adjustment data, the risk score adjustments were paid in January 2022

rather than in November 2021, as normally would have been expected,

and accordingly both the total and per capita benefits for 2021

decreased from 2020. The settlement for the 2021 reconciliation

amounts was similarly delayed from November 2022 to January 2023.

This change in the timing of reconciliation payments, which is not

expected to occur in future years, led to substantial increases in both

the total and per capita benefits for 2022.

Actuarial Analysis

112

Table III.D4.—Growth in Part D Benefits (Cash Basis) through December 31, 2032

Calendar year

Aggregate benefits

[billions]

Percent

change

Per capita

benefits

Percent

change

Part D benefits as a

percentage of GDP

Historical data:

2004

$0.4

—

$362

—

0.00 %

2005

1.1

—

596

—

0.01

2006

47.1

—

1,708

—

0.34

2007

48.8

3.7 %

1,556

−8.9 %

0.34

2008

49.0

0.4

1,504

−3.3

0.33

2009

60.5

23.4

1,798

19.6

0.42

2010

61.7

2.0

1,775

−1.3

0.41

2011

66.7

8.1

1,868

5.3

0.43

2012

66.5

−0.4

1,776

−5.0

0.41

2013

69.3

4.2

1,772

−0.2

0.41

2014

77.7

12.1

1,919

8.3

0.44

2015

89.4

15.1

2,140

11.5

0.49

2016

99.5

11.2

2,302

7.6

0.53

2017

100.1

0.7

2,251

−2.2

0.51

2018

94.7

−5.4

2,068

−8.1

0.46

2019

97.0

2.5

2,058

−0.5

0.45

2020

104.6

7.7

2,148

4.4

0.50

2021

104.5

−0.1

2,092

−2.6

0.45

2022

125.2

19.8

2,437

16.5

0.49

Intermediate estimates:

2023

129.5

3.4

2,447

0.4

0.49

2024

138.7

7.2

2,545

4.0

0.50

2025

151.8

9.4

2,677

5.2

0.53

2026

161.5

6.3

2,767

3.3

0.54

2027

168.9

4.6

2,823

2.0

0.54

2028

173.3

2.6

2,831

0.3

0.53

2029

182.5

5.3

2,921

3.2

0.53

2030

190.2

4.2

2,992

2.4

0.54

2031

195.7

2.9

3,034

1.4

0.53

2032

205.7

5.1

3,151

3.9

0.53

Note: Percentages are affected by economic cycles.

Part D benefit payments have experienced an erratic growth pattern

throughout the history of the program. Expenditures have been

increasing substantially, reflecting not only rapid growth in enrollment

but also multiple prescription drug cost and utilization trends that

have varying effects on underlying costs. For example, while drug costs

have been increasing more rapidly than other categories of medical

spending, there has been a substantial increase in the proportion of

prescriptions filled with low-cost generic drugs that has helped

constrain cost growth and, at the same time, a significant increase in

the cost of specialty drugs that has increased cost growth. Additionally,

direct and indirect remuneration (DIR) has dramatically increased as

a percentage of gross drug spending, a factor that has significantly

slowed Part D spending growth.

Legislation and policy changes also contribute to the volatility of the

annual growth rates. For example, the coverage gap gradually closed

from 2012 through 2020, increasing plan benefits and resulting in

higher Part D expenditures and premiums. In addition, the policy to

pay advanced reinsurance amounts to the employer/union-only group

Part D Financial Status

113

waiver plans, beginning in 2017, affects the timing of the reinsurance

payments, which were previously provided exclusively through the

reconciliation process.

Within the next few years, two legislation and policy changes will

significantly affect Part D expenditures. First, a pharmacy price

concessions policy (published in a May 9, 2022 CMS final rule) will shift

pharmacy rebates to reduce point-of-sale drug prices, effective

January 1, 2024. The reduction in rebates will result in increased

Medicare expenditures.

Second, the Inflation Reduction Act of 2022 (IRA) will redesign the

standard Part D benefit to provide reduced beneficiary out-of-pocket

costs while increasing Federal spending beginning in 2023, with the

full effects of the benefit redesign to be implemented in 2025. More

than offsetting these additional costs by the end of the short-range

projection are program savings resulting from the lowering of drug

price growth through price negotiation and inflation rebates. The

impact of negotiated prices begins in 2026 and will phase in over the

next several years as the prices for more drugs are negotiated. As a

result, aggregate and per capita benefits will increase more slowly than

in last year’s report.

Accordingly, over the next 10 years, aggregate benefits are projected to

increase at a rate of 5.1 percent annually, on average, while the

average per capita rate of growth is projected to be 2.6 percent.

The Trustees have also prepared estimates using two alternative sets

of assumptions. Table III.D5 summarizes the estimated operations of

the Part D account under the intermediate assumptions and under the

two alternative sets of assumptions. Section IV.B2 presents the

assumptions underlying the intermediate estimates in substantial

detail, and it outlines the assumptions used in preparing estimates

under the low-cost and high-cost alternatives.

Actuarial Analysis

114

Table III.D5.—Estimated Operations of the Part D Account in the SMI Trust Fund

during Calendar Years 2022–2032, under Alternative Sets of Assumptions

[Dollar amounts in billions]

Calendar

year

Premiums

from

enrollees

Other

income

Total income

Total

expenditures

Balance in

account at

end of year

Expenditures as

a percentage

of GDP

Intermediate:

2022

$17.6

$106.7

$124.3

$125.7

$18.3

0.49 %

2023

18.6

104.4

122.9

130.1

11.2

0.49

2024

19.5

121.2

140.7

139.3

12.6

0.50

2025

20.0

133.2

153.1

152.5

13.3

0.53

2026

22.2

140.3

162.5

162.1

13.6

0.54

2027

24.2

145.7

169.9

169.6

13.9

0.54

2028

26.8

147.7

174.5

174.0

14.3

0.53

2029

29.4

154.4

183.7

183.2

14.8

0.54

2030

33.8

157.7

191.5

191.0

15.3

0.54

2031

35.0

162.2

197.2

196.5

16.0

0.53

2032

36.9

170.4

207.3

206.6

16.8

0.54

Low-cost:

2022

17.6

106.7

124.3

125.7

18.3

0.49

2023

18.6

98.4

117.0

124.9

10.4

0.46

2024

19.2

105.9

125.1

124.1

11.5

0.43

2025

19.1

120.3

139.4

139.0

11.9

0.45

2026

21.4

125.3

146.7

146.5

12.1

0.45

2027

23.4

127.8

151.2

12.1

0.44

2028

26.0

127.3

153.3

153.2

12.3

0.42

2029

28.6

130.7

159.3

159.1

12.5

0.42

2030

33.0

130.9

164.0

163.7

12.7

0.41

2031

33.9

132.7

166.6

166.2

13.1

0.39

2032

35.5

137.3

172.8

172.4

13.5

0.39

High-cost:

2022

17.6

106.7

124.3

125.7

18.3

0.49

2023

18.6

111.3

129.9

136.1

12.1

0.53

2024

20.0

137.9

157.9

155.9

14.1

0.58

2025

20.8

150.9

171.8

170.7

15.2

0.62

2026

23.2

162.4

185.6

184.8

16.0

0.64

2027

25.1

172.2

197.3

196.7

16.5

0.66

2028

27.7

177.8

205.5

204.6

17.4

0.67

2029

30.2

189.2

219.3

218.5

18.2

0.69

2030

35.3

196.6

231.8

230.9

19.1

0.71

2031

36.8

205.5

242.3

241.0

20.4

0.73

2032

39.1

219.5

258.6

257.3

21.7

0.75

Other income contains government contributions, payments from States, inflation rebates as specified

under the IRA, interest, and settlement collections.

Figures for 2022 represent actual experience.

See footnote 6 of table III.D3.

Notes: 1. Totals do not necessarily equal the sums of rounded components.

2. Percentages are affected by economic cycles.

Because of the price assumptions for these alternative scenarios, the

expenditures presented in these scenarios represent a narrow range of

outcomes, and actual experience could easily fall outside of this range.

For the low-cost scenario, the Trustees assume higher price inflation,

which leads to higher spending. Similarly, under the high-cost

scenario, the Trustees assume lower price inflation, which leads to

lower spending. These price inflation assumptions partially offset the

effects of the other assumptions in the high-cost and low-cost scenarios,

resulting in a narrow range of expenditures. Given the considerable

variation in the factors affecting health care spending, actual Part D

Part D Financial Status

115

experience could easily fall outside of this range. Because the GDP

assumptions in these scenarios are similarly affected by the price

inflation assumptions, Part D expenditures as a percent of GDP

provide better insight into the variability of spending than the nominal

dollar amounts, as shown in table III.D5.

The alternative projections shown in table III.D5 illustrate two

important aspects of the financial operations of the Part D account:

• Despite the differing assumptions underlying the three

alternatives, the balance between Part D income and expenditures

remains relatively stable. This result occurs because the

premiums and government contributions underlying the Part D

financing are reestablished annually. Thus, Part D income

automatically tracks Part D expenditures fairly closely, regardless

of the specific economic and other conditions.

• As a result of the close matching of income and expenditures

described above, together with anticipated continuing flexibility in

the apportionment of government contributions, the need for a

contingency reserve to handle unanticipated fluctuations is

minimal.

Adequacy of Part D Financing Established for Calendar Year 2023

As noted previously, the Part D account in the SMI trust fund will be

in financial balance indefinitely because the premiums paid by

enrollees and the amounts apportioned from the general fund of the

Treasury are determined each year so as to adequately finance Part D

expenditures. Moreover, the appropriation for Part D government

contributions has included an indefinite authority provision allowing

for amounts to be transferred to the Part D account on an as-needed

basis. This provision allows previously apportioned amounts to change

without additional Congressional action if those amounts are later

determined to be insufficient. Consequently, once an appropriation

with this provision has been made, no deficit will occur in the Part D

account, and no contingency fund will be necessary to cover deficits.

As described in section III.C on the financial status of the Part B

account, it is important to maintain an appropriate level of assets to

cover the liability for claims that have been incurred but not yet

reported or paid. In the case of Part D, however, most such claims are

the responsibility of the prescription drug plans rather than the Part D

The indefinite authority applies to all Part D outlays other than Federal administrative

expenses, which are specifically appropriated each year.

Actuarial Analysis

116

program. Accordingly, the Part D account is generally not at risk for

incurred-but-unreported claim amounts, and no asset reserve is

necessary for this purpose.

Another potential Part D liability exists to the extent that Part D

reinsurance payments and low-income cost-sharing subsidy payments

are based on plan estimates.

Since actual Part D costs, as

subsequently determined, will generally differ from plan bids, payment

adjustments are made after the close of the year as needed to reconcile

the accounts. When plan bids have been below actual costs, Medicare

has made reconciliation payments to the plans from the following

year’s appropriated government contributions; thus, creation of a

reserve for payment of such settlement amounts is not required.

For these reasons, the Trustees have concluded that maintenance of

Part D account assets for contingency or liability purposes is

unnecessary at this time. Accordingly, evaluation of the adequacy of

Part D assets is also unnecessary, and the Part D account is considered

to be in satisfactory financial condition for 2023 and all future years as

a consequence of its basis for financing.

3. Long-Range Estimates

Section III.D2 presented the expected operations of the Part D account

over the next 10 years. This section describes the long-range

expenditures of the account under the intermediate assumptions. Due

to its automatic financing provisions, the Trustees expect adequate

financing of the Part D account into the indefinite future and so have

not conducted a long-range analysis using high-cost and low-cost

assumptions.

Table III.D6 shows the estimated Part D incurred expenditures under

the intermediate assumptions expressed as a percentage of GDP, for

selected years over the calendar-year period 2022–2097.

These estimates are subject to actuarial review by the CMS Office of the Actuary.

These estimated incurred expenditures are for benefit payments and administrative

expenses combined, unlike the values in table III.D4, which express only benefit

payments on a cash basis as a percentage of GDP.

Part D Financial Status

117

Table III.D6.—Part D Expenditures (Incurred Basis) as a Percentage

of the Gross Domestic Product

Calendar year

Part D expenditures as a percentage of GDP

2022

0.46 %

2023

0.47

2024

0.50

2025

0.53

2026

0.54

2027

0.54

2028

0.54

2029

0.54

2030

0.54

2031

0.53

2032

0.54

2035

0.55

2040

0.55

2045

0.55

2050

0.57

2055

0.59

2060

0.61

2065

0.63

2070

0.64

2075

0.66

2080

0.66

2085

0.67

2090

0.67

2095

0.67

2097

0.68

Expenditures are the sum of benefit payments and administrative expenses.

Note: Percentages are affected by economic cycles.

The Trustees assume that, during the initial 25-year period, increases

in Part D costs per enrollee will vary while gradually converging to the

growth rates described in sections II.C and IV.D. Based on these

assumptions and projected demographic changes, incurred Part D

expenditures as a percentage of GDP would increase from 0.46 percent

in 2022 to 0.68 percent in 2097.

Figure III.D1 compares the year-by-year Part D expenditures as a

percentage of GDP for the current annual report with the

corresponding projections from 2022. The expenditures as a percentage

of GDP are significantly lower for the current report largely due to the

projected impact of drug price negotiations and other price growth

constraints included in the provisions of the IRA.

Actuarial Analysis

118

Figure III.D1.—Comparison of Part D Projections as a Percentage

of the Gross Domestic Product: Current versus Prior Year’s Reports

Note: Percentages are affected by economic cycles.

0.0%

0.3%

0.5%

0.8%

1.0%

1996 2006 2016 2026 2036 2046 2056 2066 2076 2086 2096

Calendar year

Current report

Prior report

Historical

Estimated

119

IV. ACTUARIAL METHODOLOGY AND PRINCIPAL

ASSUMPTIONS FOR COST ESTIMATES FOR THE HOSPITAL

INSURANCE AND SUPPLEMENTARY MEDICAL INSURANCE

TRUST FUNDS

This section describes the basic methodology and assumptions used in

the estimates for the HI and SMI trust funds under the intermediate

assumptions and presents projections of HI and SMI costs under two

alternative sets of assumptions.

The economic and demographic assumptions underlying the

projections of HI and SMI costs shown in this report are consistent with

those in the 2023 Annual Report of the Board of Trustees of the Federal

Old-Age and Survivors Insurance and Federal Disability Insurance

Trust Funds. That report describes these assumptions in more detail.

A. HOSPITAL INSURANCE

1. Cost Projection Methodology

The principal steps involved in projecting future HI costs are

(i) establishing the present cost of services provided to beneficiaries, by

type of service, to serve as a projection base; (ii) projecting increases in

HI payments for inpatient hospital services; (iii) projecting increases

in HI payments for skilled nursing, home health, and hospice services

covered; (iv) projecting increases in payments to private health plans;

and (v) projecting increases in administrative costs.

a. Projection Base

To establish a suitable base from which to project future HI costs, the

incurred payments for services provided must be constructed for the

most recent period for which a reliable determination can be made.

Accordingly, payments to providers must be attributed to dates of

service, rather than to payment dates; in addition, the nonrecurring

effects of any changes in regulations, legislation, or administration,

and of any items affecting only the timing and flow of payments to

providers, must be eliminated. As a result, the rates of increase in the

HI incurred costs differ from the increases in cash expenditures shown

in the tables in section III.B.

For those expenses still reimbursed on a reasonable-cost basis, the

costs for covered services are determined on the basis of provider cost

reports. Due to the time required to obtain cost reports from providers,

to verify these reports, and to perform audits (where appropriate), final

settlements have lagged behind the original costs by as much as

Actuarial Methodology

120

several years for some providers. Additional complications arise from

legislative, regulatory, and administrative changes, the effects of

which cannot always be determined precisely.

The process of allocating the various types of HI payments made to the

proper incurred period—using incomplete data and estimates of the

impact of administrative actions—presents difficult problems, and the

solutions to these problems can be only approximate. Under the

circumstances, the best that one can expect is that the actual HI

incurred cost for a recent period can be estimated within a few percent.

This process increases the projection error directly by incorporating

any error in estimating the base year into all future years.

b. Fee-for-Service Payments for Inpatient Hospital Costs

Payment for almost all inpatient hospital services for fee-for-service

beneficiaries occurs under a prospective payment system. The law

stipulates that the annual increase in the payment rate for each

admission relate to a hospital input price index (also known as the

hospital market basket), which measures the increase in prices for

goods and services purchased by hospitals for use in providing care to

hospital inpatients. For fiscal year 2023, the prospective payment rates

have already been determined. For fiscal years 2024 and later, the

statute mandates that the annual increase in the payment rate per

admission equal the annual increase in the hospital input price index

(for those hospitals submitting required quality measure data), minus

a specified percentage. For this report, the Trustees assume that all

hospitals will submit these data.

Increases in aggregate payments for inpatient hospital care covered

under HI can be analyzed in five broad categories, presented in

table IV.A1:

(1) Hospital input price index—the increase in prices for goods

and services purchased by the hospital;

(2) Unit input intensity allowance—an amount added to or

subtracted from the input price index (generally called for in

legislation) to yield the prospective payment update factor;

(3) Volume of services—the increase in total output of units of

service (as measured by covered HI hospital admissions);

(4) Case mix—the financial effect of changes in the average

complexity of hospital admissions; and

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121

(5) Other sources—a residual category reflecting all other

factors affecting hospital cost increases (such as enacted

legislative changes).

Table IV.A1 shows the estimated historical values of these principal

components, as well as the projected trends used in the estimates. The

impact of sequestration in April 1, 2013 through September 30, 2032,

with the exception of May 1, 2020 through March 31, 2022 when it was

suspended, is reflected in the table. Unless otherwise indicated, the

following discussions apply to projections under the intermediate

assumptions.

Table IV.A1.—Components of Historical and Projected Increases

in HI Inpatient Hospital Payments

Percent increase in year indicated over previous year, on an incurred basis.

Reflects the allowances provided for in the prospective payment update factors. Also reflects (i) the

downward adjustments to price updates based on the 10-year moving average of economy-wide

productivity growth and (ii) additional decreases in updates ranging from 0.1 percentage point to

0.75 percentage point through 2019.

The input price index is a weighted average of the price proxies (prices

of specific inputs) used in delivery of HI inpatient services. In the first

2 years of the projection period, the methodology used to determine the

increases in the input price index is based on the methodology

underlying the regulatory updates. Thereafter, the methodology

utilizes least-squares regression models for each price proxy to project

this index. The process begins by regressing the historical time series

for each price proxy on one of three independent variables: average

hourly compensation, GDP deflator, and CPI. The regression results

Volume of services

Calendar

year

Input

price

index

Unit input

intensity

allowance

enrollment

Managed

care shift

effect

Admission

incidence

Case mix

Other

sources

HI inpatient

hospital

payments

Historical data:

2013

2.6%

−0.8%

3.2%

−2.2%

−4.2%

1.4%

1.8%

1.7%

2014

2.6

−0.8

3.1

−2.5

−3.0

1.5

−0.7

0.1

2015

2.8

−0.7

2.7

−2.1

−0.8

0.5

−2.5

−0.2

2016

2.5

−0.8

2.7

−1.1

−1.9

3.1

−0.1

4.3

2017

2.7

−1.1

2.8

−2.2

−0.7

0.4

−1.0

0.9

2018

2.8

−1.4

2.3

−2.7

−2.0

1.8

0.4

1.0

2019

2.9

−1.3

2.5

−2.7

−2.6

1.0

1.6

1.3

2020

2.9

−0.3

2.2

−4.1

−14.6

3.8

8.2

−3.6

2021

2.5

−0.2

1.7

−5.3

−1.0

2.9

0.5

0.8

2022

3.1

−0.6

1.7

−5.0

−2.4

−0.3

1.1

−2.7

Intermediate estimates:

2023

3.8

−0.3

1.9

−4.9

2.3

0.5

1.6

4.8

2024

3.1

−0.2

2.1

−3.4

−0.7

0.5

0.7

2.1

2025

3.4

−0.4

2.3

−1.6

0.0

0.5

0.3

4.5

2026

3.4

−0.5

2.4

−1.6

0.4

0.5

0.4

5.0

2027

3.4

−0.5

2.2

−1.6

0.6

0.5

0.3

4.9

2028

3.4

−0.5

2.1

−1.5

0.6

0.5

0.3

4.9

2029

3.5

−0.6

2.0

−1.5

0.8

0.5

0.3

5.1

2030

3.5

−0.6

1.7

−1.4

0.4

0.5

0.3

4.3

2031

3.5

−0.5

1.3

−1.4

0.5

0.3

4.2

2032

3.4

−0.6

1.1

−1.3

0.5

0.8

4.4

Actuarial Methodology

122

are then applied to the projected independent variables to produce

projections for each detailed price proxy, which are weighted together

to produce the aggregate input price index.

The unit input intensity allowance is generally a downward

adjustment provided for by law in the prospective payment update

factor; that is, it is the amount subtracted from the input price index

to yield the update factor.

Beginning in fiscal year 2004, the law

provides that increases in payments to prospective payment system

hospitals for covered admissions will equal the increase in the hospital

input price index for those hospitals that submit the required quality

measure data. For other hospitals, the increase will be slightly smaller.

For this report, the Trustees assume that all hospitals will submit

these data. Beginning in fiscal year 2010, the law mandates amounts

to be subtracted from the input price index, including the increase in

economy-wide productivity in 2012 and later, and amounts ranging

from 0.1 percentage point to 0.75 percentage point for 2011 through

2020. As a result of these adjustments, the unit input intensity

allowance, as indicated in table IV.A1, is negative throughout the first

10-year projection period.

Increases in payments for inpatient hospital services also reflect

growth in the number of inpatient hospital admissions covered under

HI fee-for-service. As shown in table IV.A1, increases in admissions are

attributable to growth in both HI enrollment and admission incidence

(admissions per beneficiary).

A very large decrease in admissions

occurred in 2020 due to the pandemic, and a number of these

admissions are expected to return over the next few years. The

historical and projected growth in enrollment reflects a more rapid

increase in the population aged 65 and over than in the total population

of the United States, as well as trends in the number of disabled

beneficiaries and persons with end-stage renal disease. Growth in

enrollment is expected to continue and to mirror the ongoing

demographic shift into categories of the population eligible for HI

The update factors are generally prescribed on a fiscal-year basis, while table IV.A1 is

on a calendar-year basis. Calculations have therefore been performed to estimate the

unit input intensity allowance on the basis of calendar years. The sum of the input price

index and the unit input intensity allowance generally reflects the prescribed prospective

payment update factor, but on a calendar-year, rather than a fiscal-year, basis.

This factor has recently been negative and is projected to remain that way through

2028, reflecting the influx of beneficiaries aged 65 (and the resulting reduction in the

average age of beneficiaries) due to the retirement of the baby boom generation. By the

end of the projection period, the aging of this group is expected to increase the incidence

of admissions.

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123

benefits and reduced by an increasing proportion of beneficiaries

enrolling in private health plans.

The choice of more beneficiaries to join private health plans has been

an offsetting factor to the HI enrollment growth, as shown in the

“Managed care shift effect” column of table IV.A1. In other words,

greater enrollment in private health plans reduced the number of

beneficiaries with fee-for-service Medicare coverage and thereby

reduced hospital admissions paid through fee-for-service. Private

Medicare health plan membership is projected to continue to grow for

most of the projection period.

Since the beginning of the prospective payment system (PPS),

inpatient hospital payments have varied based on the complexity of

admissions. These variations are primarily due to (i) the changes in

diagnosis-related group (DRG) coding as hospitals continue to adjust

to the PPS and (ii) the trend toward treating less complicated (and thus

less expensive) cases in outpatient settings, which results in an

increase in the average prospective payment per admission.

The average complexity of hospital admissions (case mix) decreased in

fiscal year 2022, and it is expected to increase by 0.5 percent annually

in fiscal years 2023 through 2032 as a result of an assumed

continuation of the current trend toward treating less complicated

cases in outpatient settings, ongoing changes in DRG coding, and the

overall impact of new technology. The early years are affected by the

COVID-19 pandemic.

Hospital payments are also affected by other factors, as reflected in the

“Other sources” column of table IV.A1. For example, statutory budget

neutrality adjustments offset costs from significant increases in case

mix that occurred when the new Medicare severity diagnosis-related

group (MS-DRG) system was introduced in 2008. Although the law

limited the size of these adjustments in 2008 and 2009, it allows

subsequent recovery of any extra payments that resulted. The “Other

sources” column reflects all of these actual and anticipated effects and

adjustments. In addition, one can attribute part of the increase from

“other sources” to the increase in payments for certain costs, not

included in the DRG payment, that are generally growing at a rate

slower than the input price index. These other costs include capital,

medical education (both direct and indirect), disproportionate share

hospital (DSH) payments, and payments to hospitals not included in

the PPS. A particularly important change affecting these costs is the

reduction in Medicare DSH payments. This change reflects the major

coverage expansions that began in 2014 and that continue to result in

Actuarial Methodology

124

significantly fewer uninsured hospital patients. In 2019, however, the

elimination of the individual mandate increased the number of

uninsured, resulting in an increase in this factor. The “Other sources”

column also reflects the impact of the 20-percent add-on for COVID-19

admissions during the public health emergency.

Additional possible sources of changes in payments include (i) a shift

to higher-cost or lower-cost admissions due to changes in the

demographic characteristics of the covered population; (ii) changes in

medical practice patterns; and (iii) adjustments in the relative

payment levels for various DRGs, or addition/deletion of DRGs, in

response to changes in technology.

The “Other sources” column reflects, as appropriate, the impact of

certain enacted legislation, including the sequestration process. Also

reflected in this column is the impact of the estimated bonus payments

and penalties for hospitals due to the health information technology

incentives.

The increases in the input price index (less any intensity allowance

specified in the law), units of service, and other sources are

compounded to calculate the total increase in payments for inpatient

hospital services. The last column of table IV.A1 shows these overall

increases.

c. Fee-for-Service Payments for Skilled Nursing Facility,

Home Health Agency, and Hospice Services

To project fee-for-service payments for skilled nursing facilities (SNFs),

a method similar to that for inpatient hospitals is used. First, the

number of covered days is determined, and then the average

reimbursement per day is calculated. Historically, the number of days

of care covered in SNFs under HI has varied widely. This extremely

volatile experience has resulted, in part, from legislative and

regulatory changes and from judicial decisions affecting the scope of

coverage. Since 2012, there have been significant decreases in the

number of covered SNF days. The intermediate projections assume

that changes in covered SNF days will continue to reflect the positive

growth and aging of the population, but the underlying trend will be

0 percent in 2021 and beyond. The impacts of the pandemic are also

incorporated in these projections, including the waiver of the 3-day

prior-stay requirement during the public health emergency.

The methodology used to develop the market basket increases for SNFs

is consistent with the methodology used to develop the hospital market

Hospital Insurance

125

basket increases. These market basket increases are reduced by the

increase in economy-wide productivity beginning in 2012. Cost per day

also increases by a case mix increase. The implementation of a new

RUG system caused a very large increase in case mix in 2011, and a

reduction of about 12.6 percent was applied in 2012 to match payments

from the prior system. Subsequently, case mix increases dropped from

2.0 percent in 2013 to 0.1 percent in 2019. In 2020, a new payment

system was implemented, leading to an increase in case mix of

4.9 percent. This increase dropped to 1.4 percent in 2021. For the

projection, the case mix increases are assumed to remain at a level of

1.5 percent annually beginning in 2022. The required reduction in

costs due to sequestration is also reflected in the projected

expenditures. These assumed trends result in projected rates of

increase in cost per day that are assumed to decline to a level slightly

higher than increases in general earnings throughout the projection

period.

Table IV.A2 shows the resulting increases in fee-for-service

expenditures for SNF and other types of services. The sequestration

impact is reflected in the table.

Table IV.A2.—Relationship between Increases in HI Expenditures

and Increases in Taxable Payroll

Calendar

year

Inpatient

hospital

Skilled

nursing

facility

Home

health

agency

Hospice

Private

plans

Weighted

average

HI admin-

istrative

costs

expendi-

tures

taxable

payroll

Growth

rate

differential

Historical data:

2013

1.7%

1.6%

0.0%

−0.2%

4.7%

2.3%

8.4%

2.4%

2.5%

−0.1%

2014

0.1

1.4

−1.1

0.0

−0.1

0.1

4.8

0.2

5.1

−4.7

2015

−0.2

1.9

4.3

5.2

8.0

2.7

20.8

3.1

4.9

−1.8

2016

4.3

−2.2

−1.0

6.0

7.3

4.4

−9.1

4.1

2.7

1.3

2017

0.9

−1.2

−0.5

6.4

10.6

3.9

4.2

3.9

4.6

−0.7

2018

1.0

−1.6

−0.5

7.3

9.3

3.7

4.4

3.8

5.0

−1.1

2019

1.3

−1.8

−2.1

8.2

15.3

6.1

3.0

6.0

4.5

1.5

2020

−3.6

5.3

−7.7

6.8

14.7

4.5

−18.2

4.0

1.8

2.2

2021

0.8

−4.7

−0.5

3.8

9.0

3.8

15.9

4.0

9.2

−4.7

2022

−2.7

4.5

−5.5

3.7

14.0

5.3

2.8

5.2

7.3

−1.9

Intermediate estimates:

2023

4.8

−4.1

7.7

6.7

12.0

7.5

−4.8

7.4

4.4

2.8

2024

2.1

−1.3

3.0

7.1

7.8

4.9

2.4

4.9

4.4

0.4

2025

4.5

10.1

9.0

7.9

9.7

7.7

4.8

7.6

4.9

2.6

2026

5.0

5.8

8.8

8.4

9.5

7.6

4.8

7.5

4.8

2.6

2027

4.9

6.0

14.8

8.8

9.5

7.7

4.7

7.7

4.7

2.9

2028

4.9

6.1

10.4

9.0

7.5

4.6

7.5

4.4

3.0

2029

5.1

6.0

7.6

9.0

9.1

7.6

4.5

7.5

4.3

3.1

2030

4.3

6.0

6.7

8.9

8.1

6.8

4.3

6.8

4.3

2.4

2031

4.2

6.0

6.9

9.1

7.9

6.7

3.9

6.6

4.2

2.3

2032

4.4

6.4

7.1

9.7

7.8

6.8

5.1

6.8

4.0

2.6

Percent increase in year indicated over previous year.

Includes the declining share of costs drawn from HI for coverage of certain home health services

transferred from HI to SMI Part B.

Includes costs of Quality Improvement Organizations.

The ratio of the increase in HI costs to the increase in taxable payroll. This ratio is equivalent to the

percent increase in the ratio of HI expenditures to taxable payroll (the cost rate).

Actuarial Methodology

126

A similar methodology is used to project home health agency (HHA)

payments. For most historical years, HI experience with HHA

payments had shown an upward trend, frequently with sharp

increases in the number of visits from year to year. There were large

decreases in utilization in 2012 followed by a rebound in 2013 through

2015. There were decreases again for 2016 through 2019, and then

utilization dropped significantly in 2020 due to the pandemic before

rebounding in 2021. Beginning in 2022 and throughout the rest of the

short-range projection period, utilization increases are assumed to be

equal to the growth and aging of the population plus 1 percent

annually, plus an additional factor to include the impact of COVID-19

(as utilization rebounds from the very low levels that occurred during

the pandemic).

Reimbursement per episode of care

is assumed to increase at a

slightly higher rate than increases in general earnings, but

adjustments to reflect statutory limits on HHA reimbursement per

episode are included where appropriate. As with other services, a least-

squares regression model was used to develop market basket increases,

which are reduced by the increase in economy-wide productivity

beginning in 2015. Costs also increase by a case mix increase factor.

Case mix increases have been modest, decreasing in 2011 and 2012

before rebounding in 2013 through 2021. Beginning in 2022, case mix

increases are projected to grow at a rate of 1.5 percent annually. CMS

adjusted HHA payment levels from 2008 through 2013 to gradually

offset the financial effect of the unduly high mix of services in the first

and subsequent years. HHA payment rates were rebased starting in

2014, and an estimated 14-percent reduction in payments was phased

in over a 4-year period. Additionally, projected HHA costs reflect

regulatory reductions that were made to the base payment rate over

2023 and 2024 in order to maintain budget neutrality for the switch to

30-day periods. Table IVA2 shows the resulting increases in fee-for-

service expenditures for HHA services.

HI covers certain hospice care for terminally ill beneficiaries. Hospice

payments were originally very small relative to total HI benefit

payments, but they have grown rapidly in most years and now

substantially exceed the level of HI home health expenditures. This

growth rate is composed of two factors: (i) the price update, which is a

function of the hospital market basket with an adjustment for

economy-wide productivity, and (ii) a residual, which reflects other

factors excluding the impact of changes in enrollment. This residual

Under the HHA prospective payment system, Medicare payments are made for each

episode of care, rather than for each individual home health visit.

Hospital Insurance

127

grew at a rate of about 4 percent annually from 2008 through 2013,

became negative in 2014, and rebounded in 2015 through 2020. Since

then there has been lower growth in the residual. For 2023 and the

remainder of the short-range projection period, the residual is assumed

to increase at 3 percent per year. Estimates for hospice benefit

payment increases are based on mandated daily payment rates and

annual payment caps, and these estimates assume a deceleration in

the growth in the number of covered days.

d. Private Health Plan Costs

HI payments to private health plans have generally increased

significantly from the time that such plans began to participate in the

Medicare program in the 1970s. Most of the growth in expenditures

has been attributable to the increasing numbers of beneficiaries who

have enrolled in these plans. Section IV.C of this report contains a

description of the private health plan assumptions and methodology.

e. Administrative Expenses

Historically, the cost of administering the HI trust fund has remained

relatively small in comparison with benefit amounts. The ratio of

administrative expenses to benefit payments has generally fallen

within the range of 1 to 3 percent. The short-range projection of

administrative cost is based on estimates of workloads and approved

budgets for Medicare Administrative Contractors and CMS. In

addition, due to sequestration, the administrative costs reflect an

estimated 5- to 7-percent reduction for the period April 1, 2013 through

September 30, 2032, with the exception of May 1, 2020 through

March 31, 2022 when it was suspended. In the long range,

administrative cost increases are based on assumed increases in

workloads, primarily due to growth and aging of the population, and

on assumed unit cost increases equal to the increases in average

annual covered wages.

2. Summary of Aggregate Reimbursement Amounts on an

Incurred Basis under the Intermediate Assumptions

Table IV.A3 shows aggregate historical and projected reimbursement

amounts by type of service on an incurred basis under the intermediate

assumptions. The sequestration impact is reflected in the table.

Actuarial Methodology

128

Table IV.A3.—Aggregate Part A Reimbursement Amounts on an Incurred Basis

[In millions]

Calendar

year

Inpatient

hospital

Skilled

nursing

facility

Home health

agency

Hospice

Total FFS

Private

health plans

Total Part A

Historical data:

2013

$139,791

$28,603

$6,813

$15,131

$190,337

$73,739

$264,076

2014

139,726

28,994

6,735

15,125

190,580

73,651

264,231

2015

139,424

29,556

7,027

15,918

191,926

79,546

271,472

2016

145,244

28,894

6,956

16,873

197,967

85,334

283,302

2017

146,467

28,540

6,918

17,947

199,872

94,341

294,213

2018

147,818

28,081

6,880

19,263

202,043

103,104

305,147

2019

150,140

27,575

6,738

20,841

205,294

118,895

324,189

2020

143,413

29,030

6,218

22,267

200,929

136,353

337,281

2021

144,402

27,666

6,189

23,119

201,376

148,576

349,953

2022

140,305

28,923

5,851

23,967

199,046

169,351

368,397

Intermediate estimates:

2023

147,001

27,728

6,304

25,576

206,609

189,606

396,216

2024

149,966

27,374

6,492

27,393

211,225

204,334

415,559

2025

156,733

30,146

7,078

29,564

223,522

224,140

447,662

2026

164,578

31,896

7,701

32,045

236,221

245,367

481,588

2027

172,745

33,825

8,837

34,874

250,282

268,625

518,908

2028

181,219

35,904

9,754

38,030

264,908

292,913

557,821

2029

190,451

38,067

10,492

41,466

280,477

319,706

600,183

2030

198,698

40,346

11,191

45,159

295,394

345,665

641,059

2031

207,120

42,771

11,958

49,274

311,123

372,822

683,945

2032

216,248

45,512

12,813

54,042

328,615

401,800

730,415

3. Financing Analysis Methodology

Because payroll taxes are the primary basis for financing the HI trust

fund, HI costs can be compared on a year-by-year basis with the

taxable payroll in order to analyze costs and evaluate the financing.

a. Taxable Payroll

Taxable payroll increases occur as a result of increases in both average

covered earnings and the number of covered workers. The taxable

payroll projection used in this report is based on the same economic

assumptions used in the 2023 Annual Report of the Board of Trustees

of the Federal Old-Age and Survivors Insurance and Federal Disability

Insurance Trust Funds (OASDI). Table IV.A2 shows the projected

increases in taxable payroll for this report, under the intermediate

assumptions.

b. Relationship between HI Costs and Taxable Payroll

The most meaningful measure of HI cost increases, with regard to the

financing of the system, is the relationship between cost increases and

taxable payroll increases. If costs increase more rapidly than taxable

payroll, either income rates must be increased or costs reduced (or

some combination thereof) to finance the system in the future.

Table IV.A4 shows the projected increases in HI costs relative to

Hospital Insurance

129

taxable payroll over the 10-year projection period. For the intermediate

assumption, these relative increases start at 2.8 percent per year in

2023, increase to 2.9 percent in 2027 and to 3.1 percent in 2029, and

decrease to 2.4 percent and 2.3 percent in 2030 and 2031, respectively,

due to the sequestration reductions. The result of these relative growth

rates is a steady increase in the year-by-year ratios of HI expenditures

to taxable payroll, as shown in table IV.A4. The sequestration impact

is reflected in the table.

Table IV.A4.—Summary of HI Alternative Projections

Changes in the relationship between

expenditures and payroll

Calendar

year

expenditures

2,3

Taxable

payroll

Ratio of

expenditures

to payroll

HI effective

interest rate

Nominal interest

rate

Intermediate estimates:

2023

7.4%

4.4%

2.8%

2.757%

3.541%

2024

4.9

4.4

0.4

2.772

3.541

2025

7.6

4.9

2.6

2.907

3.552

2026

7.5

4.8

2.6

3.088

3.729

2027

7.7

4.7

2.9

3.232

3.906

2028

7.5

4.4

3.0

3.390

4.187

2029

7.5

4.3

3.1

3.546

4.427

2030

6.8

4.3

2.4

3.684

4.583

2031

6.6

4.2

2.3

4.625

2032

6.8

4.0

2.6

4.750

4.677

Low-cost:

2023

6.0

5.7

0.3

2.897

2.958

2024

3.6

7.1

−3.3

3.139

4.208

2025

7.9

7.5

0.4

3.524

4.375

2026

7.0

6.4

0.6

3.961

4.760

2027

6.8

5.9

0.9

4.365

5.145

2028

6.7

5.7

0.9

4.693

5.479

2029

6.8

5.7

1.0

4.940

5.500

2030

6.0

5.6

0.3

5.121

5.500

2031

5.9

5.6

0.2

5.266

5.520

2032

5.9

5.4

0.5

5.388

5.687

High-cost:

2023

8.6

1.4

7.1

2.733

2.958

2024

6.6

3.2

3.3

2.691

3.437

2025

8.9

4.6

4.2

2.826

2.906

2026

8.9

4.3

4.4

3.032

2.812

2027

8.8

3.9

4.7

3.125

3.000

2028

8.2

3.1

4.9

3.125

3.156

2029

8.0

2.9

5.0

3.250

3.208

2030

7.2

2.9

4.2

3.375

3.260

2031

7.1

2.9

4.1

3.500

3.375

2032

7.2

2.6

4.5

3.625

3.510

Percent increase for the year indicated over the previous year.

On an incurred basis.

Includes hospital, SNF, HHA, private health plan, and hospice expenditures; administrative costs; and

costs of Quality Improvement Organizations.

The Trustees calculate present values by discounting the future annual amounts of income and outgo

using the projected effective rates of interest credited to the HI trust fund for the first 10 years and grade

to the ultimate nominal interest rate assumption by year 15. The ultimate nominal interest rates for the

intermediate, low-cost, and high-cost projections are 4.7, 5.8, and 3.6 percent, respectively.

Actuarial Methodology

130

4. Projections under Alternative Assumptions

Projected HI expenditures under current law are subject to

considerable uncertainty. To illustrate this uncertainty, HI costs have

been projected under three alternative sets of assumptions.

Under the low-cost alternative over the 10-year projection period,

increases in HI expenditures relative to increases in taxable payroll

follow a pattern similar to that for the intermediate assumption, but

at a somewhat lower rate; annually, the rate for expenditures in

relation to taxable payroll becomes 3.3 percent less by 2024, increases

to 1.0 percent more by 2029, and decreases to 0.3 percent less and

0.2 percent less in 2030 and 2031, respectively, due to the

sequestration reductions. Under the high-cost alternative, the ratio of

expenditures to payroll decreases from 7.1 percent in 2023 to

3.3 percent in 2024 and then increases to 5.0 percent in 2029 before

becoming 4.1 percent in 2031 due to the sequestration reductions, as

shown in table IV.A4.

Beyond the first 25-year projection period, HI costs under the

intermediate assumptions are based on the assumption that average

per beneficiary expenditures (excluding demographic impacts) will

increase at the baseline rates determined by the economic model

described in sections II.C and IV.D less the economy-wide productivity

adjustments. This rate is assumed to be about 0.1 percentage point

faster than the increase in the Gross Domestic Product (GDP) per

capita in 2047 but would decelerate to 0.3 percentage point slower than

GDP per capita by 2097. HI expenditures, which were 3.3 percent of

taxable payroll in 2022, increase to 4.8 percent by 2047 and remain at

roughly 4.8 percent until 2097 under the intermediate assumptions.

Accordingly, if all of the projection assumptions were realized over

time, the HI income rates (4.05 percent of taxable payroll summarized

over 75 years) would be inadequate to support the HI cost.

For the HI low-cost and high-cost projections, Medicare expenditures

are determined by changing the assumption for the ratio of aggregate

costs to taxable payroll (the cost rate). These changes are intended to

provide an indication of how Medicare expenditures could vary in the

future as a result of different economic, demographic, and health care

trends. During the first 25-year projection period, the low-cost and

high-cost alternatives contain assumptions that result in HI costs

increasing, relative to taxable payroll increases, approximately

2 percentage points less rapidly and 2 percentage points more rapidly,

respectively, than the results under the intermediate assumptions.

Costs beyond the first 25-year projection period assume that the

Hospital Insurance

131

2-percentage-point differential gradually decreases until 2071, when

HI cost increases relative to taxable payroll are approximately the

same as under the intermediate assumptions.

Assumptions regarding income to the HI trust fund—including payroll

taxes, income from the taxation of benefits, interest, and other income

items—and assumptions regarding administrative costs are consistent

with those underlying the OASDI report.

B. SUPPLEMENTARY MEDICAL INSURANCE

SMI consists of Part B and, since 2004, Part D. The benefits provided

by each part are quite different. The actuarial methodologies used to

produce the estimates for each part reflect these differences and thus

appear in separate sections (IV.B1 and IV.B2).

1. Part B

a. Cost Projection Methodology

Estimates under the intermediate assumptions are calculated

separately for each category of enrollee and for each type of service.

The estimates are prepared by establishing the allowed charges or

costs incurred per enrollee for a recent year (to serve as a projection

base) and then projecting these charges through the estimation period.

The per enrollee charges are then converted to reimbursement

amounts by subtracting the per enrollee values of the deductible and

coinsurance. Aggregate reimbursement amounts are calculated by

multiplying the per enrollee reimbursement amounts by the projected

enrollment. In order to estimate cash expenditures, an allowance is

made for the delay between receipt of, and payment for, the service.

(1) Projection Base

To establish a suitable base from which to project the future Part B

costs, the incurred payments for services provided must be constructed

for the most recent period for which a reliable determination can be

made. Accordingly, payments to providers must be attributed to dates

of service, rather than to payment dates; in addition, the nonrecurring

effects of any changes in regulations, legislation, or administration,

and of any items affecting only the timing and flow of payments to

providers, must be eliminated. As a result, the rates of increase in the

Part B incurred cost differ from the increases in cash expenditures. As

a check on the validity of the projection base, incurred reimbursement

amounts are compared with cash expenditures.

Actuarial Methodology

132

(a) Practitioner Services

Private contractors acting for the Centers for Medicare & Medicaid

Services (CMS) pay reimbursement amounts for services billed by

practitioners, including physician services, durable medical equipment

(DME), laboratory tests performed in physician offices and

independent laboratories, and other services (such as physician-

administered drugs, free-standing ambulatory surgical center facility

services, ambulance services, and supplies). These Medicare

Administrative Contractors (MACs) use CMS guidelines to determine

whether Part B covers billed services, establish the allowed charges for

covered services, and transmit to CMS a record of the allowed charges,

the applicable deductible and coinsurance, and the amount reimbursed

after reduction for coinsurance and the deductible.

(b) Institutional Services

The same MACs also pay reimbursement amounts for institutional

services covered under Part B. These include outpatient hospital

services, home health agency services, laboratory services performed

in hospital outpatient departments, and such services as renal dialysis

performed in free-standing dialysis facilities, services in outpatient

rehabilitation facilities, and services in rural health clinics.

Separate payment systems exist for almost all the Part B institutional

services. For these systems, the MACs determine whether Part B

covers billed services, establish the allowed payment for covered

services, and send to CMS a record of the allowed payment, the

applicable deductible and coinsurance, and the amount reimbursed

after reduction for coinsurance and the deductible.

For those services still reimbursed on a reasonable-cost basis, the costs

for covered services are determined on the basis of provider cost

reports. Reimbursement for these services occurs in two stages. First,

bills are submitted by providers to the MACs, and interim payments

are made on the basis of these bills. The second stage takes place at

the close of a provider’s accounting period, when a cost report is

submitted and lump-sum payments or recoveries are made to correct

for the difference between interim payments and final settlement

amounts for providing covered services (net of coinsurance and

deductible amounts). Tabulations of the bills are prepared by date of

service, and the lump-sum settlements, which are reported only on a

cash basis, are adjusted (using approximations) to allocate them to the

time of service.

Supplementary Medical Insurance

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Private health plans with contracts to provide Part B services to

Medicare beneficiaries are reimbursed directly by CMS on either a

reasonable-cost or capitation basis. Section IV.C of this report contains

a description of the assumptions and methodology used to estimate

payments to private plans.

(2) Projected Fee-for-Service Payments for Aged Enrollees and

Disabled Enrollees without End-Stage Renal Disease (ESRD)

Part B enrollees with ESRD have per enrollee costs that are

substantially higher and quite different in nature from those of most

other beneficiaries. Accordingly, the analysis in this section excludes

their Part B costs. Those costs, as well as costs associated with

beneficiaries enrolled in private health plans, are discussed later in

this section.

(a) Practitioner Services

i. Physician Services

Medicare payments for physician services are based on a fee schedule,

which reflects the relative level of resources required for each service.

The fee schedule amount is equal to the product of the procedure’s

relative value, a conversion factor, and a geographic adjustment factor.

Payments are based on the lower of the actual charge and the fee

schedule amount.

The physician fee schedule updates are specified by law for every

future year. Prior to enactment of the Consolidated Appropriations Act,

2021, the Protecting Medicare and American Farmers from Sequester

Cuts Act, and the Consolidated Appropriations Act, 2023, the update

for 2021 through 2025 was statutorily set at 0 percent. Together these

laws put in place a 3.75-percent update for 2021, an update of

−0.7 percent for 2022, an update of −0.5 percent for 2023, and updates

of −1.2 percent for 2024 and 2025. Starting in 2026, the annual update

for qualified physicians in advanced alternative payment models

(advanced APMs) will be 0.75 percent, and, for all other physicians, the

update each year will be 0.25 percent.

Per capita physician charges have also changed each year as a result

of a number of other factors besides fee increases, including more

physician visits and related services per enrollee, the demographic

changes of the Medicare population, greater use of specialists and more

expensive techniques, and certain administrative actions.

Actuarial Methodology

134

Table IV.B1 shows increases in total allowed charges per fee-for-

service enrollee for the physician fee schedule and practitioner

services. The sequestration of Medicare benefits in April 1, 2013

through September 30, 2032, with the exception of May 1, 2020

through March 31, 2022 when it was suspended, does not affect allowed

charges and therefore is not reflected in table IV.B1; rather, that

impact is included in table IV.B2.

Table IV.B1.—Increases in Total Allowed Charges

per Fee-for-Service Enrollee for Practitioner Services

[In percent]

Calendar year

Physician fee

schedule

DME

Lab

Physician-

administered drugs

Other

Aged:

2013

0.1 %

−10.3 %

0.4 %

7.2 %

−2.2 %

2014

1.0

−14.5

6.7

5.8

−0.1

2015

−0.7

5.7

−2.7

14.2

0.9

2016

−0.7

−7.5

−5.7

9.1

−0.4

2017

1.2

−5.6

3.9

6.7

4.3

2018

1.6

17.7

11.3

2,3

12.1

2.2

2019

4.0

7.1

4.6

12.3

2.3

2020

−11.3

2.3

8.8

3.2

−0.5

2021

18.6

5.6

20.4

11.0

5.1

2022

2.9

10.7

−3.1

11.3

13.1

2023

2.8

12.4

9.7

8.3

9.4

2024

1.7

6.3

5.8

9.3

4.5

2025

1.1

6.0

10.7

7.2

4.2

2026

3.0

6.5

4.9

7.2

4.5

2027

3.6

5.7

5.1

7.8

4.5

2028

3.3

5.3

36.7

2.8

4.2

2029

3.4

5.4

5.1

6.4

4.2

2030

3.1

5.0

5.2

4.1

4.6

2031

3.2

5.0

13.1

4.8

4.3

2032

3.1

5.0

5.2

5.5

4.3

Disabled (excluding ESRD):

2013

1.1

−9.5

10.1

0.7

1.3

2014

2.1

−11.3

12.6

6.7

1.8

2015

−0.5

6.0

5.6

8.4

4.8

2016

−0.7

−6.3

−23.0

10.4

0.0

2017

−0.8

0.5

−2.1

4.0

8.6

2018

1.8

15.8

6.3

2,3

10.4

4.2

2019

3.0

2.5

8.1

9.2

3.2

2020

−8.9

−0.7

−7.7

8.6

8.1

2021

15.8

3.7

18.2

15.5

2.3

2022

1.1

9.7

−3.6

15.4

11.4

2023

4.1

14.3

11.4

9.4

10.7

2024

1.9

6.6

6.2

9.7

4.5

2025

0.4

5.4

10.1

6.7

3.3

2026

2.9

6.4

4.9

7.2

4.1

2027

3.4

5.7

4.9

7.6

4.0

2028

3.0

5.4

36.4

2.6

4.0

2029

3.3

5.5

5.0

6.3

4.1

2030

2.8

4.9

4.8

3.7

3.9

2031

2.8

4.8

12.6

4.4

3.9

2032

3.0

5.3

5.1

5.4

4.2

Reflects a significant increase in the utilization of certain orthotic braces beginning in 2018. This allegedly

fraudulent utilization was stopped early in 2019.

Beginning in 2018, payments under the laboratory fee schedule no longer include an adjustment for

economy-wide productivity. Instead, payments reflect a survey of private sector lab payments and are

updated every 3 years.

Supplementary Medical Insurance

135

Reflects a significant increase in the utilization of genetic cancer testing services in 2018 and 2019. This

allegedly fraudulent utilization was stopped late in 2019.

For 2019–2025, qualified physicians in an advanced APM will receive an incentive payment amounting

to 5 percent of their Medicare payments for 2019–2024 and 3.5 percent for 2025. For those same years,

a total of $500 million is available for additional payment adjustment under the merit-based incentive

payment system (MIPS) for certain high-performing physicians.

Based on the increases in table IV.B1, and incorporating the

sequestration of Medicare expenditures, table IV.B2 shows the

estimates of the average incurred reimbursement for practitioner

services per fee-for-service enrollee.

Table IV.B2.—Incurred Reimbursement Amounts per Fee-for-Service Enrollee

for Practitioner Services

Calendar year

Fee-for-service

enrollment

[millions]

Physician fee

schedule

DME

Lab

Physician-

administered

drugs

Other

Aged:

2013

27.108

$2,124.63

$197.49

$147.92

$319.07

$274.10

2014

27.224

2,145.78

168.75

157.11

336.93

272.64

2015

27.441

2,123.70

178.52

152.86

389.75

275.58

2016

27.987

2,090.95

164.46

144.10

423.18

274.27

2017

28.056

2,103.31

155.13

149.78

450.72

286.28

2018

28.102

2,137.43

183.25

166.81

505.24

292.30

2019

28.195

2,242.79

196.10

174.49

566.50

298.51

2020

27.841

2,009.42

203.00

192.71

591.75

301.50

2021

26.965

2,422.80

215.55

233.33

660.72

319.05

2022

26.295

2,423.47

235.64

223.83

724.53

358.42

2023

25.824

2,481.08

263.48

243.14

781.01

390.02

2024

25.859

2,521.96

280.04

257.26

854.60

407.51

2025

26.233

2,540.58

296.93

284.88

916.98

424.58

2026

26.583

2,606.42

316.19

298.88

984.14

443.62

2027

26.853

2,695.74

334.11

314.17

1,061.69

463.17

2028

27.095

2,779.48

351.90

429.62

1,091.38

482.58

2029

27.302

2,868.32

370.81

451.62

1,161.63

502.79

2030

27.439

2,953.30

389.47

475.05

1,209.27

525.80

2031

27.480

3,043.12

408.80

537.17

1,268.22

548.32

2032

27.483

3,148.00

431.25

567.99

1,346.35

574.91

Disabled (excluding ESRD):

2013

5.790

1,763.81

326.89

217.17

276.38

258.59

2014

5.732

1,821.85

289.30

243.29

294.65

261.94

2015

5.609

1,804.74

306.93

256.93

320.54

274.63

2016

5.503

1,775.78

286.39

197.76

353.79

274.47

2017

5.361

1,748.25

287.84

193.59

367.34

302.71

2018

5.028

1,778.25

333.25

205.66

404.42

314.99

2019

4.666

1,845.14

341.03

222.59

440.89

323.96

2020

4.202

1,701.32

342.92

208.26

484.15

358.77

2021

3.711

2,002.28

357.15

247.66

564.55

372.30

2022

3.224

1,968.45

385.95

235.81

644.89

410.54

2023

2.581

2,034.54

428.01

260.54

701.32

451.75

2024

2.066

2,073.24

456.52

276.67

770.49

472.01

2025

1.864

2,077.60

481.51

304.62

822.93

487.52

2026

1.681

2,129.37

512.52

319.45

882.75

507.29

2027

1.545

2,198.20

541.95

335.11

950.91

527.40

2028

1.441

2,261.77

570.98

457.18

975.83

548.06

2029

1.354

2,331.89

602.32

480.04

1,037.97

570.22

2030

1.291

2,393.06

631.75

503.19

1,077.36

592.15

2031

1.240

2,455.94

661.82

566.68

1,125.72

614.94

2032

1.193

2,538.07

700.23

598.59

1,193.80

644.09

Actuarial Methodology

136

Starting in 2019, qualified physicians who are part of an advanced

APM receive payments that are different from those received by other

physicians. Qualified physicians in an advanced APM will receive an

annual incentive payment, which will be equal to 5 percent of their

Medicare payments for 2019 through 2024 and 3.5 percent of their

Medicare payments for 2025. Most physicians who are not qualified

physicians in an advanced APM will instead be under the merit-based

incentive payment system (MIPS) and will receive a payment

adjustment according to their performance. The payment adjustment

(i) ranged from −4 percent to 0.3 percent in 2019, −5 percent to

0.3 percent in 2020, −7 percent to 0.0 percent in 2021, and −9 percent

to 0.0 percent in 2022; (ii) ranges from −9 percent to 0.1 percent in

2023; and (iii) could range from −9 percent to 27 percent for 2024 and

later. In total across all physicians to whom the payment adjustment

applies, the impact is to be budget neutral. For 2020 through 2024,

MIPS physicians could also receive an additional payment adjustment

for high performance. For 2023, the largest additional payment

adjustment for a physician is 2.22 percent. For 2024, it could be as

much as 10 percent. The total of all additional payment adjustments

made to MIPS physicians in a year must not exceed $500 million. The

additional payment adjustment sunsets after 2024. For 2026 and later,

qualified physicians in an advanced APM will receive an update of

0.75 percent while other physicians will receive a 0.25-percent update.

Based on these payment mechanisms, the existing demonstration and

payment models, and the requirements for becoming an advanced APM

qualified physician, the Trustees assume that physician participation

in advanced APMs will grow from 13.5 percent of spending in 2020 to

100 percent by 2065.

ii. Durable Medical Equipment (DME), Laboratory,

Physician-Administered Drugs, and Other Practitioner

Services

Unique fee schedules or reimbursement mechanisms have been

established not only for physician services but also for virtually all

other non-physician practitioner services. Table IV.B1 shows the

increases in the allowed charges per fee-for-service enrollee for DME,

laboratory services, and other services. As noted previously, allowed

charges are not affected by the sequestration of Medicare expenditures.

Based on the increases in table IV.B1, table IV.B2 shows the

corresponding estimates of the average incurred reimbursement

amounts for these services per fee-for-service enrollee; these amounts

are affected by the sequestration.

Supplementary Medical Insurance

137

Prior to 2011, DME items and laboratory services were updated by

increases in the CPI, together with any applicable legislated limits on

payment updates. Beginning in 2011, these items and services were

updated by the increase in the CPI minus the increase in the 10-year

moving average of economy-wide productivity.

A competitive-bidding program was implemented in 2011 to determine

Medicare payment for a certain portion of DME items, and as a result

this portion is no longer statutorily updated by the CPI or affected by

the annual productivity adjustments. Round 1 of the competitive-

bidding program was implemented on January 1, 2011 in nine

metropolitan statistical areas (MSAs), and it lowered total DME

spending by less than 2 percent. Round 2, which included both an

expansion to 91 additional MSAs and the implementation of a national

mail-order program for diabetic supplies, was effective on July 1, 2013

and lowered total DME spending by about 20 percent. The spending

was lowered by an additional 4 percent by January 1, 2017, when

national pricing for these services was fully implemented. CPI growth

is used as a proxy for the updates for these items in the projections.

The non-competitive-bidding portion of DME items continues to be

updated by the increase in the CPI minus the increase in economy-wide

productivity.

Beginning in 2018, Medicare payments for laboratory services are

linked to private payment rates, and consequently these services are

no longer updated by the CPI minus the productivity adjustments.

For laboratory services, as is the case with DME services, growth in

the CPI is used as a proxy for updating the private payment rates, a

process that occurs roughly every 3 years. COVID-19 tests have been a

significant source of laboratory services costs during the pandemic.

Medicare pays average sales price plus 6 percent for most physician-

administered drugs. Beginning in 2026, certain Part B drugs will have

their Medicare price determined through negotiation, as specified in

the Inflation Reduction Act of 2022. Drug price negotiations are

expected to lower estimated 2030 Part B drug spending by about

10 percent.

Per capita charges for these expenditure categories have also grown as

a result of other factors, including increased number of items and

services provided, demographic change, more expensive items and

Under the Protecting Access to Medicare Act of 2014, these changes were to be effective

in 2017; however, CMS delayed implementation until 2018. These changes also apply to

outpatient hospital laboratory services.

Actuarial Methodology

138

services, and certain administrative actions. This expenditure growth

is projected based on recent past trends in growth per enrollee.

(b) Institutional Services

Over the years, legislation has established new payment systems for

virtually all Part B institutional services, including a fee schedule for

tests performed in laboratories in hospital outpatient departments. A

prospective payment system (PPS) was implemented on

August 1, 2000 for services performed in the outpatient department of

a hospital. Similarly, a PPS for home health agency services was

implemented on October 1, 2000. Table IV.B3 shows the historical and

projected increases in charges and costs per fee-for-service enrollee for

institutional services, excluding the impact of sequestration.

Supplementary Medical Insurance

139

Table IV.B3.—Increases in Costs per Fee-for-Service Enrollee

for Institutional Services

[In percent]

Calendar year

Outpatient hospital

Home health

agency

Outpatient lab

Other

Aged:

2013

7.2 %

−1.3 %

−0.8 %

−0.9 %

2014

12.6

−0.5

−29.1

4.5

2015

7.4

1.2

2.3

5.0

2016

5.2

−0.9

3.0

2.4

2017

7.4

−1.9

1.1

4.7

2018

8.4

1.5

−1.0

7.5

2019

4.9

0.7

−1.5

6.2

2020

−6.0

−2.2

8.5

−6.2

2021

20.0

3.9

15.2

4.5

2022

6.5

−4.1

−0.3

1.1

2023

15.1

9.7

6.0

4.8

2024

9.1

2.9

5.2

2025

8.3

5.8

6.3

10.4

2026

8.3

8.6

2.9

6.3

2027

8.1

14.3

2.9

5.6

2028

6.8

9.9

21.3

5.4

2029

7.7

7.1

2.9

5.3

2030

6.9

6.5

3.0

5.3

2031

7.3

6.9

7.6

5.3

2032

7.1

7.3

2.9

5.0

Disabled (excluding ESRD):

2013

6.5

−1.4

−1.9

1.6

2014

14.8

−1.3

−36.0

7.4

2015

7.0

−1.5

0.2

9.5

2016

4.8

−5.4

3.1

5.9

2017

4.8

−3.4

−1.7

5.7

2018

7.3

3.3

2.1

6.7

2019

3.7

1.1

−1.8

8.3

2020

−7.9

10.2

7.5

−5.4

2021

12.9

4.7

19.8

17.5

2022

4.4

2.3

0.3

6.1

2023

17.0

14.6

7.4

7.1

2024

9.7

−1.3

3.3

5.6

2025

7.8

4.7

5.8

6.2

2026

8.2

10.3

2.9

5.6

2027

8.3

15.9

2.9

5.6

2028

6.6

11.1

21.3

5.6

2029

7.9

8.3

3.0

5.6

2030

6.7

7.1

2.8

5.4

2031

7.0

7.2

7.4

5.5

2032

7.3

7.6

3.1

5.7

Effective January 1, 2014, a large portion of outpatient laboratory services were bundled into the

outpatient prospective payment system.

See footnote 2 of table IV.B1.

Based on the increases in table IV.B3, table IV.B4 shows the estimates

of the incurred reimbursement for the various institutional services

per fee-for-service enrollee. Each of these expenditure categories is

projected on the basis of recent trends in growth per enrollee, along

with applicable legislated limits on payment updates. The

sequestration impact is reflected in the table.

Actuarial Methodology

140

Table IV.B4.—Incurred Reimbursement Amounts per Fee-for-Service Enrollee

for Institutional Services

Calendar year

Fee-for-service

enrollment

[millions]

Outpatient

hospital

Home health

agency

Outpatient lab

Other

Aged:

2013

27.108

$1,034.14

$354.28

$113.61

$426.74

2014

27.224

1,178.89

352.51

80.18

442.89

2015

27.441

1,283.38

356.67

82.05

463.91

2016

27.987

1,350.88

353.53

84.54

471.42

2017

28.056

1,460.01

346.89

85.45

490.90

2018

28.102

1,584.47

352.13

84.57

527.34

2019

28.195

1,674.79

354.45

83.29

558.89

2020

27.841

1,611.46

346.49

91.69

530.49

2021

26.965

1,963.87

360.09

106.23

553.98

2022

26.295

2,015.67

345.44

104.59

547.29

2023

25.824

2,374.90

378.90

110.03

568.75

2024

25.859

2,595.60

389.82

113.26

598.19

2025

26.233

2,814.92

412.30

120.44

663.64

2026

26.583

3,050.82

447.67

123.95

705.66

2027

26.853

3,303.06

511.66

127.57

744.78

2028

27.095

3,530.83

562.36

154.75

784.25

2029

27.302

3,808.29

602.19

159.31

825.30

2030

27.439

4,077.47

641.13

164.10

868.01

2031

27.480

4,381.20

685.14

176.63

913.51

2032

27.483

4,719.32

735.28

182.73

962.97

Disabled (excluding ESRD):

2013

5.790

1,224.96

268.11

137.03

284.41

2014

5.732

1,416.76

264.54

87.30

304.06

2015

5.609

1,534.42

260.64

87.47

333.69

2016

5.503

1,621.73

246.53

90.14

350.91

2017

5.361

1,711.67

238.18

88.64

370.38

2018

5.028

1,853.26

246.02

90.53

393.73

2019

4.666

1,928.36

248.74

88.93

425.94

2020

4.202

1,805.74

274.05

96.99

408.40

2021

3.711

2,059.34

286.89

116.90

490.11

2022

3.224

2,113.47

293.58

115.85

513.50

2023

2.581

2,504.25

336.58

123.45

544.19

2024

2.066

2,750.71

332.38

127.51

574.20

2025

1.864

2,969.72

347.83

134.86

610.64

2026

1.681

3,218.24

383.77

138.73

644.47

2027

1.545

3,489.12

444.80

142.76

680.29

2028

1.441

3,724.05

494.02

173.09

717.74

2029

1.354

4,021.67

534.91

178.27

757.71

2030

1.291

4,296.21

573.10

183.28

798.56

2031

1.240

4,604.19

614.19

196.79

842.16

2032

1.193

4,971.12

660.57

203.95

894.69

See footnote 1 of table IV.B3.

(3) Projected Fee-for-Service Payments for Persons with End-

Stage Renal Disease (ESRD)

Most persons with ESRD are eligible to enroll for Part B coverage. For

analytical purposes, this section includes two groups of enrollees:

(i) those who qualify for Medicare due to ESRD alone and (ii) those who

qualify not only because they have ESRD but also because they are

disabled. Enrollees in this latter group, who are eligible as Disability

Insurance beneficiaries, are included in this section because their per

enrollee costs are both higher and different in nature from those of

Supplementary Medical Insurance

141

most other disabled persons. Specifically, most of the Part B

reimbursements for both groups are related to kidney transplants and

renal dialysis.

The estimates under the intermediate assumptions reflect the

payment mechanism for reimbursing ESRD services. Payment for

dialysis services occurs through a bundled payment system, which

began in 2011. The bundled payment rate is updated annually by an

annual ESRD market basket less the increase in economy-wide

productivity. Starting in 2021, eligible individuals with ESRD may

enroll in a Medicare private health plan to obtain their Part A and

Part B coverage. Table IV.B5 shows the historical and projected

enrollment and costs for Part B benefits. The sequestration impact is

reflected in the table.

Table IV.B5.—Fee-for-Service Enrollment and Incurred Reimbursement

for Beneficiaries under Age 65 with End-Stage Renal Disease

Average enrollment [thousands]

Reimbursement [millions]

Calendar year

Disabled

Non-disabled

Disabled

Non-disabled

2013

142

$5,966

$2,302

2014

133

5,818

2,536

2015

125

5,548

2,702

2016

130

5,792

2,561

2017

130

5,854

2,547

2018

129

6,355

2,746

2019

126

6,404

2,809

2020

121

6,085

2,761

2021

4,727

2,295

2022

3,751

1,857

2023

3,437

1,841

2024

3,254

1,942

2025

3,716

2,282

2026

3,850

2,419

2027

3,984

2,509

2028

4,150

2,595

2029

4,324

2,672

2030

4,506

2,749

2031

4,708

2,844

2032

4,910

2,949

(4) Projected Payments for Persons with Immunosuppressive

Drug Coverage Only

The Consolidated Appropriations Act, 2021 specifies that, in 2023 and

later, Part B will provide coverage of immunosuppressive drug costs

for individuals who previously were covered by Medicare Part B due to

having permanent kidney failure and who received a kidney transplant

that functioned for 3 years, resulting in a loss of Part B coverage. These

individuals will pay a premium that is 15 percent of twice the aged

actuarial rate instead of the standard Part B premium (which is

25 percent of twice the aged actuarial rate plus a repayment amount,

Actuarial Methodology

142

if applicable). Transfers from the general fund of the Treasury will be

made to Part B to make up the difference between the

immunosuppressive drug premium and the standard Part B premium.

(These transfers will be treated as premium income for general fund

matching purposes.) In 2023, an estimated 2,000 immunosuppressive

drug coverage enrollees are estimated to have roughly $5 million in

Part B benefits.

(5) Private Health Plan Costs

Part B payments to private health plans have generally increased

significantly from the time that such plans began to participate in the

Medicare program in the 1970s. Most of the growth in expenditures

has been due to the increasing numbers of beneficiaries who have

enrolled in these plans. Section IV.C of this report contains a

description of the assumptions and methodology for the private health

plans that provide coverage of Part B services for certain enrollees.

(6) Administrative Expenses

The ratio of Part B administrative expenses to total expenditures was

1.2 percent in 2022. Projections of administrative costs are based on

estimates of changes in average annual wages, fee-for-service

enrollment, and an estimated 5- to 7-percent reduction in expenditures

due to sequestration for the period April 1, 2013 through

September 30, 2032, with the exception of May 1, 2020 through

March 31, 2022 when it was suspended.

b. Summary of Aggregate Reimbursement Amounts on an

Incurred Basis under the Intermediate Assumptions

Table IV.B6 shows aggregate historical and projected reimbursement

amounts by type of service on an incurred basis under the intermediate

assumptions.

Table IV.B6.—Aggregate Part B Reimbursement Amounts on an Incurred Basis

[In millions]

Practitioner

Institutional

Calendar

year

Physician

fee

schedule

DME

Lab

Physician-

administered

drugs

Other

Total

Hospital

Lab

Home

health

agency

Other

Total

Total FFS

Private

health

plans

Total

Part B

Historical data:

2013

$69,536

$7,382

$5,315

$10,417

$9,296

$101,945

$35,964

$3,953

$11,288

$17,984

$69,189

$171,134

$73,386

$244,521

2014

70,639

6,371

5,722

11,026

9,280

103,038

41,086

2,728

11,243

18,639

73,696

176,735

85,639

262,374

2015

70,150

6,744

5,686

12,658

9,412

104,650

44,712

2,789

11,375

19,392

78,267

182,917

94,985

277,901

2016

70,032

6,298

5,167

13,951

9,483

104,931

47,644

2,911

11,369

20,031

81,955

186,886

103,617

290,503

2017

70,061

6,016

5,290

14,782

9,964

106,113

51,125

2,923

11,123

20,683

85,854

191,967

114,966

306,934

2018

70,679

6,961

5,791

16,423

10,122

109,976

54,877

2,886

11,246

22,306

91,315

201,291

132,958

334,248

2019

73,542

7,265

6,047

18,230

10,267

115,351

57,245

2,818

11,269

23,292

94,623

209,974

154,546

364,521

2020

64,725

7,235

6,362

18,716

10,253

107,292

53,393

3,021

10,928

21,745

89,087

196,379

180,710

377,088

2021

74,137

7,253

7,365

20,116

10,250

119,122

61,410

3,359

10,873

20,694

96,336

215,458

203,442

418,900

2022

71,152

7,544

6,777

21,325

10,934

117,732

60,422

3,175

10,103

19,226

92,927

210,658

234,137

444,795

Intermediate estimates:

2023

70,294

8,011

7,065

22,160

11,423

118,953

68,434

3,206

10,724

19,060

101,424

220,377

271,893

492,270

2024

70,431

8,283

7,324

23,867

11,703

121,607

73,481

3,234

10,834

19,565

107,114

228,721

302,551

531,272

2025

71,460

8,787

8,137

25,768

12,253

126,404

80,140

3,453

11,533

22,150

117,276

243,681

335,472

579,153

2026

73,825

9,369

8,570

27,827

12,868

132,459

87,357

3,569

12,616

23,597

127,140

259,599

372,065

631,664

2027

76,767

9,916

9,043

30,171

13,484

139,382

95,003

3,688

14,505

24,909

138,105

277,487

412,867

690,354

2028

79,572

10,469

12,421

31,173

14,105

147,740

102,006

4,493

16,033

26,246

148,778

296,518

456,803

753,321

2029

82,500

11,057

13,107

33,330

14,749

154,744

110,466

4,643

17,255

27,637

160,001

314,745

502,362

817,107

2030

85,183

11,625

13,818

34,788

15,451

160,865

118,543

4,792

18,426

29,047

170,809

331,674

546,533

878,206

2031

87,760

12,183

15,614

36,474

16,101

168,131

127,303

5,155

19,689

30,483

182,631

350,762

595,292

946,054

2032

90,666

12,823

16,482

38,665

16,850

175,486

136,917

5,324

21,101

32,009

195,351

370,837

646,398

1,017,235

143

Supplementary Medical Insurance

Actuarial Methodology

144

c. Projections under Alternative Assumptions

Projections of Part B cash expenditures under the low-cost and

high-cost alternatives were developed by modifying the growth rates

estimated under the intermediate assumptions. Beginning in calendar

year 2023, the low-cost and high-cost alternatives contain assumptions

that result in benefits increasing, relative to the Gross Domestic

Product (GDP), 2 percent less rapidly and 2 percent more rapidly,

respectively, than the results under the intermediate assumptions.

Administrative expenses under the low-cost and high-cost alternatives

are projected on the basis of their respective wage series growth.

2. Part D

Part D is a voluntary Medicare prescription drug benefit that offers

beneficiaries a choice of private drug insurance plans. Low-income

beneficiaries can receive additional assistance on the cost sharing and

premiums. Each year drug plan sponsors submit bids that include

estimated total plan costs, reinsurance payments, and low-income cost-

sharing subsidies for the coming year. Upon approval of these bids, a

national average monthly bid amount is calculated, and the result is

used to determine the base beneficiary premium. The individual plan

premium is calculated as the difference between the plan bid and the

national average monthly bid amount, which is then applied to the

base beneficiary premium.

Each drug plan receives monthly risk-adjusted direct subsidies,

prospective reinsurance payments, and prospective low-income cost-

sharing subsidies from Medicare, as well as premiums from the

beneficiaries and premium subsidies from Medicare on behalf of low-

income enrollees. At the end of the year, the prospective reinsurance

and low-income cost-sharing subsidy payments are reconciled to match

the plan’s actual experience. During the annual reconciliation process,

if actual experience differs from the plan’s bid beyond specified risk

corridors, Medicare shares in the plan’s gain or loss.

Expenditures for this voluntary prescription drug benefit were

determined by combining estimated Part D enrollment with

projections of per capita spending. Estimates of Part D spending

categories for 2022 were used as the base experience and were

supplemented with information included in Part D plan 2023 bids. In

addition, Medicare pays special subsidies on behalf of beneficiaries

retaining primary drug coverage through retiree drug subsidy (RDS)

plans.

Supplementary Medical Insurance

145

Government contributions primarily finance the various Medicare

drug subsidies. Since Medicaid is no longer the primary payer of drug

costs for full-benefit dually eligible beneficiaries, States are required to

pay the Part D account in the SMI trust fund a portion of their

estimated forgone drug costs for this population. From 2006 through

2015, the percentage of estimated costs paid by States was phased

down from 90 percent to 75 percent.

Beneficiaries can choose to have their drug insurance premiums

withheld from their Social Security benefits and then forwarded to the

drug plans on their behalf.

In 2022, around 22 percent of the non-low-

income enrollees in Part D drug plans exercised this option.

a. Participation Rates

All individuals entitled to Medicare Part A or enrolled in Part B are

eligible to enroll in the voluntary prescription drug benefit.

(1) Employer-Sponsored Plans

There are two ways that employer-sponsored plans can benefit from

the Part D program. One way is the retiree drug subsidy (RDS), in

which, for qualifying employer-sponsored plans, Medicare subsidizes a

portion of their qualifying retiree drug expenses. As a result of tax

deduction changes, RDS program participation has declined

significantly since 2012 and is assumed to decline further over the next

several years. The Trustees expect that most of the retirees losing drug

coverage through RDS plans will participate in other Part D plans.

The other way that an employer-sponsored plan can benefit from

Part D is to enroll in an employer/union-only group waiver plan

(EGWP) by either wrapping around an existing Part D plan or

becoming a prescription drug plan itself. The subsidies for these types

of arrangements are generally calculated in the same way as for other

Part D plans. The Trustees expect that such plans will offer additional

benefits beyond the standard Part D benefit package. From 2012

through 2014, EGWP enrollment increased significantly coinciding

with the decrease in RDS coverage. Since 2014, steady participation

increases in EGWPs have returned, but, due to some plan

terminations, the participation rate is slightly lower than for the total

Part D program. The vast majority of the enrollment increases have

occurred in Medicare Advantage Prescription Drug Plans (MA-PDs).

MA-PD EGWP enrollment has grown from approximately 1.8 million

The Part D income-related premium adjustment amount for each beneficiary is

deposited into the Part D account.

Actuarial Methodology

146

in 2014 to a projected 3.6 million in 2023; for Prescription Drug Plans

(PDPs), on the other hand, the number of enrollees has decreased from

approximately 4.7 million to a projected 4.0 million over the same

timeframe. A significant increase in EGWP enrollment is expected in

2025 due to the transfer of postal retiree benefits from Federal

Employees Health Benefits (FEHB) plans to Medicare as a result of the

Postal Service Reform Act of 2022. Beyond 2026, the Trustees assume

that EGWP participation will increase at a rate similar to that for

overall Part D enrollment.

(2) Low-Income Subsidy

Qualifying low-income beneficiaries can receive various degrees of

additional Part D subsidies based on their resource levels to help

finance premium and cost-sharing payments. Since 2016, low-income

subsidy enrollment in MA-PDs has increased while enrollment in

PDPs has declined. This pattern is primarily due to continued and

substantial growth in the number of enrollees in Medicare Advantage

Special Needs Plans (SNPs). Overall, the number of low-income

enrollees constitutes a projected 27 percent of total Part D beneficiaries

in 2023 and is assumed to grow at the same rate as that for Medicare

beneficiaries who are enrolled in Part B.

(3) Other Part D Beneficiaries

Medicare beneficiaries not covered by employer-sponsored plans and

not qualified for the low-income subsidy have the option to enroll in a

Part D plan. Once enrolled, they pay for premiums and any applicable

deductible, coinsurance, and/or copayment. In 2023, a projected

69 percent of non-employer and non-low-income Medicare

beneficiaries

have opted to enroll in a Part D plan. Based on recent

experience, the participation rate for non-employer and non-low-

income beneficiaries is projected to gradually grow to 74 percent

throughout the short-range projection period.

(4) MA-PD versus PDP Beneficiaries

Enrollment in MA-PDs has been increasing more rapidly than in PDPs

every year except 2013. In 2011, MA-PD beneficiaries accounted for

36.7 percent of the enrollment in Part D plans. This ratio grew to

A significant portion of the remaining eligible beneficiaries who do not participate in

Part D plans receive creditable coverage through another source (such as the Federal

Employees Health Benefits Program, TRICARE for Life, the Department of Veterans

Affairs, and the Indian Health Service).

Supplementary Medical Insurance

147

53.6 percent in 2022 and is projected to increase to 56.7 percent in 2023

before reaching 64.7 percent by 2032.

Table IV.B7 provides a summary of the estimated average enrollment

in Part D, by category.

Table IV.B7.—Part D Enrollment

[In millions]

Low-income subsidy

Calendar

year

Retiree

drug

subsidy

EGWP

Medicaid

full-benefit

dual

eligible

Other,

with full

subsidy

Other,

with

partial

subsidy

Total

All others

Total

MA-PD

share of

Part D

Historical data:

2013

3.3

5.9

7.2

4.0

0.3

11.5

18.4

39.1

36.5

2014

2.7

6.5

7.4

4.1

0.3

11.8

19.5

40.5

38.0

2015

2.3

6.5

7.6

4.2

0.3

12.1

20.9

41.8

39.1

2016

1.9

6.6

7.8

4.3

0.3

12.4

22.2

43.2

39.8

2017

1.7

6.7

8.0

4.4

0.3

12.7

23.4

44.5

41.0

2018

1.5

6.9

8.1

4.5

0.3

12.9

24.5

45.8

42.3

2019

1.3

7.0

8.2

4.5

0.3

13.1

25.7

47.2

44.3

2020

1.2

7.1

8.2

4.7

0.3

13.2

27.2

48.7

47.0

2021

1.1

7.3

8.3

4.7

0.3

13.2

28.4

50.0

50.6

2022

1.0

7.4

8.7

4.7

0.2

13.6

29.4

51.4

53.6

Intermediate estimates:

2023

0.9

7.6

9.1

4.8

0.2

14.2

30.2

52.9

56.7

2024

0.9

7.8

9.3

5.0

0.2

14.5

31.4

54.5

59.0

2025

0.9

8.5

9.6

5.1

0.2

14.8

32.5

56.7

59.3

2026

0.9

8.6

9.8

5.2

0.2

15.2

33.7

58.4

60.2

2027

0.9

8.8

10.0

5.3

0.2

15.6

34.6

59.9

60.9

2028

0.9

9.0

10.3

5.4

0.2

15.9

35.4

61.2

61.7

2029

0.9

9.2

10.5

5.6

0.2

16.2

36.1

62.5

2030

0.9

9.4

10.7

5.7

0.2

16.5

36.8

63.6

63.2

2031

0.9

9.5

10.8

5.7

0.2

16.8

37.3

64.5

64.0

2032

1.0

9.6

10.9

5.8

0.2

17.0

37.7

65.3

64.7

Excludes Federal Government and military retirees covered by either the Federal Employees Health

Benefit Program or the TRICARE for Life program. Such programs qualify for the retiree drug subsidy, but

the subsidy will not be paid since it would amount to the Federal Government subsidizing itself.

Effective January 1, 2025, Federal postal retirees will be enrolled in a Part D EGWP, as required by the

Postal Service Reform Act of 2022.

Low-income beneficiaries currently receiving partial subsidies will start receiving full subsidies effective

January 1, 2024, as required by the Inflation Reduction Act of 2022.

This calculation does not include retiree drug subsidy beneficiaries but does include EGWP, low-income

subsidy, and all other beneficiaries.

b. Cost Projection Methodology on an Incurred Basis

(1) Drug Benefit Categories

Projected drug expenses are allocated to the beneficiary premium,

direct subsidy, and reinsurance subsidy by the Part D premium

formula based on the benefit formula specifications. Meanwhile, the

additional premium and cost-sharing subsidies are projected for low-

income beneficiaries. In addition, under the Inflation Reduction Act of

2022 (IRA), for drugs that are selected for price negotiation, there will

be government subsidies for expenditures that are below the

Actuarial Methodology

148

catastrophic threshold to compensate for the exemption from the

manufacturer discount program for negotiated drugs.

The statute specifies that the base beneficiary premium is equal to

25.5 percent of the sum of the national average monthly bid amount

and the estimated catastrophic reinsurance. The average premium

amount per enrollee is estimated using the base beneficiary premium

with an adjustment to reflect enrollees’ tendency to select plans with

below-average premium costs. Moreover, Part D collects income-

related premiums for individuals whose modified adjusted gross

income exceeds a specified threshold. The amount of the income-

related premium depends upon the individual’s income level. Before

2019, the extra premium amount was the difference between 35, 50,

65, or 80 percent and 25.5 percent applied to the national average

monthly bid amount adjusted for reinsurance. Starting in 2019, the

Bipartisan Budget Act of 2018 requires a portion of the beneficiaries

currently in the 80-percent group to pay the difference between

85 percent and 25.5 percent. Under the IRA, base beneficiary

premiums may increase by, but not exceed, 6 percent per year from

2024 through 2030. For 2030 and later, the base beneficiary premium

percentage will be reset according to the specifications of the IRA.

(2) Projections

The projections are based in part on actual Part D spending data

through 2022. These data include amounts for total prescription drug

costs, costs above the catastrophic threshold, plan payments, and low-

income cost-sharing payments.

The estimates under the intermediate assumptions are calculated by

establishing the total prescription drug costs for 2022 and then

projecting these costs with both Part D expenditure and enrollment

growth rates through the estimation period. The growth rate

assumptions for Part D costs are based on a Part D-specific short-term

trend model and the national health expenditure (NHE) growth rate

assumptions.

This short-term model provides the 2023 and 2024

drug-specific and therapeutic-class-specific growth rate projections. A

transition factor is applied for 2025 and 2026 to converge to the NHE

projected growth rates in 2027, which are then used for the remainder

of the short-range projection period. The growth in expensive specialty

drugs has been a major factor driving the gross drug trend rates, which

in turn have resulted in fast-growing reinsurance in recent years.

Based on Recommendation II-28 of the 2010–2011 Medicare Technical Review Panel.

The NHE growth rate assumptions are based on an NHE projections article published

in March 2022 (Health Affairs, vol. 41, no. 4).

Supplementary Medical Insurance

149

Therefore, the trend rates for the catastrophic portion of the Part D

benefits are also assumed to generally grow slightly more rapidly than

the overall growth rates. Table IV.B8 shows the historical and

projected Part D per capita growth rates along with the NHE trends.

Separately, the Trustees incorporate the estimated impact from recent

new legislation and policy. Effective January 1, 2024, a pharmacy price

concessions policy (published in a May 9, 2022 CMS final rule) will shift

the pharmacy-specific direct and indirect remuneration (DIR) to the

point of sale, thus reducing total DIR, lowering drug prices for

beneficiaries at the point of sale, and increasing Federal Part D

spending. In addition, while the drug trend will slow due to drug price

negotiations and inflation rebate assessments that are required by the

IRA, Part D plan benefits will increase because of the redesign of those

benefits under the new legislation. Meanwhile, the Trustees project

that DIR will be reduced in response to the lower negotiated drug

prices.

The projected impact of the pharmacy price concessions policy is a

reduction in the point-of-sale drug cost of 7 percent. At the same time,

under the IRA, aggregate drug prices are estimated to be reduced by

20 percent, and plan benefits are projected to be lower by 9 percent as

a result of reduced drug prices and the expansion of Part D benefits.

DIR is projected to decrease by 45 percent.

To determine the estimated benefits for Part D, the total per capita

drug benefits are adjusted for two key factors: (i) the projected total

amount of DIR and (ii) the administrative costs that plans are

projected to incur related to plan operations and profits. Table IV.B8

displays these key factors affecting Part D expenditure estimates.

Actuarial Methodology

150

Table IV.B8.—Key Factors for Part D Expenditure Estimates

Calendar year

National health

expenditure (NHE)

drug trend

Part D per capita

cost trend

Direct and indirect

remuneration (DIR)

Plan administrative

expenses and

profits

Historical data:

2013

0.2 %

2.6 %

12.9 %

12.2 %

2014

11.2

10.9

14.3

11.9

2015

6.6

8.3

18.3

11.7

2016

−0.4

1.9

19.9

11.4

2017

0.2

2.2

21.9

10.3

2018

2.1

4.9

25.0

10.7

2019

3.8

5.2

26.5

9.3

2020

2.7

4.7

27.0

9.2

2021

4.6

5.4

29.1

8.1

Intermediate estimates:

2022

3.9

8.2

31.5

7.3

2023

4.0

4.6

33.6

7.0

2024

4.2

−4.4

28.0

6.0

2025

4.2

4.1

28.3

4.9

2026

4.3

−5.6

22.8

4.9

2027

4.4

−3.4

19.5

5.0

2028

4.6

−2.4

16.8

5.1

2029

4.7

−0.2

15.3

5.2

2030

4.7

1.1

14.6

5.3

2031

4.7

1.7

14.4

5.5

2032

4.7

2.7

14.0

5.5

These factors do not reflect the impact of the sequestration for 2013–2032.

Based on the NHE projections through calendar year 2030, which were published on March 28, 2022 by

the CMS Office of the Actuary and which were recently updated; for 2031 and 2032, the drug trend is the

same as was used in 2030.

Expressed as a percentage of total drug costs.

Expressed as a percentage of total net plan benefit payments, which include plan benefits and

administrative expenses with profits and which are reduced by DIR.

(3) Direct and Indirect Remuneration

Direct and indirect remuneration (DIR) primarily consists of drug

manufacturer rebates and pharmacy rebates that PDPs and MA-PDs

negotiate.

The average projected DIR from plan bids has increased

substantially in recent years. Plans have continued to increase their

projected DIR significantly for years 2022 and 2023 even though actual

DIR was noticeably lower than the plans estimated in their

corresponding bid submissions for plan years 2020 and 2021. Primarily

based on the latest actual DIR results and the 2023 plan bids, the

Trustees expect actual DIR to have been lower than the assumed level

in plan bids for 2022 and to be marginally lower than the 2023 plan

bids in 2023. In 2024 and beyond, the DIR projections decrease

The safe harbor protection for manufacturer rebates was eliminated in a final rule

released in November of 2020. This final rule imposed a January 1, 2022 effective date;

however, the implementation date was initially delayed until January 1, 2023. In 2021,

the Infrastructure Investment and Jobs Act imposed a moratorium on implementation

of this rule until January 1, 2026; in 2022, the Bipartisan Safer Communities Act

extended the moratorium from 2026 to 2027; and most recently the Inflation Reduction

Act of 2022 extended it until 2032. Since the likelihood of this rule taking effect is highly

uncertain, the impact is not reflected in the Part D projections.

Supplementary Medical Insurance

151

significantly due to (i) implementation of the pharmacy price

concessions policy; (ii) implementation of the IRA, which introduces

changes to the Part D benefit structure; (iii) an inflation rebate from

manufacturers to the government if drug prices increase above the

CPI; and (iv) a gradual roll-out of government negotiated prices with

manufacturers of high-impact drugs. The Trustees expect that these

cost pressures on brand-name drugs will drastically reduce the amount

of DIR over the projection period as shown in table IV.B8.

(4) Administrative Expenses

Administrative costs and profit margins are estimated from the 2023

plan bids. Administrative expenses are projected to grow at the same

rate as wages, while profit margins are projected to grow at the same

rate as per capita benefits. Beginning in 2014, the law assessed an

annual insurer fee on health insurance plans, which was subsequently

suspended in 2017 and 2019 before being terminated in 2021. The level

of administrative expenses as a percentage of benefits will decrease

substantially in 2024 and 2025 mainly because of (i) an increase in

Part D plan benefits resulting from the implementation of the

pharmacy price concessions policy in 2024 and (ii) the redesign of

Part D benefits in 2025 under the IRA.

(5) Incurred Per Capita Reimbursements

Table IV.B9 shows estimated enrollments and average per capita

reimbursements for beneficiaries in private plans, low-income

beneficiaries, and beneficiaries in RDS plans. The direct subsidy and

retiree drug subsidy are affected by the sequestration of Medicare

benefit expenditures, which applies from April 1, 2013 through

September 30, 2032, with the exception of May 1, 2020 through

March 31, 2022 when it was suspended. Under the sequestration,

Medicare administrative expenses are reduced by an estimated 5 to

7 percent for the period April 1, 2013 through September 30, 2032, with

the exception of May 1, 2020 through March 31, 2022 when it was

suspended.

These are average DIR percentages across all prescription drugs—including for EGWP

plans, which do not submit bids. Generic drugs, which represent about 88 percent of all

Part D drugs dispensed and 19 percent of drug spending in 2020, typically carry little to

no rebates, while many brand-name prescription drugs carry substantial rebates.

Actuarial Methodology

152

Table IV.B9.—Incurred Reimbursement Amounts per Enrollee

for Part D Expenditures

Private plans (PDPs and MA-PDs)

All beneficiaries

Low-income subsidy

Retiree drug subsidy

Calendar

year

Enrollment

(millions)

Direct

subsidy

Reinsur-

ance

Risk sharing

and other

Enrollment

(millions)

Subsidy

amount

Enrollment

(millions)

Subsidy

amount

Historical data:

2013

35.8

$567

$535

−$20

11.5

$2,023

3.3

$514

2014

37.8

492

718

−1

11.8

2,052

2.7

505

2015

39.5

485

841

−28

12.1

2,112

2.3

502

2016

41.2

441

861

−27

12.4

2,126

1.9

505

2017

42.8

352

878

−11

12.7

2,156

1.7

493

2018

44.2

305

918

−1

12.9

2,203

1.5

482

2019

45.8

247

1,007

13.1

2,273

1.3

497

2020

47.5

199

1,021

13.2

2,506

1.2

527

2021

48.9

121

1,065

13.2

2,644

1.1

560

2022

50.4

1,129

13.6

2,911

1.0

599

Intermediate estimates:

2023

52.0

1,166

14.2

2,956

0.9

619

2024

53.6

383

1,153

14.5

2,588

0.9

591

2025

55.8

1,607

393

14.8

1,394

0.9

615

2026

57.5

1,672

420

15.2

1,385

0.9

580

2027

59.0

1,639

454

15.6

1,374

0.9

559

2028

60.3

1,613

478

15.9

1,356

0.9

545

2029

61.6

1,604

526

16.2

1,362

0.9

543

2030

62.7

1,570

572

16.5

1,377

0.9

548

2031

63.6

1,553

618

16.8

1,394

0.9

557

2032

64.3

1,618

638

17.0

1,434

1.0

573

Included in this category are the government subsidies specified under the IRA for insulins in 2023 and

for the loss of manufacturer discounts on negotiated drugs in 2026 and beyond.

(6) Incurred Aggregate Reimbursements

Table IV.B10 shows the projected incurred aggregate reimbursements

to plans and employers by type of payment.

Supplementary Medical Insurance

153

Table IV.B10.—Aggregate Part D Reimbursement Amounts on an Incurred Basis

[In billions]

Calendar

year

Premiums

Direct

subsidy

Reinsurance

Low-income

subsidy

Retiree drug

subsidy

Risk sharing

and other

Total

Historical data:

2013

$9.3

$20.3

$19.2

$23.2

$1.7

−$0.7

$72.9

2014

10.5

18.6

27.2

24.3

1.3

−0.1

81.8

2015

11.5

19.2

33.2

25.6

1.1

−1.1

89.6

2016

12.7

18.2

35.5

26.4

1.0

−1.1

92.7

2017

14.0

15.1

37.6

27.3

0.8

−0.5

94.4

2018

14.2

13.5

40.6

28.5

0.7

0.0

97.4

2019

13.8

11.3

46.1

29.7

0.7

0.5

102.1

2020

13.6

9.4

48.5

33.0

0.6

1.5

106.6

2021

15.0

5.9

52.1

35.0

0.6

1.2

109.7

2022

15.4

3.7

56.8

39.7

0.6

1.1

117.3

Intermediate estimates:

2023

16.0

2.1

60.6

41.9

0.6

2.7

123.9

2024

16.8

20.5

61.8

37.5

0.5

0.6

137.8

2025

16.9

89.7

21.9

20.7

0.5

1.5

151.3

2026

18.6

96.2

24.1

21.1

0.5

2.9

163.3

2027

20.5

96.6

26.7

21.4

0.5

3.6

169.3

2028

22.5

97.3

28.8

21.6

0.5

4.6

175.2

2029

24.5

98.7

32.4

22.1

0.5

5.3

183.5

2030

26.8

98.4

35.8

22.8

0.5

5.7

190.0

2031

27.6

98.7

39.3

23.4

0.5

6.1

195.6

2032

29.0

104.1

41.1

24.3

0.5

6.4

205.4

Total premiums paid to Part D plans by enrollees (directly, or indirectly through premium withholding from

Social Security benefits).

Positive amounts represent net loss-sharing payments to plans, and negative amounts are net gain-

sharing receipts from plans. The government subsidies specified under the IRA are included in this

category.

d. Projections under Alternative Assumptions

Part D expenditures for the low-cost and high-cost alternatives were

developed by modifying the estimates under the intermediate

assumptions. Separate modifications were applied to the assumptions

for the 2022 base projection and to the assumptions for projected years

2023–2032.

The 2022 base modifications include the following adjustments, since

final data for 2022 will not be available until later in 2023:

• ±2 percent to account for the uncertainty of the completeness of

the actual spending in 2022. The high-cost scenario increases the

spending by 2 percent, and the low-cost scenario decreases the

spending by 2 percent.

• ±2 percent for the average rebate that drug plans negotiate. The

high-cost scenario decreases the average rebate by 2 percent, and

the low-cost scenario increases the average rebate by 2 percent.

For the projections beyond 2022, the per capita drug costs for the high-

cost and low-cost scenarios are increased, relative to GDP, 2 percent

more rapidly and 2 percent less rapidly, respectively, than under the

Actuarial Methodology

154

intermediate assumptions. The 2-percent base-year modification to

rebate percentage is also maintained throughout the short-range

projection period. In addition, for RDS participation, participation in

the low-income subsidy, and the participation rate for Part D-eligible

individuals who do not qualify for the low-income subsidy or receive

coverage through employer-sponsored plans, assumptions vary in the

alternative scenarios. Table IV.B11 compares these varying

assumptions.

Table IV.B11.—Part D Assumptions under Alternative Scenarios

for Calendar Years 2022–2032

Alternatives

Calendar year

Intermediate assumptions

Low-cost

High-cost

Participation of retiree drug subsidy beneficiaries as a percentage of Part D enrollees

2022

2.0 %

2023

1.8

2024

1.7

1.8

1.1

2025

1.5

1.8

0.5

2026

1.5

1.8

—

2027

1.5

1.8

—

2028

1.5

1.8

—

2029

1.5

1.8

—

2030

1.5

1.8

—

2031

1.5

1.8

—

2032

1.5

1.8

—

Participation of low-income beneficiaries as a percentage of Part D enrollees

2022

26.5

2023

26.8

2024

26.6

26.5

26.6

2025

26.2

26.0

26.3

2026

26.1

25.5

26.7

2027

26.0

24.9

27.2

2028

26.0

24.5

27.7

2029

26.0

24.0

28.2

2030

26.0

23.6

28.7

2031

26.0

23.2

29.3

2032

26.0

22.7

29.9

Part D participation rate of the non-employer and non-low-income Part D-eligible individuals

2022

68.2

2023

69.3

2024

70.4

68.4

72.4

2025

72.1

68.1

76.1

2026

72.8

68.8

76.8

2027

73.2

69.2

77.2

2028

73.4

69.4

77.4

2029

73.4

69.4

77.4

2030

73.5

69.5

77.5

2031

73.6

69.6

77.6

2032

73.7

69.7

77.7

Private Health Plans

155

C. PRIVATE HEALTH PLANS

Dating back to the 1970s, some Medicare beneficiaries have chosen to

receive their coverage for Part A and Part B services through private

health plans. Over time, numerous changes have been made to these

plans that have increased or decreased the attractiveness of private

plan coverage.

The foundation of the current program was established in 2003, when

most of the private plans were renamed as Medicare Advantage (MA)

plans and all private health insurance coverage options available

through Medicare were formally designated as Part C.

Since then,

there has been a continuous increase in the prevalence of MA

enrollment.

Beginning in 2006, payments are based on competitive bids and their

relationship to corresponding benchmarks, which are based on an

annually developed ratebook. Also, rebates were introduced and are

used to provide additional benefits not covered under Medicare, reduce

cost sharing, and/or reduce Part B or Part D premiums. From 2006

through 2011, rebates were calculated as 75 percent of the difference,

if any, between the benchmark and the bid.

In addition to the plan types that already existed, regional preferred

provider organizations (RPPOs) and special needs plans (SNPs) were

established in 2006. Unlike other MA plans, which define their own

service areas, RPPOs operate in pre-defined service areas referred to

as regions and have special rules for capitation payment benchmarks,

and they received special incentives.

SNPs are products designed for, and marketed to, these special

population groups: Medicaid dual-eligible beneficiaries, individuals

with specialized chronic conditions, and institutionalized beneficiaries.

The statutory authority for SNPs, which had been extended several

times previously, was permanently extended under the Bipartisan

Budget Act of 2018.

Beginning in 2012, the MA county-level benchmarks are based on a

multiple of estimated fee-for-service costs in the county. The factor

applied for a given county is based on the ranking of its fee-for-service

cost relative to that for other counties. The 25 percent, or quartile, of

Of Medicare beneficiaries enrolled in private plans, about 98 percent are in MA plans.

The remainder are in certain holdover plans reimbursed on a cost basis rather than

through capitation payments, in Program of All-Inclusive Care for the Elderly (PACE)

plans, or in Medicare-Medicaid Plans (MMPs).

Actuarial Methodology

156

counties with the highest fee-for-service costs have a factor of

95 percent of county fee-for-service costs; the second quartile,

100 percent; the third quartile, 107.5 percent; and the lowest quartile,

115 percent. Prior to 2012, most county benchmarks were in the range

of 100 to 140 percent of local fee-for-service costs.

Plans are eligible to receive specified increases to their benchmark

based on their quality rating scores. The statutory provisions call for a

bonus of 5 percent for plans with at least a 4-star rating. The bonuses

are doubled for health plans in a qualifying county, defined as a county

in which (i) per capita spending in original Medicare is lower than

average; (ii) 25 percent or more of eligible

beneficiaries were enrolled

in the MA program as of December 2009; and (iii) the benchmark rate

in 2004 was based on the minimum amount applicable to an urban

area. There are special bonus provisions for newly established and low-

enrollment plans. Additionally, the phased-in benchmarks, including

bonuses, are capped at the pre-2012 benchmark level.

The share of the excess of benchmarks over bids, which is paid to the

plan sponsors as rebates, varies based on quality. The highest quality

plans (4.5 stars or higher) receive a 70-percent rebate, plans with a

quality rating of at least 3.5 stars and less than 4.5 stars receive a

65-percent rebate, and plans with a rating of less than 3.5 stars receive

a 50-percent rebate.

Beginning in 2014, private insurers were required to pay an

assessment, or fee, based on their revenues from the prior year. There

was a 1-year moratorium on the annual fee in 2017 and again in 2019.

The fee was in place for calendar year 2020, with the assessment on

MA sponsors expected to represent approximately 1.4 percent of plan

revenues. The Further Consolidated Appropriations Act, 2020

permanently repealed the annual fee for calendar year 2021 and future

years.

It is important to note that Medicare coverage provided through

private health plans does not have separate financing or an associated

trust fund. Rather, the Part A and Part B trust funds are the source

for payments to such private health plans.

Beneficiaries are eligible for the MA program if they are entitled to coverage in

Medicare Part A and enrolled in Medicare Part B.

Private Health Plans

157

1. Participation Rates

a. Background

To account for the distinct benefit, enrollment, and payment

characteristics of private health plans, enrollment and spending trends

for such plans are analyzed at the product level:

• Local coordinated care plans (LCCPs), which include health

maintenance organizations (HMOs), HMOs with a point-of-service

option, and local preferred provider organizations (PPOs).

• Private fee-for-service (PFFS) plans.

• Regional PPO (RPPO) plans.

• Special needs plans (SNPs).

• Other products, which include cost plans, Program of All-Inclusive

Care for the Elderly (PACE) plans, and Medicare-Medicaid plans

(MMPs) under the capitated model.

All types of coverage except for those represented in the “Other”

category are MA plans. Also, the values represented in each category

include enrollment not only in plans available to all beneficiaries

residing in the plan’s service area, but also in plans available only to

members of employer or union groups.

b. Historical

Table IV.C1 shows historical and projected private health plan

enrollment by type of plan. From 2013 through 2022, private plan

enrollment grew by 15.0 million or 101 percent, compared to growth in

the overall Medicare population of 24 percent for the same period.

PFFS enrollment dropped 89 percent during these years primarily due

to plan reaction to new statutory provider network requirements

beginning in 2011. Most of the enrollees in terminating PFFS plans

transferred to LCCP or RPPO plans.

The 2022 enrollment includes 5.2 million beneficiaries with coverage

through employer/union-only group waiver plans (EGWPs), the

majority of whom are in LCCPs. Beginning in 2017, the bidding

requirements for these types of plans have been waived, and payments

to these EGWPs, including RPPOs, are based on individual market

bids.

Actuarial Methodology

158

Table IV.C1.—Private Health Plan Enrollment

[In thousands]

Local CCP

Calendar

year

HMO

PPO

Regional

PPO

PFFS

SNP

Other

Total

private

health plan

Total

Medicare

Ratio of private

health plan to

total Medicare

2013

8,045

3,167

949

388

1,768

527

14,843

52,504

28.3 %

2014

8,555

3,698

1,040

303

1,990

657

16,243

54,115

30.0

2015

9,122

4,034

1,019

256

2,086

978

17,495

55,589

31.5

2016

9,630

4,158

1,086

231

2,231

1,058

18,393

57,073

32.2

2017

10,051

4,943

1,085

184

2,421

1,133

19,817

58,683

33.8

2018

10,646

5,696

1,003

148

2,729

1,115

21,338

60,020

35.6

2019

11,325

6,880

866

111

3,065

702

22,950

61,526

37.3

2020

12,160

7,893

747

3,498

697

25,075

62,887

39.9

2021

12,803

9,282

626

4,078

702

27,548

63,974

43.1

2022

13,141

10,532

502

4,896

729

29,845

65,042

45.9

2023

13,303

11,829

389

5,993

613

32,161

66,298

48.5

2024

13,706

12,627

351

6,698

627

34,039

67,717

50.3

2025

14,268

13,194

334

7,243

327

35,392

69,299

51.1

2026

14,862

13,744

317

7,523

336

36,807

70,967

51.9

2027

15,444

14,278

302

7,796

345

38,185

72,542

52.6

2028

16,013

14,794

287

8,057

353

39,525

74,080

53.4

2029

16,563

15,287

273

8,307

361

40,808

75,533

54.0

2030

17,074

15,740

260

8,535

368

41,994

76,814

54.7

2031

17,536

16,146

248

8,736

374

43,054

77,851

55.3

2032

17,958

16,508

236

8,911

380

44,005

78,739

55.9

Most private plan enrollees are eligible for Medicare Part A and enrolled in Medicare Part B. Some

enrollees have coverage for only Medicare Part B. For example, in 2021 the Part B-only private plan

enrollment consisted of 28,000 in local CCPs and 70,000 in the “Other” coverage category.

This table presents the ratio of private health plan to total Medicare enrollment. The ratio of private health

plan enrollees to Medicare beneficiaries with both Part A and Part B coverage in 2023 is 53.3 percent.

c. Projected

The MA enrollment projection model groups counties by common

characteristics and models each of these groups using 2015 through

2022 base data, as follows:

• One group for Puerto Rico.

• Five groups for urban counties as defined by the fiscal year 2015

core-based statistical area (CBSA) designation. The quintiles are

sorted based on 2015 penetration rates and grouped with an

approximately equal number of MA-eligible beneficiaries in each

cohort.

• Five groups for rural counties as defined by the fiscal year 2015

CBSA designation. The quintiles are sorted based on 2015

penetration rates and grouped with an approximately equal

number of MA-eligible beneficiaries in each cohort.

The private health plan enrollment projections are based on three

cohorts of beneficiaries: (i) dual-eligible beneficiaries, (ii) beneficiaries

with employer-sponsored coverage, and (iii) all others, including

individual-market enrollees.

Private Health Plans

159

Private plan enrollment for the individual market and for dual-eligible

beneficiaries is projected by calculating the penetration growth rates

in years 2015 through 2022 for each category described above and

extrapolating those results through 2032. These growth rates are

applied to the enrollment distribution for each county’s specific 2022

plan type (for example, LCCP, PFFS, and RPPO) and are adjusted to

reflect applicable legislative changes to the program, as described in

more detail below. Enrollment for dual-eligible beneficiaries has

increased more rapidly in recent years than has enrollment for both

EGWPs and the individual market, and for this reason dual-eligible

enrollment has been projected separately using methods similar to

those used for the enrollment projections of the individual-market

population.

The category of MA enrollees with employer coverage is modeled at the

national level. Historically, EGWP enrollment has had much larger

enrollment variation from year to year while individual-market

enrollment has trended at a more consistent level. Because of the

fluctuations in enrollment, the cohort method does not work as well for

beneficiaries with employer-sponsored coverage.

The private Medicare health plan enrollment projections for the 2023

Trustees Report are higher than those in the 2022 report. As shown in

table IV.C1, the share of Medicare enrollees in private health plans is

projected to increase from 45.9 percent in 2022 to 55.9 percent in 2032.

The increases that are expected in private plan penetration rates for

2023 through 2032 are partly due to higher relative rebates that are

used to lower premiums and expand benefits.

SNP enrollment is expected to grow by 22 percent in 2023 after

increasing by 20 percent in 2022. In 2024 and later years, the

enrollment growth rate for these plans is expected to slow, ranging

from 12 percent in 2024 to 2 percent in 2032.

For LCCP-HMOs, enrollment is expected to increase by 1 percent in

2023 following growth of 3 percent in 2022. For LCCP-PPOs,

enrollment is expected to increase by 12 percent in 2023 after growth

of 13 percent in 2022.

The “Other” category is expected to fluctuate over the next several

years due to enrollment in the MMP capitated model and enrollment

in cost plans. The MMP capitated model represents health plans that

are capitated by CMS and States to provide comprehensive and

coordinated care for Medicare-Medicaid enrollees. After the

introduction of MMPs in October 2013, enrollment grew nationally

Actuarial Methodology

160

from approximately 3,400 enrollees in a single State to over

427,000 enrollees across nine States in September 2022. Most

contracts are set to expire in 2023. Several States are seeking to extend

their contracts into 2024 and 2025 as a way of transitioning from

MMPs to SNPs, as described in a Medicare Advantage and Part D final

rule that was published by CMS on May 9, 2022.

It is assumed that

once the contracts expire, the majority of MMP enrollees will remain

in the MA program by switching to SNPs. Meanwhile, the Medicare

Access and CHIP Reauthorization Act of 2015 (MACRA) amended the

cost plan competition requirements specified in section 1876(h)(5)(C)

of the Social Security Act. The amended competition requirements

provide that CMS not renew cost plans in service areas where two or

more competing local or regional MA coordinated care plans meet

enrollment requirements over the course of the entire prior contract

year. Under MACRA, cost plans were permitted to transition to the MA

program until the beginning of calendar year 2019.

Enrollment in the “Other” category increased by 49 percent in 2015

because of the influx of MMP enrollment. From 2015 through 2018,

enrollment in this category increased by 14 percent before decreasing

by 37 percent in 2019 due to the reduction in the number of cost plans

required by MACRA. During the period 2020 through 2025, enrollment

in the “Other” category is expected to decrease by 53 percent as a result

of the expiration of the MMP contracts; for most years in 2026 and

later, it is expected to grow more steadily at a rate of 2 to 3 percent.

2. Cost Projection Methodology

a. Background

Benchmarks form the foundation for payments to MA plans. Along

with geographic, demographic, and risk characteristics of plan

enrollees, these values determine the monthly prospective payments

made to private health plans. MA benchmarks vary substantially by

county. Benchmarks range between 95 and 115 percent of county-level

fee-for-service costs, plus applicable quality bonuses.

For individual non-RPPO plans, a plan’s benchmark is an average of

the statutory capitation ratebook values, weighted by projected plan

enrollment in each county in the plan’s service area. For RPPOs, the

benchmark is a blend of the weighted ratebook values for all Medicare-

eligible beneficiaries in the region and an enrollment-weighted average

of RPPO bids for the region. The weight applied to the bid component

See https://www.govinfo.gov/content/pkg/FR-2022-05-09/pdf/2022-09375.pdf.

Private Health Plans

161

to calculate the blended benchmark is the national MA participation

rate.

Plans submit bids equal to their projected per enrollee cost of providing

the standard Medicare Part A and Part B benefits. Plans with bids

below the benchmark apply the rebate share of the savings to aid plan

enrollees through coverage of Part A and Part B cost sharing, coverage

of additional non-drug benefits, and/or reduction in the Part B or

Part D premium. The rebate percentage is based on the quality rating

of the health plan and ranges from 50 to 70 percent. Beneficiaries

choosing plans with bids above the benchmark must pay for both the

full amount of the difference between the bid and the benchmark and

the projected cost of the plans’ supplemental benefits.

Medicare capitation payments to an MA plan are a product of the

standardized plan bid, which is equal to the bid divided by the plan’s

projected risk score, and the actual enrollee risk score, which is based

on demographic characteristics and medical diagnosis data. The risk

score for a given enrollee may be adjusted retrospectively since CMS

receives diagnosis data after the payment date.

Rebate payments are based on the projected risk profile of the plan and

are not adjusted based on subsequent actual risk scores.

b. Incurred Basis

Private health plan expenditures are forecast on an incurred basis by

coverage type. The bid-based expenditures for each quarter are a

product of the average enrollment and the projected average per capita

bid. Similarly, the rebate expenditures are a product of enrollment and

projected average rebates.

Annual per capita benchmarks, bids, and rebates were determined on

an incurred basis for calendar years 2007–2022 for each coverage

category. These amounts include adjustments processed after the

payment due date for retroactive enrollment and risk score updates.

Benchmark growth for 2012 through 2017 was significantly lower than

it was before 2012 because of the phase-in of the fee-for-service-based

ratebook beginning in 2012, which resulted in lower benchmark rates

in most areas. Benchmark growth for years 2024 and later is estimated

to be slightly higher, in general, than the growth rate of expenditures

for beneficiaries enrolled in Medicare fee-for-service, due in part to

quality bonus payments that are projected to increase slightly for 2024

Actuarial Methodology

162

and later years and changes in risk scores that are projected to grow

faster for the MA population.

Private health plan expenditures are affected by the sequestration

required by current law, which will reduce benefit payments by

specified percentages through September 2032.

c. Cash Basis

Cash MA expenditures are largely identical to incurred amounts, since

both arise primarily from the monthly capitation payments to plans.

Small cash payment adjustments are developed from incurred

spending by accounting for the payment lag that results from CMS’

receipt of post-payment diagnosis data, retroactive enrollment

notifications, and corrections in enrollees’ demographic characteristics.

Table IV.C2 shows Medicare private plan expenditures on an incurred

and cash basis. The incurred payments are reported separately for the

bid-related and rebate expenditures. As noted, most payments to plans

are made as they are incurred, and cash and incurred amounts are

generally the same.

Table IV.C2.—Medicare Payments to Private Health Plans, by Trust Fund

[Dollar amounts in billions]

Incurred basis

Calendar

year

Bid

Rebate

Total

Part A as a

percentage of total

Cash basis

2013

$134.5

$12.5

$147.0

50.1 %

$145.6

2014

147.2

12.0

159.2

46.3

159.6

2015

161.7

12.7

174.4

45.6

172.3

2016

174.5

14.4

188.9

45.2

188.6

2017

193.6

15.7

209.3

45.1

209.6

2018

218.0

18.1

236.1

43.7

232.7

2019

250.4

23.0

273.4

43.5

273.8

2020

288.4

28.7

317.1

43.0

317.1

2021

315.2

36.8

352.0

42.2

349.9

2022

356.3

47.2

403.5

42.0

403.3

2023

400.0

61.5

461.5

41.1

459.9

2024

439.9

67.0

506.9

40.3

505.6

2025

484.0

75.6

559.6

40.0

558.1

2026

532.4

85.1

617.5

39.7

615.8

2027

586.0

95.5

681.5

39.4

679.7

2028

642.9

106.8

749.7

39.1

747.8

2029

702.6

119.5

822.1

38.9

820.0

2030

760.3

131.9

892.2

38.7

890.2

2031

823.2

144.9

968.1

38.5

965.9

2032

889.3

158.9

1,048.2

38.3

1,045.9

The bid category includes all expenditures for non-MA coverage.

The remaining percentage is paid from the Part B account of the SMI trust fund.

Private Health Plans

163

d. Incurred Expenditures per Enrollee

Table IV.C3 shows estimated incurred per enrollee expenditures for

beneficiaries enrolled in private health plans. It combines the values

for expenditures from the Part A and Part B trust funds.

Table IV.C3.—Incurred Expenditures per Private Health Plan Enrollee

Local CCP

Calendar

year

HMO

PPO

Regional

PPO

PFFS

SNP

Other

Total

Bid-based expenditures

2013

$8,868

$8,533

$8,121

$8,936

$12,728

$5,063

$9,089

2014

8,731

8,604

8,511

9,282

12,649

6,171

9,083

2015

8,809

8,823

8,434

9,538

12,932

8,199

9,263

2016

8,901

9,276

9,033

10,261

13,167

8,398

9,503

2017

9,103

9,630

9,011

10,797

13,680

8,725

9,788

2018

9,457

10,030

9,472

11,141

14,374

9,049

10,235

2019

10,032

10,368

10,006

12,129

15,253

13,169

10,933

2020

10,481

10,827

10,602

13,094

16,274

14,507

11,519

2021

10,423

10,590

10,213

12,620

16,354

14,572

11,460

2022

10,703

10,888

10,446

12,859

17,270

15,198

11,952

2023

11,030

11,232

10,852

13,310

17,797

15,690

12,453

2024

11,421

11,588

11,345

13,914

18,355

16,425

12,939

2025

12,107

12,274

12,132

14,907

19,426

14,259

13,691

2026

12,802

12,987

12,933

15,949

20,544

15,167

14,480

2027

13,582

13,794

13,824

17,126

21,780

16,162

15,364

2028

14,394

14,638

14,761

18,385

23,065

17,193

16,284

2029

15,221

15,550

15,716

19,694

24,351

18,220

17,236

2030

16,005

16,369

16,657

21,024

25,593

19,214

18,126

2031

16,900

17,298

17,729

22,561

27,015

20,366

19,140

2032

17,865

18,292

18,893

24,266

28,552

21,621

20,231

Rebate expenditures

2013

$1,124

$289

$456

$255

$1,119

$842

2014

1,020

282

352

210

897

739

2015

1,048

212

298

217

954

731

2016

1,123

290

310

199

925

788

2017

1,120

281

403

194

1,082

796

2018

1,183

324

421

176

1,183

851

2019

1,327

445

535

198

1,448

1,004

2020

1,506

546

585

189

1,615

1,147

2021

1,708

706

692

524

1,940

1,337

2022

1,980

901

930

805

2,300

1,586

2023

2,328

1,115

1,202

1,120

2,814

1,915

2024

2,371

1,147

1,230

1,152

2,920

1,970

2025

2,537

1,236

1,327

1,251

3,129

2,139

2026

2,730

1,340

1,441

1,369

3,404

2,314

2027

2,945

1,456

1,567

1,498

3,688

2,504

2028

3,172

1,579

1,701

1,636

3,987

2,705

2029

3,431

1,722

1,860

1,803

4,309

2,931

2030

3,671

1,855

2,005

1,953

4,621

3,143

2031

3,928

1,996

2,154

2,105

4,955

3,370

2032

4,208

2,148

2,311

2,260

5,309

3,614

Total expenditures

2013

$9,991

$8,821

$8,577

$9,190

$13,846

$5,063

$9,930

2014

9,751

8,886

8,863

9,492

13,546

6,171

9,823

2015

9,857

9,036

8,732

9,755

13,886

8,199

9,994

2016

10,023

9,566

9,343

10,459

14,092

8,398

10,290

2017

10,224

9,911

9,414

10,991

14,762

8,725

10,583

2018

10,641

10,354

9,894

11,316

15,558

9,049

11,086

2019

11,359

10,813

10,541

12,327

16,701

13,169

11,938

2020

11,987

11,373

11,187

13,283

17,889

14,507

12,667

2021

12,132

11,295

10,905

13,144

18,295

14,572

12,798

Actuarial Methodology

164

Local CCP

Calendar

year

HMO

PPO

Regional

PPO

PFFS

SNP

Other

Total

2022

12,683

11,789

11,375

13,663

19,570

15,198

13,538

2023

13,358

12,347

12,055

14,430

20,610

15,690

14,368

2024

13,791

12,734

12,575

15,066

21,275

16,425

14,909

2025

14,644

13,510

13,458

16,159

22,555

14,259

15,830

2026

15,533

14,327

14,374

17,319

23,948

15,167

16,794

2027

16,526

15,250

15,392

18,625

25,468

16,162

17,867

2028

17,566

16,217

16,462

20,021

27,052

17,193

18,989

2029

18,652

17,272

17,576

21,497

28,661

18,220

20,167

2030

19,676

18,224

18,662

22,977

30,214

19,214

21,269

2031

20,828

19,293

19,883

24,665

31,970

20,366

22,510

2032

22,073

20,440

21,204

26,527

33,861

21,621

23,845

Values represent the sum of per capita expenditures for Part A and Part B.

The bid category includes all expenditures for non-MA coverage.

Average Medicare payments per private plan enrollee vary by

geographic location of the plan, plan efficiency, and average reported

health status of plan enrollees. LCCPs and SNPs tend to be located in

urban areas where prevailing health care costs tend to be above

average. Conversely, PFFS plans and RPPOs generally reflect a more

rural enrollment. These factors complicate meaningful comparisons of

average per capita costs by plan category.

Per capita bids are expected to increase by 4.2 percent in 2023. For

years 2024 through 2032, the per capita bid trend is expected to be

equal to the average of growth in per capita Medicare fee-for-service

expenditures and benchmark growth. After 2032, average Medicare

payments to private plans per enrollee are assumed to follow the

aggregate growth trends of the HI and SMI Part B per capita benefits,

as described in section IV.D of this report.

Annual increases in per capita rebates are projected to be in the mid to

high single digits for years 2025 through 2032 due to assumed

increases in quality bonus payments and increases in benchmarks.

Long-Range Assumptions

165

D. LONG-RANGE MEDICARE COST GROWTH ASSUMPTIONS

Sections IV.A, IV.B, and IV.C have described the detailed assumptions

and methodology underlying the projected expenditures for HI

(Part A), SMI (Parts B and D), and private health plans (Part C) during

2023 through 2032. These projections are made for individual

categories of Medicare-covered services, such as inpatient hospital care

and physician services.

As the projection horizon lengthens, it becomes increasingly difficult to

anticipate changes in the delivery of health care, the development of

new medical technologies, and other factors that will affect future

health care cost increases. Accordingly, rather than extending the

detailed projections by individual type of service for all future years,

the Trustees use a more aggregated basis for setting cost growth

assumptions in the long range. Such increases also reflect the

substantial uncertainty associated with payments that are specified

through statute, which may present challenges for the Medicare

program.

Beginning with the 2013 report, the Trustees used the statutory price

updates and the volume and intensity assumptions from the “factors

contributing to growth” model to derive the year-by-year Medicare cost

growth assumptions for the last 50 years of the projection period.

The

Trustees assume that the productivity reductions to Medicare payment

rate updates will reduce volume and intensity growth by 0.1 percent

below the factors model projection.

The output and key assumptions of the factors model that are used in

this year’s report are similar to those used in the 2022 report. In

subsequent reports, the Trustees will determine if additional historical

data warrant a re-evaluation of these assumptions and a re-estimation

of the factors model output. The remainder of section IV.D discusses

the factors model and its role in the Medicare projections. Section V.C

This assumed increase in the average expenditures per beneficiary excludes the

impacts of the aging of the population, changes in the sex composition of the Medicare

population, and changes in the distribution of the Medicare population on the basis of

proximity to death, as the Trustees estimated these factors separately. For convenience,

the increase in Medicare expenditures per beneficiary, before consideration of

demographic impacts, is referred to as the Medicare cost growth rate.

The Trustees’ methodology is consistent with Finding III-2 and Recommendation III-3

of the 2010–2011 Medicare Technical Review Panel and with Finding 3-2 of the 2016–

2017 Medicare Technical Review Panel. The Panels’ final reports are available at http://

aspe.hhs.gov/health/reports/2013/MedicareTech/TechnicalPanelReport2010-2011.pdf

and at https://aspe.hhs.gov/system/files/pdf/257821/MedicareTechPanelFinalReport2017.pdf.

Actuarial Methodology

166

explains the methods used to derive the long-range cost growth

assumptions underlying the illustrative alternative projection.

1. Long-Range Growth Assumptions for the Overall Health

Sector

The first step to estimate the long-range Medicare trends is to

determine the long-range assumptions affecting the overall health

sector. The Trustees use the factors model to determine the year-by-

year growth rates for the overall health sector over the last 50 years of

the projection. Based on the factors model, the Trustees assume that

the long-range per capita overall health spending growth is GDP plus

0.8 percent (or 4.4 percent) for 2047, gradually declining to GDP plus

0.4 percent by 2097 (or 4.1 percent).

The per capita increase in overall

health care costs is due to the combined effects of general inflation,

medical-specific excess price inflation (above general price growth), and

changes in the utilization of services per person and the intensity or

average complexity per service. The Trustees assume that beginning

in 2047 (i) general price inflation will remain constant at 2.05 percent

per year, as measured by the GDP deflator; (ii) excess medical price

inflation will remain constant at 0.75 percent per year; and (iii) the

annual increase in the volume and intensity of services per person will

decline gradually from approximately 1.5 percent in 2047 to

1.3 percent in 2097 based on the key economic assumptions and

elasticity estimates from the factors model, as described below.

Excess medical price inflation for the overall health sector is assumed

to grow at 0.75 percent annually from 2047 through 2097. This

assumption is roughly equivalent to the difference between the growth

in the personal health care deflator over the past three decades and the

growth in the GDP deflator over this same period.

Combining this

assumption with the ultimate assumed growth rate of 2.05 percent per

year in the GDP deflator yields the Trustees’ estimate of the long-range

rate of medical price growth of 2.8 percent annually. Using the

relationship between medical price growth and resource-based health

These growth rate assumptions are described relative to the per capita increase in GDP

and characterized simply as GDP plus X percent.

Information on the personal health care deflator is available at

http://www.c ms.gov/Researc h-Statistics-Data-and-Syste ms/Statistics-Trends-

and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html.

Long-Range Assumptions

167

sector productivity growth

allows for the determination of medical

input price growth.

For resource-based health sector productivity, the

Trustees assume that the rate of growth will be equivalent to published

research

of 0.4 percent per year. Hence, the Trustees’ estimate of the

long-range rate of growth of medical input prices is 3.2 percent.

As stated earlier, the factors model is based on economic research that

separates health spending growth into its major drivers—income

growth, relative medical price inflation, insurance coverage, and a

residual that primarily reflects the impact of technological

development.

The factors model provides the ability to model the

expected behavioral effects associated with a continuing increase in the

share of national income devoted to consumption of health care

services. In particular, this approach is based on historically estimated

income and price elasticities and uses measurable key variables,

providing a foundation for developing the long-range growth

assumptions.

In the factors model, the sensitivity of health cost growth to each of the

three factors must be estimated. Each sensitivity is measured as an

elasticity, which is the percentage change in cost growth that is caused

by a 1-percent change in a factor. The first elasticity, the income-

technology elasticity, reflects the increase in demand for health care

and new medical technologies in response to growth in income. The

second elasticity, the relative medical price elasticity, reflects the

sensitivity of consumers and purchasers in consuming health care to

Resource-based productivity is defined as the real value of provider goods and services

divided by the real value of the resources (inputs) used to produce the goods and services,

whereas price changes are measured across constant products—that is, defined health

services with a constant mix of inputs. Resource-based productivity is used for this

decomposition, rather than outcomes-based productivity (which incorporates the

estimated value of improvements in health resulting from the services), because

Medicare and most other payers reimburse providers based on their resource use.

A third factor, provider profit margins, is assumed to remain constant over the long

range.

Information on updated estimates of hospital productivity is available at

https://www.cms.gov/files/document/productivity-memo.pdf; Fisher, Charles.

“Multifactor Productivity in Physicians’ Offices: An Exploratory Analysis.” Health Care

Financing Review, 29, no. 2 (2007): 15–32.

Smith, Sheila, Newhouse, Joseph P., and Freeland, Mark S. “Income, Insurance, and

Technology: Why Does Health Spending Outpace Economic Growth?” Health Affairs, 28,

no. 5 (2009): 1276–1284.

Additional information on the “factors contributing to growth” model is available in a

memorandum by the CMS Office of the Actuary titled “A Conceptual View of the

Long-Term Projection Methods for Medicare and Aggregate National Health

Expenditures,” available at https://www.cms.gov/files/document/conceptual -

view-long-ter m-projection-method s-medic are-and-aggregate-nat ional- health-

expenditure s.pd f.

Actuarial Methodology

168

changes in excess medical price inflation. The final key elasticity is the

insurance elasticity, which reflects the change in demand for medical

care as the level of insurance coverage changes.

For the income-technology elasticity, the Trustees developed a time-

trend-based method for projecting the elasticity that reflects the

historical declining trend, produces results consistent with the

elasticity implied by the most recent short-range national health

expenditure (NHE) projections, and converges to 1.0 within a range of

roughly 75 to 150 years. In the resulting projection, the income-

technology elasticity is 1.24 in the 25th year of the projection period

(2047) and declines at a slowing pace to 1.07 in the 75th year of the

period (2097). This methodology results in an income-technology

elasticity that reaches 1.0 in 2125. These are the same elasticity

assumptions that were used for 2047 and 2097 in the 2022 report.

For the medical price elasticity, the Trustees assume a rising

sensitivity of demand for health care to changes in relative medical

price as the share of income devoted to health care rises. The medical

price elasticity is determined for a given year by subtracting an income

effect from a pure substitution effect. The income effect is determined

by multiplying the share of income devoted to health care in that year

by the estimated yearly income-technology elasticity. The substitution

effect is assumed to be equal to −0.2 and represents the change in

demand in response to a change in the relative price of health care

holding utility constant. For the 2023 report, the Trustees project the

price elasticity to be −0.50 for the 25th year of the projection (2047) and

assume that it will follow a non-linear path until it reaches −0.56 in

the 75th year of the projection (2097). Based on the RAND Health

Insurance Experiment, the insurance elasticity was estimated at −0.2

and was assumed to be unchanged over the long range.

Two additional assumptions are required to complete the factors model

determination. First, relative medical price inflation must be

estimated over the long-range projection period. As discussed

previously, the Trustees assume a relative medical price growth rate

of 0.75 percent per year. Second, insurance coverage is assumed to be

unchanged over the long range in order to maintain consistency with

Newhouse, Joseph P., and the Insurance Experiment Group. Free for All? Lessons from

the RAND Health Insurance Experiment. Cambridge: Harvard University Press, 1993.

The coefficient of this elasticity is negative because the level of insurance coverage is

measured using individuals’ cost-sharing requirements (such as deductibles and

coinsurance).

Long-Range Assumptions

169

the concept of a Medicare projection in which the Medicare benefit

package is not altered.

2. Long-Range Growth Assumptions for Medicare

The Trustees have assumed since 2001 that it is reasonable to expect

over the long range that the drivers of health spending will be similar

for the overall health sector and for the Medicare program. This view

was affirmed by the 2010–2011 Medicare Technical Review Panel,

which recommended use of the same long-range assumptions for the

increase in the volume and intensity of health care services for the total

health sector and for Medicare. Therefore, the overall health sector

long-range cost growth assumptions for volume and intensity are used

as the starting point for developing the Medicare-specific assumptions.

Medicare payment rates for most non-physician provider categories are

updated annually by the increase in providers’ input prices for the

market basket of employee wages and benefits, facility costs, medical

supplies, energy and utility costs, professional liability insurance, and

other inputs needed to produce the health care goods and services.

These updates are then reduced by the 10-year moving average

increase in economy-wide productivity, which the Trustees assume will

be 1.0 percent per year over the long range. The Trustees assume that

the full market basket increase would be approximately 3.2 percent

annually, or about 0.4 percent greater than the net price increase of

2.8 percent per year described above for the total health sector. The

different statutory provisions for updating payment rates require the

development of separate long-range Medicare cost growth assumptions

for five categories of health care provider services:

(i) All HI, and some SMI Part B, services that are updated annually

by provider input price increases less the increase in economy-wide

productivity.

The annual increase in Medicare payment rates for these services

is reduced by the 10-year moving average increase in economy-

wide productivity. These gains are estimated to be 1.0 percent per

year over the long-range projection period. Combined with an

assumed market basket increase of 3.2 percent, the statutory

price update for these services is 2.2 percent per year over the long

range. The initial projected increase in the volume and intensity

of these Medicare services is assumed to be equivalent to the

average projected growth in the volume and intensity of services

for the overall health sector. The Trustees believe that the use of

a common baseline rate of volume and intensity growth across all

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170

Medicare services is reasonable, as there would be only a small

likelihood that one part of the health sector could continue to grow

indefinitely at significantly faster rates of growth than do other

parts.

Additionally, the Trustees assume that the growth in Medicare

payment rates will reduce the volume and intensity growth of

these services by 0.1 percent per year relative to the assumption

from the factors model. The Trustees’ assumption is based on the

work of the 2010–2011 and 2016–2017 Medicare Technical

Review Panels, both of which concluded that there would likely be

a small net negative impact on volume and intensity growth due

to reduced incentives to develop new technologies, provider exits,

and the impact of greater bundling of services for payment

purposes.

For new technology that leads to new services,

Medicare would pay lower fees than would otherwise be the case,

and providers would be less likely to adopt new services and

innovations, thereby lowering the demand for, and intensity of,

the medical care provided. Regarding provider exits, as fee-for-

service fees declined relative to those assumed for private health

insurance plans, facilities of marginal profitability would likely

exit the Medicare market, reducing capacity and volume. This

change could also cause a more bifurcated health system in which

only providers that could operate profitably under Medicare would

offer services to Medicare beneficiaries, with a tendency to provide

only the more basic services not associated with new medical

technologies. Finally, the innovations being tested for the

Medicare program, such as bundled payments or accountable care

organizations, could reduce incentives to adopt new cost-

increasing technologies and increase incentives to adopt new cost-

decreasing technologies for those participating in these programs

and/or could contribute to greater efforts to avoid services of

limited or no value within the service bundle.

Reflecting all of these considerations, the year-by-year long-range

cost growth rate assumption for these HI and SMI Part B services

starts at 3.7 percent in 2047, or GDP plus 0.1 percent, and

See Recommendation III-3 of the 2010–2011 Medicare Technical Review Panel and

Finding 3-2 of the 2016–2017 Medicare Technical Review Panel.

Other factors, such as reduced beneficiary cost-sharing requirements, would tend to

increase the volume and intensity of services. The assumption of −0.1 percent reflects

the Technical Panel’s assessment that the overall impact would be a small net decrease

in volume and intensity growth.

Long-Range Assumptions

171

gradually declines to 3.4 percent by 2097, or GDP minus

0.3 percent.

(ii) Physician services

Payment rate updates are 0.75 percent per year for those qualified

physicians assumed to be participating in advanced alternative

payment models (advanced APMs) and 0.25 percent for those

assumed to be participating in the merit-based incentive payment

system (MIPS) in the long range. The year-by-year cost growth

rates for physician payments are assumed to decline from

3.3 percent in 2047, or GDP minus 0.3 percent, to 2.9 percent in

2097, or GDP minus 0.8 percent.

(iii) Certain SMI Part B services that are updated annually by the

Consumer Price Index (CPI) increase less the increase in

productivity.

Such services include durable medical equipment (DME) that is

not subject to competitive bidding,

care at ambulatory surgical

centers, ambulance services, and medical supplies, which are

updated by the CPI and reduced by the 10-year moving average

increase in economy-wide productivity. For these services, the

Trustees initially assume that the rate of per beneficiary volume

and intensity growth is equivalent to that derived for the overall

health sector using the factors model. This volume and intensity

growth is assumed to be reduced by 0.1 percent per year, as

described above. The volume and intensity assumption is

combined with the long-range CPI assumption (2.4 percent)

minus the productivity factor (1.0 percent) to produce a long-

range growth assumption for these SMI Part B services. The

corresponding year-by-year cost growth rates gradually decline

from 2.9 percent in 2047, or GDP minus 0.7 percent, to 2.6 percent

in 2097, or GDP minus 1.1 percent.

(iv) The remaining Part B services, which consist mostly of physician-

administered drugs, laboratory tests, and small facility services.

The Trustees assume that per beneficiary outlays for these other

Part B services, which constitute about 33 percent of total Part B

expenditures in 2032, grow at the same rate as the overall health

sector as determined from the factors model. The services are

assumed to grow similarly because their payments are

The portion of DME that is subject to competitive bidding is included with all other

Medicare services since the price is determined by a competitive bidding process.

Actuarial Methodology

172

established through market processes. For physician-

administered Part B drugs, the key inflation provisions in the

Inflation Reduction Act of 2022 (IRA) are not anticipated to affect

such payments over the long range. The year-by-year cost growth

rates gradually decline from 4.4 percent in 2047, or GDP plus

0.8 percent, to 4.1 percent by 2097, or GDP plus 0.4 percent.

(v) Prescription drugs provided through Part D.

Medicare payments to Part D plans are based on a competitive-

bidding process, and prior to the IRA these payments were

assumed to grow at the same rate as the overall health sector as

determined from the factors model. While the negotiation

provisions of the IRA are not anticipated to affect the long-range

growth rates for Part D drugs, the inflation provisions would

likely lower these trends relative to previous expectations.

Specifically, the IRA requires the change in prices (before rebate

adjustments) to be limited to the rate of growth in the CPI.

Analysis of Part D pricing trends over recent years has

consistently shown price growth in excess of the CPI, with a

portion of these trends offset by increasing rebate percentages,

and in prior reports it was assumed that such trends would

continue over the long range. The inflation provisions in the IRA

would likely lower these price trends, though it is expected that

they would outpace the CPI due to certain manufacturer

adaptations to the new law that may mitigate some of the pricing

constraints, including new approaches regarding the development

and release of new drugs. As a result, they are assumed to grow

over the long range slightly more slowly than would be the case if

they were determined strictly through market processes. The

corresponding year-by-year cost growth rates decline from

4.2 percent in 2047, or GDP plus 0.6 percent, to 3.9 percent by

2097, or GDP plus 0.2 percent.

In addition, these long-range cost growth rates must be modified to

reflect demographic impacts. Beginning with the 2020 report, these

impacts reflect the changing distribution of Medicare enrollment by

age, sex, and the beneficiary’s proximity to death, which is referred to

as a time-to-death (TTD) adjustment. The TTD adjustment reflects the

fact that the closer an individual is to death, the higher his or her

health care spending is. Thus, as mortality rates improve and a smaller

portion of the Medicare population is likely to die at any given age, the

Long-Range Assumptions

173

effect of individuals getting older and spending more on health care is

offset somewhat.

After combining the rates of growth from the four long-range

assumptions, the weighted average cost growth rate for Part B is

3.8 percent, or GDP plus 0.2 percent in 2047, declining to 3.7 percent,

or GDP plus 0.0 percent by 2097. When Parts A, B, and D are

combined, the weighted average cost growth rate is 3.8 percent in 2047,

or GDP plus 0.2 percent, declining to 3.6 percent, or GDP minus

0.1 percent by 2097.

As in the past, the Trustees have established detailed growth rate

assumptions for the initial 10 years of the projection period by

individual type of service (for example, inpatient hospital care and

physician services), reflecting recent trends and the impact of all

applicable statutory provisions. For each of Parts A, B, and D, the

assumed growth rates for years 11 through 25 of the projection period

are set by interpolating between the rate at the end of the short-range

period and the rate at the start of the final 50 years of the long-range

period described above. The 2016–2017 Medicare Technical Review

Panel concluded that both the current length of the transition period

and the current approach to the transition are reasonable, and they

recommended that the Trustees continue to use the same approach to

transitions between short-range and long-range projections for both HI

and SMI.

More information on the TTD adjustment is available at

https://www.cms.gov/files/document/incorporation-time-death-medicare-demographic-

assumptions.pdf.

See Findings 6-2 and 6-3 and Recommendation 6-1.

174

V. APPENDICES

A. MEDICARE AMENDMENTS SINCE THE 2022 REPORT

Since Appendix V.A. for the 2022 annual report was written, and prior

to this report’s preparation, seven laws have been enacted that have

an effect on the Medicare trust funds. (Two of these laws were enacted

before, and five after, the transmittal of the 2022 report to Congress on

June 2, 2022.) The more important provisions, from an actuarial

standpoint, are described, in brief, in the following paragraphs. Certain

provisions with a relatively minor financial impact, but which are

important from a policy perspective, are briefly described as well.

1. The Consolidated Appropriations Act, 2022 (Public

Law 117-103, enacted on March 15, 2022) included

provisions that affect the HI and SMI programs.

Provision Affecting HI and Part B of SMI

•

The funding amount of $99 million that was previously

provided to the Medicare Improvement Fund for services

furnished during and after fiscal year 2021, as discussed under

Public Law 117-86 in last year’s report, is decreased to

$5 million. This fund is intended to be available for

improvements to the original fee-for-service program under

Parts A and B, and funding is provided from the HI and SMI

trust funds in such proportions as deemed appropriate by the

Secretary of Health and Human Services (HHS).

Provision Affecting HI

• For the hospice aggregate cap, the change made by previous

legislation—whereby a hospice payment update percentage is

used for the annual updates for fiscal years 2017–2030 rather

than the Consumer Price Index for All Urban Consumers—is

extended through fiscal year 2031. (Public Laws 113-185 and

116-260 made this change for fiscal years 2017–2025 and

2026–2030, respectively, as discussed in the 2015 and 2021

reports.)

Provision Affecting Part B of SMI

• Telehealth flexibilities previously provided for by Public

Laws 116-123, 116-127, and 116-136, in response to the

COVID-19 pandemic, are extended through 151 days after the

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end of the declared public health emergency. (As of this

writing, the emergency period is expected to end on May 11,

2023.) These flexibilities are described in the 2021 report.

2. The Postal Service Reform Act of 2022 (Public Law 117-108,

enacted on April 6, 2022) included one provision that affects

Parts B and D of the SMI program.

• A new Postal Service Health Benefits (PSHB) program, which

will provide health insurance to United States Postal Service

(USPS) employees, annuitants, and their eligible family

members, is established, with an implementation date of

January 1, 2025. The program will be structured similarly to,

and established within, the Federal Employees Health

Benefits (FEHB) program, with a selection of health insurance

plans from which to choose. To participate in the PSHB

program, most USPS annuitants and eligible family members

who are newly entitled to premium-free Medicare Part A as of

January 1, 2025 must be enrolled in Part B as well. Prior to

this new PSHB program, enrollment in Part B was voluntary

for these individuals. (Those who turn age 64 on or before

January 1, 2025 are exempted from this requirement. Also

exempted are individuals who are current annuitants as of

January 1, 2025, those living abroad, those enrolled in

Veterans Administration coverage, and those eligible for

services from the Indian Health Service.) In addition, PSHB

plans will be required to offer Medicare Part D coverage for

these newly entitled, Part D-eligible USPS annuitants and

Part D-eligible family members. This legislation is expected to

increase Part B enrollment somewhat and to increase Part D

enrollment more significantly (particularly in employer/union-

only group waiver plans).

3. The Bipartisan Safer Communities Act (Public Law 117-159,

enacted on June 25, 2022) included provisions that affect

the HI and SMI programs.

Provision Affecting HI and Part B of SMI

• The funding amount of $5 million that was previously provided

to the Medicare Improvement Fund for services furnished

during and after fiscal year 2021, as discussed under Public

Law 117-103, is substantially increased to $7.5 billion for

services furnished during and after fiscal year 2022.

Appendices

176

Provision Affecting Part D of SMI

• The moratorium on the implementation of a final rule that

would amend the definition of safe harbor protection under the

anti-kickback statute as it applies to drug manufacturer

rebates that are paid to Part D plans, either directly or through

their pharmacy benefit managers (PBMs), is extended until

January 1, 2027. (This rule was promulgated by the HHS

Office of Inspector General and published on November 30,

2020.). Under this rule, such rebates would be protected only

when passed through to the dispensing pharmacy (to reduce

out-of-pocket costs for beneficiaries), representing a major

change from current typical practice. The original effective

date for implementation of the final rule was January 1, 2022.

Pursuant to court orders resulting from a lawsuit brought by

the PBM industry, the date had been delayed until January 1,

2023. As discussed in last year’s report, Public Law 117-58

extended the delay until January 1, 2026; this provision

extends it until January 1, 2027.

4. The Inflation Reduction Act of 2022 (Public Law 117-169,

enacted on August 16, 2022) included provisions that affect

the HI and SMI programs.

Provisions Affecting Both Part B and Part D of SMI

• The Secretary of HHS is required to negotiate prices for certain

prescription drugs covered under Medicare. Specifically, CMS

(on behalf of the Secretary) must negotiate maximum fair

prices for certain high-expenditure single-source Part B or

Part D drugs (brand-name drugs without generic or biosimilar

equivalents). The maximum fair prices that are negotiated for

the first set of drugs subject to negotiation will be in effect

beginning in 2026. The number of drugs subject to negotiation

is phased in, such that CMS must negotiate the prices of

(i) 10 drugs covered under Part D for 2026; (ii) 15 drugs

covered under Part D for 2027; (iii) 15 drugs covered under

Part B or Part D for 2028; and (iv) 20 drugs covered under

Part B or Part D for 2029 and each year thereafter. The

selected drugs must be among the 50 drugs with the highest

total expenditures over the most recent 12-month period under

Part B or Part D and must have been approved or licensed, as

applicable, by the Food and Drug Administration for at least

7 years (for drug products) or 11 years (for biologics). Excluded

are (i) certain orphan drugs that are approved to treat only one

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rare disease or condition; (ii) plasma-derived products;

(iii) drugs that account for less than $200 million in annual

Medicare spending (in 2021 and adjusted annually for

inflation); and (iv) certain small biotech drugs (for 2026, 2027,

and 2028). Manufacturers of drugs selected for negotiation that

fail to comply with negotiation requirements are subject to civil

penalties and/or excise taxes. If certain requirements are met,

negotiations for certain biologics may be delayed for up to

2 years upon request by a manufacturer of a biosimilar for

which the biologic is the reference product. Funds in the

amount of $3 billion in fiscal year 2022 are provided to CMS,

and are to remain available until expended, for the

implementation of this provision.

• For Part B, with respect to each quarter beginning January 1,

2023, and for Part D, with respect to each 12-month applicable

period beginning October 1, 2022, drug manufacturers must

pay rebates to Medicare if they increase drug prices for a

rebatable Part B or Part D drug at a rate that is faster than

the rate of consumer inflation. In general, for both Part B and

Part D, rebatable drugs include certain drugs and biologics

that meet the statutory criteria and have an average cost of

$100 or more per year per person, as determined by the

Secretary. Manufacturers that fail to comply are subject to civil

penalties. Beginning April 1, 2023, beneficiary coinsurance

under Part B for a Part B rebatable drug will be adjusted

downward to reflect inflation-adjusted payment amounts if the

drug price increased more rapidly than the rate of inflation.

Funds in fiscal years 2022–2031 are provided to CMS for the

implementation of this provision.

• For insulin furnished under Part B through durable medical

equipment, the Part B deductible is waived and cost sharing is

not to exceed $35 per monthly prescription, effective July 1,

2023.

• For insulin products covered under each Part D plan and

during all phases of the Part D benefit, beginning January 1,

2023, the deductible does not apply with respect to such

products, and cost sharing for a 1-month supply of each covered

insulin product must not exceed $35. (For plan year 2023, plans

will receive retrospective subsidies equal to the difference

between the plans’ benefit packages, as submitted and

approved under their 2023 bids, and the $35 statutory limit.)

For plan years 2026 and later, when the negotiated maximum

Appendices

178

fair prices for selected drugs will be in effect, the cost sharing

for each month’s supply for covered insulin under Part D must

be limited to the least of (i) the $35 copayment; (ii) 25 percent

of the insulin’s negotiated price under the plan; or

(iii) 25 percent of the insulin’s negotiated maximum fair price.

Provisions Affecting Part B of SMI

• For biosimilar products separately payable under Part B and

administered in physician offices, hospital outpatient

departments, and ambulatory surgical centers with an average

sale price (ASP) of not more than the price of their associated

reference biological product, the add-on payment (which is paid

in addition to the biosimilar’s ASP) is temporarily raised from

6 percent to 8 percent of the reference product’s ASP for

5 years. The add-on payment for biosimilars that do not meet

the ASP qualification will continue to be 6 percent of the

reference biological product’s ASP. (For existing qualifying

biosimilars for which payment was based on the ASP as of

September 30, 2022, the 5-year period began on October 1,

2022. For new qualifying biosimilars for which payment based

on the ASP is first made between October 1, 2022

and December 31, 2027, the 5-year period begins on the first

day of the calendar quarter during which such payment is

made.)

• For new biosimilar products furnished under Part B on or after

July 1, 2024, the payment rate during the initial period, when

an ASP is unavailable, will be the lesser of (i) the biosimilar’s

wholesale acquisition cost plus 3 percent or (ii) 106 percent of

the associated reference biological product’s ASP.

Provisions Affecting Part D of SMI

• The standard Part D benefit design (for beneficiaries not

eligible for cost sharing and/or premium subsidies) is

restructured as follows:

(i) In 2024 and later, the 5-percent cost sharing currently

required from the beneficiary during the catastrophic

coverage phase (that is, after the beneficiary reaches the

out-of-pocket threshold) is eliminated, thereby capping

previously unlimited out-of-pocket costs for the

beneficiary at the out-of-pocket threshold level. The

allowed costs in the catastrophic coverage phase will be

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borne by the drug plan and by Medicare, at 20 percent and

80 percent, respectively, in 2024 (as opposed to the current

catastrophic cost distribution of 5 percent from the

beneficiary, 15 percent from the drug plan, and 80 percent

from Medicare).

(ii) Beginning in 2025, enrollees will have a $2,000 limit on

their out-of-pocket costs for covered Part D drugs; that is,

neither the initial coverage limit nor the period currently

referred to as the coverage gap (the phase between the

initial coverage limit and the out-of-pocket threshold)

will continue to exist, and the out-of-pocket cap for

entering the catastrophic coverage phase (during which

there will no longer be beneficiary cost sharing, as

described above) will be reduced to $2,000. For 2026 and

later, this $2,000 limit will be increased by the annual

percentage increase used for other Part D benefit

parameters.

(iii) Also beginning in 2025, for the entire period starting after

the deductible is met and ending when the catastrophic

coverage phase begins, beneficiary cost sharing will be

25 percent for drugs that are neither insulins nor specified

vaccines. The remaining allowed costs (after the

25-percent beneficiary cost sharing) will be covered, in

general, as follows: (i) for applicable drugs, by a 10-percent

discount paid by the drug manufacturer

and a

65-percent benefit from the beneficiary’s Part D plan, and

(ii) for non-applicable drugs, by a 75-percent benefit from

the beneficiary’s Part D plan. (In contrast, through 2024,

the Part D plan covers 75 percent of the remaining

allowed costs until the beneficiary enters the coverage

gap; then, during the coverage gap, the remaining allowed

costs are covered as follows: (i) for applicable drugs, by a

Originally, when the Part D program began, the beneficiary had to pay the full cost of

prescription drugs while in this phase (hence the term coverage gap). However,

legislation enacted in 2010 and 2018 phased down the out-of-pocket cost-sharing

percentage for beneficiaries in the coverage gap over the period 2010–2020 such that,

beginning in 2020, the coverage gap was fully closed, with the beneficiary responsible for

25 percent of all prescription drug costs (that is, the same percentage that is paid by the

beneficiary during the initial coverage phase, when the beneficiary has met the

deductible but has not yet reached the initial coverage limit).

For most applicable drugs, the 10-percent responsibility will be paid by the

manufacturer, but for selected drugs there will be a government subsidy for this amount

rather than a manufacturer discount. Additionally, for low-income beneficiaries and for

small biotech drugs, this amount will be phased in gradually.

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180

70-percent discount paid by the drug manufacturer and a

5-percent benefit from the Part D plan, and (ii) for non-

applicable drugs, by a 75-percent benefit from the Part D

plan.) Applicable drugs are generally covered brand-name

Part D drugs and biologics, including biosimilars; non-

applicable drugs are generally covered non-brand-name—

that is, generic—Part D drugs.

The 10-percent discount paid by the manufacturer will not

count toward the out-of-pocket threshold. (In contrast, the

dollar value of the 70-percent manufacturer discount for

applicable drugs in 2024 is included in a beneficiary’s

progression toward meeting the out-of-pocket threshold,

even though the beneficiary does not pay it. However,

certain third-party payments will count as the

beneficiary’s own out-of-pocket spending, including

amounts reimbursed by insurance (which is not the case

through 2024). The low-income subsidies currently

provided under Part D and from State Pharmacy

Assistance programs will continue to count toward the

out-of-pocket amount.

(iv) In addition, and also beginning in 2025, the cost coverage

distribution during the catastrophic coverage phase will

change (from the distribution in 2024, which was

previously described). Specifically, (i) Medicare’s share

will decrease from 80 percent (for all covered prescription

drugs) to 20 percent for applicable drugs and to 40 percent

for non-applicable drugs; (ii) drug manufacturers

will be

required, in general, to provide a 20-percent discount on

applicable drugs (whereas no manufacturer discount is

required in the catastrophic phrase prior to 2025); and

(iii) the 20-percent share borne by Part D plans will

increase to 60 percent.

(v) Starting in 2025, all enrollees will have the option from

their Part D plans to pay out-of-pocket costs spread out in

capped, monthly amounts over the plan year (instead of

paying as the costs are incurred).

For most applicable drugs, the 20-percent responsibility will be paid by the

manufacturer, but for selected drugs there will be a government subsidy for this amount

rather than a manufacturer discount. Additionally, for low-income beneficiaries and for

small biotech drugs, this amount will be phased in gradually.

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181

• For each of plan years 2024–2029, the base beneficiary

premium increase is to be limited to no more than 6 percent

from the prior year. Premiums for some Part D plans may

increase by more than 6 percent per year during this period,

but the national average is constrained. For plan years 2030

and later, CMS may determine a new beneficiary premium

percentage, based on the 2029 constrained premiums, to

replace the current value of 25.5 percent. This new percentage

may not be less than 20 percent.

• Effective January 1, 2024, Part D low-income subsidies are

expanded. Specifically, (i) the income limit for individuals to

qualify for the full subsidy will increase from 135 percent to

150 percent of the Federal poverty level (FPL) (whereas,

previously, individuals with incomes between 135 percent and

150 percent of the FPL had been eligible for only a partial

subsidy); and (ii) the limit on resources required for the full

subsidy will also increase (from the limit that had been in place

for the partial subsidy, which will no longer exist).

• Effective January 1, 2023, Part D plans may not apply a

deductible, coinsurance, or other enrollee cost-sharing amount

for Part D-covered adult vaccines recommended by the

Advisory Committee on Immunization Practices, such as the

shingles (herpes zoster) vaccine. (By comparison, preventive

vaccines required by statute to be covered under Part B already

have no enrollee cost sharing, except for those vaccines used to

treat an injury or exposure to a disease.)

• The moratorium on the implementation of the final rule

regarding safe harbor protection under the anti-kickback

statute as it applies to drug rebates paid to Part D drug plans,

as discussed under Public Law 117-159, is extended until

January 1, 2032 (from January 1, 2027).

5. The Continuing Appropriations and Ukraine Supplemental

Appropriations Act, 2023 (Public Law 117-180, enacted on

September 30, 2022) included provisions that affect the HI

and SMI programs.

Provision Affecting HI and Part B of SMI

• The funding amount of $7.5 billion that was previously

provided to the Medicare Improvement Fund for services

Appendices

182

furnished during and after fiscal year 2022, as discussed under

Public Law 117-159, is decreased to $7.308 billion.

Provisions Affecting HI

• Medicare inpatient hospital add-on payments for certain low-

volume hospitals (those with fewer than 3,800 total discharges

annually and located 15 road miles or more from the nearest

like hospital) are extended through December 16, 2022 (from

September 30, 2022). The sliding scale used to determine the

add-on percentages is also extended.

• The Medicare-Dependent Hospital (MDH) program, which was

scheduled to expire after September 30, 2022, is extended

through December 16, 2022. (In addition, in most cases, MDH

hospitals that had requested reclassification as sole

community hospitals, in light of what had been the impending

expiration of the MDH program, may decline this

reclassification and reinstate their MDH status.)

6. The Further Continuing Appropriations and Extensions

Act, 2023 (Public Law 117-229, enacted on December 16,

2022) included provisions that affect the HI and SMI

programs.

Provision Affecting HI and Part B of SMI

• The funding amount of $7.308 billion that was previously

provided to the Medicare Improvement Fund for services

furnished during and after fiscal year 2022, as discussed under

Public Law 117-180, is decreased to $7.278 billion.

Provisions Affecting HI

• Medicare inpatient hospital add-on payments for certain low-

volume hospitals (those with fewer than 3,800 total discharges

annually and located 15 road miles or more from the nearest

like hospital) are extended through December 23, 2022 (from

December 16, 2022). The sliding scale used to determine the

add-on percentages is also extended. (See Public Law 117-180.)

• The Medicare-Dependent Hospital (MDH) program, which was

scheduled to expire after December 16, 2022 (as described

under Public Law 117-180), is extended through December 23,

2022. (In addition, in most cases, MDH hospitals that had

requested reclassification as sole community hospitals, in light

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of what had been the impending expiration of the MDH

program, may decline this reclassification and reinstate their

MDH status.)

7. The Consolidated Appropriations Act, 2023 (Public

Law 117-328, enacted on December 29, 2022) included

provisions that affect the HI and SMI programs.

Provision Affecting All Parts of Medicare

• The sequestration process that is in place should Congress fail

to address the budget deficit by certain deadlines is extended

by 1 year, through fiscal year 2032 (which, for sequestration

purposes, covers April 1, 2032 through March 31, 2033). The

benefit payment reductions for this newly added 12-month

period are set at 2 percent for the first 6 months and 0 percent

for the final 6 months. In addition, the benefit payment

reductions for fiscal years 2030 and 2031 (covering April 1,

2030 through March 31, 2032) are changed back to a uniform

2 percent for the entire period (from 2.25 percent, 3 percent,

4 percent, and 0 percent for the first, second, third, and final

6-month periods, respectively).

Provisions Affecting HI and Part B of SMI

• The funding amount of $7.278 billion that was previously

provided to the Medicare Improvement Fund for services

furnished during and after fiscal year 2022, as discussed under

Public Law 117-229, is substantially decreased to $180 million.

• The 1-percent add-on payment is extended for 1 year (through

December 31, 2023) for those home health agencies that serve

beneficiaries in rural areas and that are classified in the low-

population-density tier. (This tier is one of three used for

determining rural add-on adjustments. The tiers are based on

Medicare home health utilization and population density.)

• Technical adjustments are made to the method used for

calculating the separate Medicare payments to home health

agencies when they use disposable alternatives for providing

negative pressure wound therapy. The supply price is to be

used to determine the relative value for the service.

Appendices

184

Provisions Affecting HI

• Medicare inpatient hospital add-on payments for certain low-

volume hospitals (those with fewer than 3,800 total discharges

annually and located 15 road miles or more from the nearest

like hospital) are extended through September 30, 2024 (from

December 23, 2022). The sliding scale used to determine the

add-on percentages is also extended. (See Public Law 117-229.)

• The Medicare-Dependent Hospital (MDH) program, which was

scheduled to expire after December 23, 2022 (as described

under Public Law 117-229), is extended through September 30,

2024. (In addition, in most cases, MDH hospitals that had

requested reclassification as sole community hospitals, in light

of what had been the impending expiration of the MDH

program, may decline this reclassification and reinstate their

MDH status.)

• For the hospice aggregate cap, the change made by previous

legislation—whereby a hospice payment update percentage is

used for the annual updates for fiscal years 2017–2031 rather

than the Consumer Price Index for All Urban Consumers—is

extended through fiscal year 2032. (As noted earlier, Public

Law 117-103 had extended this change through fiscal year

2031.)

• Beginning in 2026, an additional 200 Medicare graduate

medical education (GME) residency positions are provided for,

half of which are to be reserved for psychiatry and psychiatry-

subspecialty residencies.

• Beginning in rate year 2025, the Secretary of HHS is required

to update the methodology for determining payment rates

under the inpatient psychiatric facilities prospective payment

system, based on new data collection for inpatient and

psychiatric units.

• The Acute Hospital Care at Home initiative, which was

scheduled to end upon termination of the public health

emergency, is extended through December 31, 2024.

• The cap on annual payments for nursing and allied health

education, which was to have been applied during 2010–2019

but was not, is eliminated. CMS may not seek repayment of

Medicare Amendments

185

amounts over the cap, and the calculation of future payments

may not include the effects of the cap.

Provisions Affecting Part B of SMI

• In the formula for determining payment rates under the

physician fee schedule, the updates to the conversion factor are

changed to be −0.5 percent, −1.2 percent, and −1.2 percent in

2023, 2024, and 2025, respectively (replacing −2.9 percent for

2023 and 0 percent for 2024 and 2025).

• Certain ground ambulance add-on payments that had been

extended through December 31, 2022 under previous

legislation are now extended through December 31, 2024.

These add-on payments include a 3-percent bonus for services

originating in rural areas, a 2-percent bonus for services

originating in other locations, and a 22.6-percent super rural

bonus for rural areas with the lowest population densities.

• For physicians participating in advanced alternative payment

models, a 1-year extension of incentive payment availability is

provided, but the payments will be at 3.5 percent. (In recent

years, physicians could earn a 5-percent incentive payment,

but only through the end of performance year 2022, which is

payment year 2024.) In addition, the current freeze on

participation thresholds that must be met to qualify for the

incentive payments is extended for an additional year (that is,

for payment year 2025, which is performance year 2023).

• The telehealth flexibilities that were provided in response to

the COVID-19 pandemic are extended through December 31,

2024. (Previously, these flexibilities had been extended

through 151 days after the end of the public health emergency,

as described under Public Law 117-103.)

• For the market-based system used to update the Medicare

clinical laboratory fee schedule, laboratories are exempted for

another year from the requirement that they report private

payer rates. The next data-reporting period is now the first

quarter of 2024 (instead of the first quarter of 2023). Also,

during the phase-in period for this system, the caps in place to

limit reductions in fee schedule payments from year to year are

changed to 0 percent for 2022–2023 and 15 percent for 2024–

2026 (as opposed to the previous statutory parameters of

0 percent for 2021–2022 and 15 percent for 2023–2025). That

Appendices

186

is, tests furnished under the fee schedule during 2022–2023 are

to be paid at the same rates as under the 2021 fee schedule,

and payments may not be reduced by more than 15 percent for

services provided during 2024–2026.

• Marriage and family therapists and mental health counselors

are allowed to receive payment from Part B for providing

covered mental health services to beneficiaries, beginning

January 1, 2024. (The qualifications for these professions are

defined in the provision.)

• Effective January 1, 2024, a 50-percent increase in the

physician fee schedule payment rate is established for crisis

psychotherapy services furnished by mobile units.

• Effective January 1, 2024, Medicare's partial hospitalization

benefit (which provides a structured program of outpatient

psychiatric services as an alternative to inpatient psychiatric

care) is revised to provide coverage of intensive outpatient

services.

• For non-opioid treatments for pain relief in hospital outpatient

departments and ambulatory surgical centers, a separate

Medicare payment will be provided for services furnished from

January 1, 2025 through December 31, 2027. (Ordinarily, these

treatments are packaged into the surgical payment made

under the outpatient prospective payment system.) The

treatment can be provided by a drug, biological product, or

medical device. The separate payment will be capped at

18 percent of the outpatient fee schedule amount for the service

(or group of services) with which the non-opioid treatment for

pain relief is furnished.

• Part B coverage of the services provided under the Medicare

Intravenous Immune Globulin Demonstration is made

permanent, effective January 1, 2024. (The demonstration

ends on December 31, 2023, after which these in-home services

were no longer to be covered.)

• The use of blended payment rates for durable medical

equipment in certain non-competitive bid areas, as provided for

during the public health emergency by Public Law 116-136, is

extended through December 31, 2023.

Medicare Amendments

187

• Compression garments furnished on or after January 1, 2024

for the treatment of lymphedema are covered under Part B as

durable medical equipment.

Provision Affecting Part D of SMI

• From date of enactment through December 31, 2024, certain

prescription oral antiviral drugs used for the treatment of

COVID-19 under the Food and Drug Administration’s (FDA’s)

emergency use authorization are temporarily covered by

Part D. (Generally, products need to be fully approved or

licensed by the FDA to be covered by Part D. This legislation

provides a temporary exception for these drugs, which have

emergency use authorization only.)

Appendices

188

B. TOTAL MEDICARE FINANCIAL PROJECTIONS

Medicare is the nation’s second largest social insurance program,

exceeded only by Social Security (OASDI). Although Medicare’s two

components—Hospital Insurance (HI) and Supplementary Medical

Insurance (SMI)—are very different from each other in many key

respects, it is important to consider the overall cost of Medicare and its

financing. By reviewing Medicare’s total expenditures, readers can

assess the financial obligation created by the program. Similarly, the

sources and relative magnitudes of HI and SMI revenues are an

important policy matter.

The issues of Medicare’s total cost to society and the means of financing

that cost are different from the question of the financial status of the

Medicare trust funds. The latter focuses on whether a specific trust

fund’s income and expenditures are in balance. The separate HI and

SMI financial projections prepared for this purpose, however, can be

usefully combined for the broader purposes outlined above. To that

end, this section presents information on combined HI and SMI costs

and revenues. Sections III.B, III.C, and III.D of this report present

detailed assessments of the financial status of the HI trust fund and

the Part B and Part D accounts of the SMI trust fund, respectively.

1. 10-Year Actuarial Estimates (2023–2032)

Table V.B1 shows past and projected Medicare income, expenditures,

and trust fund assets in dollar amounts for calendar years,

with

projections shown under the intermediate set of assumptions for the

short-range projection period 2023 through 2032.

The table shows amounts on a cash basis, reflecting actual expenditures made during

the year, even if the payments were for services performed in an earlier year. Similarly,

income figures represent amounts actually received during the year, even if incurred in

an earlier year.

Total Medicare Financial Projections

189

Table V.B1.—Total Medicare Income, Expenditures, and Trust Fund Assets

during Calendar Years 1970–2032

[In billions]

Calendar year

Total income

Total expenditures

Net change in

assets

Assets at end of

year

Historical data:

1970

$8.2

$7.5

$0.7

$3.4

1975

17.7

16.3

1.3

12.0

1980

37.0

36.8

0.1

18.3

1985

76.5

72.3

4.2

31.4

1990

126.3

111.0

15.3

114.4

1995

175.3

184.2

−8.9

143.4

2000

257.1

221.8

35.3

221.5

2005

357.5

336.4

21.0

309.8

2010

486.1

522.9

−36.8

344.0

2015

644.4

647.6

−3.2

263.2

2016

710.2

678.7

31.5

294.7

2017

705.1

710.2

−5.0

289.6

2018

755.7

740.6

15.1

304.7

2019

794.7

796.1

−1.4

303.3

2020

899.9

1,2

925.8

−25.9

277.4

2021

887.7

1,2

839.4

48.3

325.7

2022

988.6

905.1

83.4

409.1

Intermediate estimates:

2023

1,013.8

1,025.3

−11.5

397.7

2024

1,102.0

1,097.1

5.0

402.6

2025

1,194.5

1,188.6

5.9

408.5

2026

1,291.9

1,285.3

6.6

415.2

2027

1,377.4

1,389.0

−11.5

403.6

2028

1,476.5

1,495.9

−19.5

384.1

2029

1,581.4

1,612.3

−30.9

353.2

2030

1,677.9

1,723.3

−45.4

307.8

2031

1,780.3

1,840.1

−59.8

247.9

2032

1,891.6

1,967.0

−75.4

172.5

Section 708 of the Social Security Act modifies the provisions for the payment of Social Security benefits

when the regularly designated day falls on a Saturday, Sunday, or legal public holiday. Payment of those

benefits normally due January 3, 2010 actually occurred on December 31, 2009, payment of benefits

normally due January 3, 2016 occurred on December 31, 2015, and payment of benefits normally due

January 3, 2021 occurred on December 31, 2020. Consequently, the Part B and Part D premiums

withheld from these benefits and the associated Part B government contributions were added to the Part B

or Part D account, as appropriate, on December 31, 2009 (about $14.8 billion for Part B and about

$0.2 billion for Part D), December 31, 2015 (about $7.5 billion for Part B and about $0.1 billion for Part D),

and December 31, 2020 (about $10.0 billion for Part B and about $0.1 billion for Part D), respectively.

Similarly, the payment date for those benefits normally due January 3, 2027 will be on December 31, 2026.

Accordingly, an estimated $6.1 billion will be added to the Part B account, and an estimated $0.2 billion

will be added to the Part D account, on December 31, 2026.

See footnote 9 of table III.C4.

Includes net payments of $100.5 billion made through the Medicare Accelerated and Advance Payments

Program in calendar year 2020 and subsequent net repayments of $48.1 billion, $50.7 billion, and

$1.7 billion in calendar years 2021 through 2023, respectively.

Note: Totals do not necessarily equal the sums of rounded components.

As indicated in table V.B1, Medicare expenditures have increased

rapidly during most of the program’s history. From 1985 through 2022,

expenditures grew at an average annual rate of 7.1 percent, and they

are projected to increase at an average annual rate of 8.1 percent from

2023 through 2032.

Appendices

190

Through most of Medicare’s history, trust fund income has kept pace

with increases in expenditures.

For this year’s report, the Trustees

estimate that, from 2023 through 2032, total Medicare income will

increase at an average annual rate of 6.7 percent, which is slightly

lower than the growth in expenditures.

The Department of the Treasury has invested past excesses of income

over expenditures in U.S. Treasury securities, with total trust fund

assets accumulating to $409.1 billion at the end of calendar year 2022.

Combined assets fluctuated over the recent historical period for

various reasons, including transfers from the general fund of the

Treasury required by enacted legislation. The change in assets

continues to fluctuate slightly over the remainder of the short-range

projection period due to the timing of premium collections, as described

in footnote 1 of table V.B1, and the return of HI deficits.

2. 75-Year Actuarial Estimates (2023–2097)

Table V.B2 shows past and projected Medicare expenditures expressed

as a percentage of GDP.

This percentage provides a relative measure

of the size of the Medicare program compared to the general economy

and represents the portion of the nation’s total resources dedicated

each year to providing health care services to beneficiaries through

Medicare. Expenditures represented 0.7 percent of GDP in 1970 and

had grown to 2.6 percent of GDP by 2005, reflecting rapid increases in

the factors affecting health care cost growth. Starting in 2006,

Medicare provided subsidized access to prescription drug coverage

through Part D, which caused most of the increase in Medicare

expenditures to 3.0 percent of GDP in the first year. The Trustees

project much more moderate continuing growth in the long range,

partially as a result of the lower price updates under current law, with

total Medicare expenditures projected to reach about 6.1 percent of

GDP by 2097.

Part of the projected increase is attributable to the prescription drug

benefit in Medicare. When it was fully implemented in 2006, Part D

This balance resulted from periodic increases in HI payroll tax rates and other HI

financing, from annual increases in SMI premium rates and government contributions

(to cover the following year’s estimated expenditures), and from frequent legislation

designed to slow the rate of growth in expenditures.

See sections III.B, III.C, and III.D regarding the asset projections for HI and Part B

and Part D of SMI, separately.

In contrast to the expenditure amounts shown in table V.B1, table V.B2 shows

historical and projected expenditures on an incurred basis. Incurred amounts relate to

the expenditures for services performed in a given year, even if payment for those

expenditures occurs in a later year.

Total Medicare Financial Projections

191

represented 11 percent of incurred Medicare expenditures; this share

increased to 12 percent in 2022 and will account for 11 percent of

Medicare expenditures by the end of the projection period.

The projections shown in table V.B2 for total Medicare as a share of

GDP are lower than those in the 2022 report primarily due to the

expected impact of drug price negotiations under the Inflation

Reduction Act of 2022 and updated expectations for medical care use

after the peak of the COVID-19 pandemic. The details of these changes

are described in sections III.B, III.C, and III.D.

Table V.B2.—HI and SMI Incurred Expenditures as a Percentage

of the Gross Domestic Product

SMI

Calendar year

Part A

Part B

Part D

Total

Historical data:

1970

0.51 %

0.21 %

—

0.71 %

1975

0.69

0.29

—

0.98

1980

0.91

0.40

—

1.31

1985

1.11

0.55

—

1.66

1990

1.12

0.74

—

1.86

1995

1.55

0.87

—

2.42

2000

1.28

0.91

—

2.19

2005

1.44

1.18

0.01 %

2.62

2010

1.63

1.43

0.42

3.48

2015

1.53

1.55

0.49

3.57

2016

1.55

1.58

0.50

3.63

2017

1.54

1.61

0.48

3.64

2018

1.52

1.66

0.48

3.65

2019

1.54

1.73

0.48

3.76

2020

1.63

1.82

0.51

3.96

2021

1.53

1.83

0.47

3.84

2022

1.48

1.78

0.46

3.73

Intermediate estimates:

2023

1.52

1.88

0.47

3.86

2024

1.53

1.95

0.50

3.98

2025

1.58

2.03

0.53

4.13

2026

1.62

2.12

0.54

4.29

2027

1.68

2.22

0.54

4.44

2028

1.73

2.33

0.54

4.59

2029

1.79

2.42

0.54

4.75

2030

1.83

2.50

0.54

4.87

2031

1.88

2.59

0.53

5.00

2032

1.93

2.67

0.54

5.13

2035

2.04

2.92

0.55

5.51

2040

2.12

3.18

0.55

5.85

2045

2.15

3.29

0.55

5.98

2050

2.14

3.31

0.57

6.01

2055

2.11

3.36

0.59

6.06

2060

2.10

3.43

0.61

6.14

2065

2.10

3.49

0.63

6.22

2070

2.11

3.53

0.64

6.28

2075

2.12

3.56

0.66

6.34

2080

2.10

3.57

0.66

6.33

2085

2.07

3.54

0.67

6.28

2090

2.03

3.50

0.67

6.20

2095

1.99

3.48

0.67

6.14

2097

1.97

3.48

0.68

6.12

Note: Percentages are affected by economic cycles.

Appendices

192

The 75-year projection period fully allows for the presentation of

anticipated future developments, such as the impact of a large increase

in enrollees from 2010 through 2031. This increase in the number of

beneficiaries will occur because the relatively large number of persons

born during the period between the end of World War II and the

mid-1960s (known as the baby boom generation) will reach eligibility

age and begin to receive benefits. Moreover, as this generation ages,

these individuals will experience greater health care utilization and

costs, thereby adding further to growth in program expenditures.

Table V.B3 shows past and projected enrollment in the Medicare

program.

As indicated in table V.B3, over the last 35 years the total number of

Medicare beneficiaries approximately doubled, and the Trustees

expect the total to increase by 40 percent over approximately the next

35 years. During this same historical period, the number of covered

workers also increased rapidly (by about 43.3 percent), but the

Trustees project this number to increase much more slowly (about

12 percent) over the next 35 years. This demographic shift and its

implications for Medicare costs, relative to workers’ earnings or to the

GDP, are fairly well known.

The enrollment data also show that the number of Medicare

beneficiaries enrolled in private health plans under Part C has

increased substantially in recent years. (Section IV.C of this report

describes the changes in enrollment growth since 2005.) By 2022, about

46 percent of eligible Medicare beneficiaries were enrolled in private

Part C health plans. The Trustees expect modest increases in private

plan penetration rates between 2023 and 2032, with the estimated

proportion of beneficiaries in such plans ultimately stabilizing at about

56 percent.

Total Medicare Financial Projections

193

Table V.B3.—Medicare Enrollment

[In thousands]

SMI

Calendar year

Part A

Part B

Part D

Private health

plans

Total

Historical data:

1970

20,104

19,496

—

20,398

1975

24,481

23,744

—

24,864

1980

28,002

27,278

—

28,433

1985

30,621

29,869

—

1,271

31,081

1990

33,747

32,567

—

2,017

34,251

1995

37,175

35,641

—

3,467

37,594

2000

39,257

37,335

—

6,856

39,688

2005

42,233

39,752

1,841

5,794

42,606

2010

47,365

43,882

34,772

11,693

47,720

2015

55,246

50,756

41,786

17,495

55,589

2016

56,729

52,094

43,198

18,393

57,073

2017

58,344

53,446

44,475

19,817

58,683

2018

59,677

54,679

45,794

21,338

60,020

2019

61,178

56,019

47,165

22,950

61,526

2020

62,543

57,320

48,679

25,075

62,887

2021

63,621

58,383

49,950

27,548

63,974

2022

64,679

59,491

51,370

29,845

65,042

Intermediate estimates:

2023

65,924

60,765

52,906

32,161

66,298

2024

67,331

62,117

54,512

34,039

67,717

2025

68,900

63,626

56,714

35,392

69,299

2026

70,555

65,205

58,366

36,807

70,967

2027

72,118

66,716

59,853

38,185

72,542

2028

73,644

68,191

61,218

39,525

74,080

2029

75,086

69,594

62,471

40,808

75,533

2030

76,357

70,849

63,584

41,994

76,814

2031

77,385

71,897

64,496

43,054

77,851

2032

78,265

72,800

65,289

44,005

78,739

2035

80,677

75,251

67,487

46,203

81,175

2040

82,915

77,541

69,540

47,533

83,437

2045

84,350

78,914

70,771

48,396

84,888

2050

86,414

80,750

72,419

86,968

2055

89,212

83,313

74,717

89,786

2060

92,596

86,501

77,575

93,190

2065

95,664

89,517

80,281

96,278

2070

98,838

92,593

83,040

99,475

2075

102,121

95,712

85,836

102,783

2080

104,051

97,697

87,617

104,728

2085

105,228

98,951

88,742

105,913

2090

106,161

99,910

89,602

106,848

2095

108,293

101,869

91,358

108,991

2097

109,456

102,973

92,349

110,161

Of Medicare beneficiaries enrolled in private plans, about 97 percent are in Medicare Advantage plans or

Part C. The remainder are in certain holdover plans reimbursed on a cost basis rather than through

capitation payments, in Program of All-Inclusive Care for the Elderly (PACE) plans, or in Medicare-

Medicaid Plans (MMPs).

Number of beneficiaries with HI and/or SMI coverage.

The Trustees do not explicitly project enrollment in private health plans beyond 2045.

Table V.B4 shows the past and projected amounts of Medicare

revenues as a percentage of total non-interest Medicare income, under

the intermediate assumptions. The table excludes interest income,

which would not be a significant part of program financing in the long

range.

Appendices

194

Table V.B4.—Medicare Sources of Income as a Percentage

of Total Non-Interest Income

Calendar

year

Payroll taxes

Tax on

benefits

Premiums

Brand-name

drug fees

State

payments

Government

contribution

Historical data:

1970

61.8 %

—

13.7 %

—

24.6 %

1980

68.0

—

8.6

—

23.4

1990

62.2

—

9.8

—

27.9

2000

59.8

3.6 %

9.1

—

27.6

2010

38.9

2.9

13.3

—

0.9 %

44.0

2015

38.1

3.2

13.6

0.5 %

1.4

43.2

2016

36.3

3.3

12.8

0.4

1.4

45.7

2017

37.7

3.5

14.6

0.6

1.6

42.0

2018

36.0

3.2

15.2

0.5

1.6

43.4

2019

36.4

3.0

15.3

0.4

1.6

43.4

2020

34.0

3.0

14.8

0.3

1.3

46.6

2021

34.4

2.8

15.1

0.3

1.4

46.1

2022

36.1

3.3

15.7

0.3

1.4

43.2

Intermediate estimates:

2030

29.9

4.4

17.2

0.2

1.2

47.1

2040

26.1

4.7

18.5

0.1

1.0

49.6

2050

25.7

4.9

18.6

0.1

1.0

49.8

2060

25.3

5.0

18.7

0.0

1.0

50.0

2070

25.0

5.1

18.8

0.0

1.1

50.0

2080

25.1

5.1

18.8

0.0

1.1

49.9

2090

25.6

4.9

18.7

0.0

1.1

49.6

2097

25.9

4.9

18.6

0.0

1.1

49.5

Includes premium revenue from HI and both accounts in the SMI trust fund.

Includes Part B repayment amounts in 2016–2025.

Note: Row sums may not exactly equal 100 percent due to rounding.

Transfers from the general fund of the Treasury (primarily those for

SMI) represented 43 percent of total non-interest income to the

Medicare program in 2022 and have constituted the largest share of

Medicare financing since 2009. HI payroll taxes were the next largest

source of overall financing at 36 percent. Beneficiary premiums (again,

primarily for SMI) were third, at 16 percent. Projected HI tax revenues

fall short of projected HI expenditures in all future years. In contrast,

SMI premium revenue and government contributions will keep pace

with SMI expenditure growth, and State payments

(on behalf of

Medicare beneficiaries who also qualify for full Medicaid benefits) will

grow with Part D expenditures. General fund transfers to the Part B

account increased significantly in 2016, as required by the Bipartisan

Budget Act of 2015 to compensate for premium revenue that was not

received in 2016 due to the hold-harmless provision. They increased

again in 2020 and 2021, as required by the Continuing Appropriations

Act, 2021 and Other Extensions Act to account for the outstanding

balance of the Accelerated and Advance Payments (AAP) Program in

2020 and to compensate for premium revenue that was not received in

2021 due to the legislated specification of the aged actuarial rate

State payments to Part D amounted to 90 percent of their projected forgone Medicaid

prescription drug costs in 2006, and this percentage phased down over a 10-year period

to 75 percent in 2015.

Total Medicare Financial Projections

195

calculation. Another source of Part B financing, from fees on

manufacturers and importers of brand-name prescription drugs,

increased from $2.5 billion in 2011 to $4.1 billion in 2018 but then

decreased to $2.8 billion for 2019 and later. In the absence of

legislation, HI tax income would represent a declining portion of total

Medicare revenues. In 2031, for example, the projected year of

depletion of the HI trust fund, currently scheduled HI payroll taxes

would represent about 29 percent of total non-interest Medicare

income. General fund transfers and beneficiary premiums would equal

about 47 and 17 percent, respectively.

The law requires an expanded analysis of the combined expenditures

and dedicated revenues of the HI and SMI trust funds. In particular,

the law requires a determination as to whether the difference between

total Medicare outlays and its dedicated financing sources is projected

to exceed 45 percent of total outlays within the next 7 fiscal years

(2023–2029). Dedicated Medicare financing sources include HI payroll

taxes; income from taxation of Social Security benefits; State payments

for the prescription drug benefit; premiums paid under Parts A, B, and

D; fees on brand-name prescription drugs paid to Part B; and any gifts

received by the Medicare trust funds. The test uses expenditures

adjusted to avoid temporary distortions arising from the payment of

Medicare Advantage and Part D capitation amounts in September

when the normal October payment date is a Saturday or Sunday.

The Trustees made determinations of excess general revenue Medicare

funding in each of the reports for 2006 through 2013 and in the 2017

through 2022 reports. Two consecutive such determinations trigger a

Medicare funding warning. The 2007 through 2013 reports, and the

2018 through 2022 reports, thus prompted Medicare funding warnings.

The law specifies that in response to such findings the President must

submit to Congress, within 15 days after the date of the Budget

submission for the succeeding year, proposed legislation to respond to

the warning. The law also requires Congress to consider the legislation

proposed in response to Medicare funding warnings on an expedited

basis. To date, elected officials have not enacted legislation responding

to these funding warnings.

Figure V.B1 displays, on a calendar-year basis, the historical and

projected ratio of the difference between total Medicare outlays and

dedicated financing sources to total Medicare outlays. As indicated,

this ratio exceeded 45 percent at the end of calendar years 2009

through 2012 and in calendar year 2020, and it is expected to again

exceed that level at the end of calendar year 2025, the third year of the

projection. Therefore, the Board of Trustees is issuing a determination

Appendices

196

of excess general revenue Medicare funding in this report. Since this is

the seventh consecutive such finding, a Medicare funding warning is

again triggered.

Figure V.B1.—Projected Difference between Total Medicare Outlays

and Dedicated Financing Sources, as a Percentage of Total Outlays

As figure V.B1 also indicates, the Board projects that the difference

between outlays and dedicated funding sources will reach 53 percent

of outlays by 2047 and will decline to 50 percent by the end of the

75-year period. This difference between outlays and dedicated funding

sources, which the law refers to as general revenue Medicare funding,

includes the following:

• Financing specified portions of SMI Part B and SMI Part D

expenditures;

• Reimbursing the HI trust fund for the costs of certain uninsured

beneficiaries;

• Paying interest on invested assets of the trust funds;

• Redeeming the special Treasury securities held as assets by the

trust funds; and

• Financing the imbalance between HI expenditures and dedicated

revenues after HI asset depletion.

2025

-15%

15%

30%

45%

60%

1970 1990 2010 2030 2050 2070 2090

Calendar year

Total Medicare Financial Projections

197

Current law provides for the first four of these items. However, for the

fifth—coverage of the HI shortfall—there is no provision under current

law.

The law also requires a comparison of projected growth in the

difference between outlays and dedicated revenues with other health

spending growth rates. Table V.B5 contains this comparison.

Table V.B5.—Comparative Growth Rates of Medicare,

Private Health Insurance, National Health Expenditures, and GDP

Average annual growth in:

Calendar year

Incurred outlays

minus dedicated

revenues

Incurred

Medicare outlays

GDP

National health

expenditures

Private health

insurance

2017

3.3 %

4.5 %

4.2 %

4.8 %

2018

7.2

5.8

5.4

4.6

2019

9.8

7.2

4.1

4.2

2.5

2020

0.0

3.7

−1.5

10.3

−1.1

2021

16.0

7.3

10.7

2.7

5.8

2022

−6.1

5.9

9.0

7.6

8.3

2023

16.8

8.5

4.6

5.0

7.1

2024

8.3

7.1

4.0

5.1

6.2

2025

11.3

8.6

4.5

5.4

2026

10.0

8.3

4.4

5.3

4.9

2027

9.1

8.0

4.3

5.3

4.5

2028

9.6

7.8

4.1

5.5

4.6

2029

9.2

7.7

4.1

5.4

4.7

2030

7.6

6.7

4.1

4.7

4.6

2031

7.9

6.8

4.1

5.4

4.6

2032

8.3

7.0

4.1

5.5

4.6

2033–2047

5.5

5.1

4.0

5.0

—

2048–2072

4.2

4.3

4.1

4.7

—

2073–2097

3.8

4.0

4.1

4.6

—

Based on a national health expenditure (NHE) projections article published in March 2022 (Health Affairs,

vol. 41, no. 4). Data through 2021 are considered historical, and years after 2030 were determined based

on the methods described in section IV.D. The findings presented in this article, along with the paper

outlining its methodology, are available at https://www.cms.gov/Research-Statistics-Data-and-

Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.

The COVID-19 pandemic had a significant effect on expenditures in

2020, but the impact on dedicated funding sources is delayed because

program financing, which includes Part A payroll tax income and the

Part B and Part D premiums, is set prospectively and is not able to be

changed. This phenomenon, along with updated expectations for

health care spending following the COVID-19 pandemic, results in the

growth patterns shown in table V.B5. Beginning in 2023, the gap

between outlays and dedicated revenues will increase faster than

outlays in many years through 2047 since the dedicated sources of

income to the HI trust fund will generally cover a decreasing

percentage of HI outlays.

In addition to projected Medicare outlay growth, table V.B5 shows

projected growth in GDP, total national health expenditures in the

U.S., and private health insurance expenditures. The Trustees expect

Appendices

198

each of the health expenditure categories to continue the longstanding

trend of increasing more rapidly than GDP in most years. Private

health insurance expenditures equal the total premiums earned by

private health insurers, including benefits incurred and the net cost of

insurance. The net cost of insurance includes administrative costs,

additions to reserves, rate credits and dividends, premium taxes, and

profits or losses.

Several factors affect comparisons between aggregate Medicare and

private health insurance cost growth:

• The number of Medicare beneficiaries is currently increasing by

about 3 percent per year, and this growth rate will continue as

more of the post-World War II baby boom generation reaches

eligibility age. The number of individuals with private health

insurance is estimated to increase at slower rates than the growth

in the number of Medicare beneficiaries.

• Certain current-law provisions, such as the limitation on

maximum out-of-pocket costs in 2014 and later, will also affect the

average actuarial value of private health insurance benefits.

• The use of health care services differs significantly between

Medicare beneficiaries (who are generally over 65) and individuals

with private health insurance (who are predominantly below

age 65). The former group, for example, has a higher incidence of

hospitalization, skilled nursing care, and home health care. For the

latter group, physician services represent a greater proportion of

their total health care needs. Different cost growth trends by type

of service will affect overall growth rates and reflect the

distribution of services for each category of people.

• There is some overlap between people with Medicare and those

with private health insurance. For example, many Medicare

beneficiaries have supplemental health insurance coverage

through private Medigap insurance policies or employer-sponsored

retiree health benefits, and private health insurance includes both

of these categories. About 10 million Medicare beneficiaries receive

supplemental coverage through the Medicaid program; neither the

growth rates for Medicare nor those for private health insurance

reflect the Medicaid costs for these dual beneficiaries.

A number of research studies have attempted to control for some or all

of these differences in comparing growth trends. Over long historical

periods, average, demographically adjusted, per capita growth rates for

Total Medicare Financial Projections

199

common benefits have been somewhat lower for Medicare than for

private health insurance. For shorter periods, however, the rates of

growth have often diverged substantially, and the differential has been

negative in some years and positive in others. More information on

past and projected national and private health expenditures, and on

comparisons to Medicare growth rates, is available in the sources cited

in table V.B5.

Appendices

200

C. ILLUSTRATIVE ALTERNATIVE PROJECTIONS

The Social Security Act requires the Trustees to evaluate the financial

status of the Medicare trust funds. To comply with this mandate, the

Trustees must assess whether the financing provided under current

law is adequate to cover the benefit payments and other expenditures

required under current law. Accordingly, the estimates shown in this

report are based on all of the current statutory requirements, including

(i) the reductions in payment updates by the increase in economy-wide

productivity for most non-physician provider categories; (ii) the

physician payment updates specified by the Medicare Access and CHIP

Reauthorization Act of 2015 (MACRA) for all future years; and (iii) the

expiration in 2026 of the bonuses for qualified physicians in advanced

alternative payment models (advanced APMs) and in 2025 of the

$500-million payments for physicians in the merit-based incentive

payment system (MIPS).

As discussed in the Introduction, there is substantial uncertainty

regarding the adequacy of future Medicare payment rates under

current law. This section illustrates the higher Medicare outlays that

would result if certain statutory Medicare payment provisions were not

fully implemented in all future years. The assumptions that underlie

the illustrative alternative and that transition from current law to the

illustrative scenario are consistent with recommendations from the

2016–2017 Medicare Technical Review Panel.

For all Part A services and some (non-physician) Part B services,

payment updates will be reduced in all future years by the increase in

economy-wide productivity.

By the end of the long-range projection

period, payment rates for affected providers would be about 51 percent

lower than their level in the absence of these reductions. In 2018, the

Medicare payment rates for inpatient hospital services declined to

about 60 percent of those paid by private health insurance.

If future

improvements in productivity were to remain similar to what providers

have achieved in the recent past (about 0.4 percent annually), then

Medicare payment levels for inpatient hospital services at the end of

the long-range projection period would be less than 35 percent of the

The 2016–2017 Medicare Technical Review Panel concluded that the ultimate

assumptions underlying the illustrative alternative were reasonable (Finding 2-3) and

recommended that they be implemented over a later time frame (Recommendation 2-4).

These assumptions have been implemented since the 2018 report.

In addition to the productivity adjustments, Medicare payments to providers will be

affected by the sequestration of outlays in April 2013 through September 2031.

See https://www.aha.org/system/files/media/file/2020/10/TrendwatchChartbook-2020-

Appendix.pdf. Private payer hospital payments are roughly 45 percent above costs while

Medicare hospital payments are roughly 13 percent below costs.

Alternative Projections

201

corresponding level paid by private health insurance. This comparison

assumes that private payer rate increases would continue to be set

through the same negotiation process used to date, independent of the

Medicare reductions or other health system changes. Specifically,

private payer rates would grow by 2.8 percent per year, or the increase

in the price of inputs to the provision of health care (3.2 percent) less

the assumed growth in hospital productivity (0.4 percent). By

comparison, Medicare payment rates would grow by 2.2 percent per

year, or 3.2 percent less the assumed growth in economy-wide

productivity (1.0 percent).

Simulations that take into account the lower Medicare payment rates,

other payment provisions, sequestration, changes to Medicare and

Medicaid disproportionate share hospital payments, and coverage

expansions collectively suggest a deterioration of facility margins for

hospitals, skilled nursing facilities, and home health agencies,

particularly over the long run. From 2021 through 2027, the

simulations suggest that more hospitals would experience negative

total facility margins and that approximately 5 percent more would

experience negative Medicare margins. Other factors, such as efforts

to improve efficiency in lower-performing hospitals, could mitigate

some of the impact of the payment provisions under current law,

though there is a wide range of uncertainty regarding these types of

behavioral changes. By 2040, simulations suggest that roughly one-

third of hospitals and over 50 percent of skilled nursing facilities and

home health agencies would have negative total facility margins,

raising the possibility of access and quality-of-care issues for Medicare

beneficiaries. A memorandum on these provider margin simulations is

available on the CMS website.

Over time, unless providers could alter their use of inputs to reduce

their cost per service correspondingly, Medicare’s payments for health

services would fall increasingly below providers’ costs. Providers could

not sustain continuing negative margins and would have to withdraw

from serving Medicare beneficiaries or (if total facility margins

remained positive) shift substantial portions of Medicare costs to their

non-Medicare, non-Medicaid payers. Under such circumstances,

lawmakers might feel substantial pressure to override the productivity

adjustments, much as they did to prevent reductions in physician

payment rates while the sustainable growth rate (SGR) system was in

effect.

See https://www.cms.gov/files/document/simulations-affordable-care-act-medicare-

payment-update-provisions-part-provider-financial-margins.pdf.

Appendices

202

While the physician payment system put in place by MACRA avoided

the significant short-range physician payment issues resulting from

the SGR system approach, it nevertheless raises important long-range

concerns that will almost certainly need to be addressed by future

legislation. In particular, additional payments totaling $500 million

per year and annual bonuses are scheduled to expire in 2025 and 2026,

respectively, resulting in a payment reduction for most physicians. In

addition, the law specifies the physician payment updates for all years

in the future, and these updates do not vary based on underlying

economic conditions, nor are they expected to keep pace with the

average rate of physician cost increases. The specified rate updates

could be an issue in years when levels of inflation are high and would

be problematic when the cumulative gap between the price updates

and physician costs becomes large. Absent a change in the delivery

system or level of update by subsequent legislation, the Trustees

expect access to Medicare-participating physicians to become a

significant issue in the long term.

In view of these issues, it is important to note that the actual future

costs for Medicare may exceed the projections shown in this report,

possibly by substantial amounts. Use of an alternative projection can

illustrate the potential magnitude of this difference.

It is conceivable that health care providers could improve their

productivity, reduce wasteful expenditures, and take other steps to

keep their cost growth within the bounds imposed by the Medicare

price limitations. For such efforts to be successful in the long range,

however, providers would have to generate and sustain unprecedented

levels of productivity gains—a very challenging and uncertain

prospect.

A transformation of health care in the U.S., affecting both the means

of delivery and the method of paying for care, is also a possibility.

Private health insurance and Medicare are taking important steps in

this direction by initiating programs of research into innovative

payment and service delivery models, such as accountable care

organizations, patient-centered medical homes, improvement in care

coordination for individuals with multiple chronic health conditions,

better coordination of post-acute care, payment bundling, pay for

performance, and assistance for individuals in making informed health

choices. Such changes have the potential to reduce health care costs

and cost growth rates and could, as a result, help lower health care

spending to levels compatible with the lower price updates payable

under current law.

Alternative Projections

203

The ability of new delivery and payment methods to lower cost growth

rates is uncertain at this time. Preliminary indications are that some

of these delivery reforms have had modest levels of success in lowering

costs. It is too early to tell if these reductions in spending will continue

or if they will grow to the magnitude needed to align with the statutory

Medicare price updates. Given these uncertainties, it will be important

for policymakers to monitor the adequacy of Medicare payment rates

over time to ensure beneficiary access to high-quality care.

To help illustrate and quantify the potential magnitude of the cost

understatement, a set of illustrative Medicare projections has been

prepared under a hypothetical alternative.

The 2016–2017 Medicare

Technical Review Panel recommended that the Trustees continue to

prepare such a projection and that, under this illustrative alternative,

Medicare spending reflect less than full implementation of the

payment updates to providers specified under current law.

There are multiple ways in which the law could be changed if these

provider updates prove unsustainable. The illustrative scenario

presented in this report is just one possibility among many that

demonstrates the degree to which the current-law projections may be

understated. While a particular set of illustrative alternative update

assumptions for specific years is used, the transition from current law

to the illustrative alternative ultimate assumptions over time is

intended to reflect an increasing likelihood of modifications to current

law rather than a specific forecast of when current law will cease to be

fully implemented. Figure V.C1 compares the illustrative alternative

projection with the projections under current law.

The 2010–2011 Medicare Technical Review Panel supported the continued use of

illustrative alternative projections for this purpose (Recommendation IV-3). In addition,

the Panel recommended a graphical comparison of the current-law and alternative

projections within the Medicare annual report, highlighting the potential effects of both

the SGR system and productivity adjustments (Recommendation IV-4). The Panel’s

report, Review of Assumptions and Methods of the Medicare Trustees’ Financial

Projections, can be found at http://aspe.hhs.gov/health/reports/2013/MedicareTech/

TechnicalPanelReport2010-2011.pdf. The text summarizes the specific assumptions chosen

by the Trustees for the illustrative alternative projections.

See Recommendation 2-3 of the 2016–2017 Medicare Technical Review Panel report,

available at https://aspe.hhs.gov/system/files/pdf/257821/MedicareTechPanelFinalReport2017.pdf.

Appendices

204

Figure V.C1.—Medicare Expenditures as a Percentage

of the Gross Domestic Product under Current Law

and Illustrative Alternative Projections

Note: Percentages are affected by economic cycles.

The top curve in figure V.C1 shows the cost levels under the illustrative

alternative. This scenario illustrates the impact that would occur if the

payment updates that are affected by the productivity adjustments

transition from current law to the payment updates assumed for

private health plans over the period 2028–2042.

It also reflects

physician payment updates that transition from current law to the

increase in the Medicare Economic Index over the same period. Finally,

the scenario assumes the continuation of the bonuses for qualified

physicians in advanced alternative payment models (advanced APMs),

which are expected to end after 2025, and of the $500-million payments

for physicians in the merit-based incentive payment system (MIPS),

which are set to expire after 2024. Under this alternative, the average

long-range per beneficiary growth rate for all Medicare services would

be similar to the long-range growth rate assumed for the overall health

sector.

Under the illustrative alternative scenario, Medicare costs as a

percentage of GDP continue to increase rapidly throughout the

projection period, reaching 6.4 percent of GDP in 2047 and 8.3 percent

in 2097—considerably higher than under current law (6.0 percent of

GDP in 2047 and 6.1 percent of GDP in 2097).

Section IV.D of this report describes the price component of health care cost increases

for the overall health sector.

10%

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Calendar year

Current Law

Illustrative Alternative

Per Beneficiary Cost

205

D. AVERAGE MEDICARE EXPENDITURES PER

BENEFICIARY

Table V.D1 shows historical average per beneficiary expenditures for

HI and SMI, as well as projected costs for calendar years 2023 through

2032 under the intermediate assumptions. Starting with the 2014

report, this section presents per beneficiary expenditures based on

when the service is performed rather than when payment for the

service is made.

For both HI and SMI Part B, costs increased very rapidly in the early

years, in part because the availability of Medicare coverage enabled

many beneficiaries to obtain the full range of health services they

needed. The rapid inflation of the 1970s and early 1980s also

contributed to rapid Medicare expenditure increases, and the cost-

based reimbursement mechanisms in place provided relatively little

incentive for efficiency in the provision of health care. Growth in

average HI expenditures moderated dramatically following the

introduction of the inpatient hospital prospective payment system in

fiscal year 1984, but it accelerated again in the late 1980s and early

1990s due to rapid growth in skilled nursing and home health

expenditures. During this same period, SMI Part B average costs

generally continued to increase at relatively fast rates, but cost growth

slowed somewhat in the early 1990s with the implementation of

physician fee reform legislation.

Expenditure growth moderated again during the late 1990s due to the

effects of further legislation and efforts to control fraud and abuse. In

addition, historically low levels of general and medical inflation helped

reduce Medicare payment updates. The growth rates rebounded from

2001 through 2005 and then moderated somewhat for the remainder

of the decade.

For 2010 through 2015, HI and Part B of SMI experienced the lowest

5-year per beneficiary growth rates in the program’s history. This slow

growth, which continued in 2016 and 2017 (and in 2018 for HI), was

driven in part by legislated update reductions, low provider payment

updates caused by the economic recession, and adjustments for

documentation and coding that did not reflect changes in real case mix.

In addition, increased enrollment resulting from eligibility of the baby

boom generation has decreased the average age of Medicare

beneficiaries, thereby reducing per beneficiary costs. The growth rates

also reflect the impact of the sequestration process, which is required

under current law and reduces Medicare expenditures by 2 percent per

year beginning April 1, 2013, with the exception of May 1, 2020

Appendices

206

through March 31, 2022 when it was suspended. Finally, growth in the

volume and intensity of the services delivered has also been relatively

low, highlighted by reductions in the number of hospital admissions

over this period.

Although SMI Part D began in 2004, full prescription drug coverage

did not start until 2006. Accordingly, this discussion includes only the

per beneficiary expenditures for 2006 and later. Spending growth

occurred in 2011 but was negative in 2012 due to the patent expiration

of certain high-cost drugs. The large amount of growth in 2014 and

2015 was due to utilization of the new, expensive specialty drugs used

to treat hepatitis C. Lower utilization of these drugs contributed to the

decline in average spending growth in 2016. In 2017, larger rebates

caused average per beneficiary costs to drop, but growth in spending

rebounded in 2018 and 2019. It slowed again in 2020 and 2021 because

the plan bids assumed higher direct and indirect remuneration and

slow reinsurance growth. The pattern of projected Part D expenditure

growth reflects the impact of the provisions of the Inflation Reduction

Act of 2022—specifically, the benefit enhancements that result in

higher growth through 2026 and the drug price negotiations that lower

growth thereafter.

The COVID-19 pandemic had a notable impact on Part A and Part B

benefit spending growth in 2020 as non-COVID care was significantly

reduced, in particular for elective services. Actual fee-for-service per

capita spending has been consistently below the pre-pandemic

projections throughout the public health emergency, even into 2022 as

the pandemic had diminishing effects on much of the economy and the

health care delivery system.

Per Beneficiary Cost

207

Table V.D1.—HI and SMI Average Incurred per Beneficiary Costs

Average per beneficiary costs

Average percent change

Calendar

year

SMI

Part B

Part D

Total

Part B

Part D

Total

Historical data:

1970

$270

$115

—

$385

13.8 %

—

13.8 %

1975

472

205

—

677

11.8

12.3

—

12.0

1980

929

423

—

1,352

14.5

15.6

—

14.8

1985

1,579

795

—

2,373

11.2

13.4

—

11.9

1990

1,979

1,355

—

3,334

4.6

11.3

—

7.0

1995

3,194

1,867

—

5,061

10.0

6.6

—

8.7

2000

3,348

2,496

—

5,844

0.9

6.0

—

2.9

2005

4,439

3,839

—

8,278

5.8

9.0

—

7.2

2010

5,193

4,901

$1,808

11,902

3.2

5.0

—

7.5

2015

5,027

5,554

2,153

12,733

−0.7

2.5

3.6 %

1.4

2016

5,095

5,673

2,156

12,924

1.4

2.1

0.2

1.5

2017

5,146

5,869

2,120

13,135

1.0

3.4

−1.7

1.6

2018

5,221

6,219

2,139

13,579

1.4

6.0

0.9

3.4

2019

5,399

6,614

2,175

14,189

3.4

6.3

1.7

4.5

2020

5,495

6,680

2,198

14,373

1.8

1.0

1.3

2021

5,616

7,315

2,208

15,139

2.2

9.5

0.4

5.3

2022

5,814

7,619

2,294

15,727

3.5

4.2

3.9

Intermediate estimates:

2023

6,124

8,216

2,352

16,692

5.3

7.8

2.5

6.1

2024

6,287

8,666

2,539

17,492

2.7

5.5

7.9

4.8

2025

6,614

9,220

2,679

18,513

5.2

6.4

5.5

5.8

2026

6,944

9,808

2,809

19,562

5.0

6.4

4.9

5.7

2027

7,316

10,474

2,841

20,631

5.4

6.8

1.1

5.5

2028

7,699

11,179

2,874

21,751

5.2

6.7

1.2

5.4

2029

8,120

11,879

2,950

22,949

5.5

6.3

2.6

5.5

2030

8,526

12,538

3,001

24,064

5.0

5.5

1.7

4.9

2031

8,972

13,305

3,046

25,323

5.2

6.1

1.5

5.2

2032

9,471

14,126

3,159

26,757

5.6

6.2

3.7

5.7

Percent changes for 1970 represent the average annual increases from 1967 (the first full year of trust

fund operations) through 1970. Similarly, percent changes shown for 1975, 1980, 1985, 1990, 1995, 2000,

2005, and 2010 represent the average annual increase over the 5-year period ending in the indicated

year.

On average, annual increases in per beneficiary costs have been

greater for SMI Part B than for HI during the previous five decades—

by approximately 1.0 percent, 4.5 percent, 1.0 percent, 2.5 percent, and

2.6 percent per year in the 1970s, 1980s, 1990s, 2000s, and 2010s,

respectively. The HI increase remains lower than the SMI Part B

increase over the next 10 years due to lower utilization growth of HI

services.

Note that the rapid growth rates in the 1970s and 1980s are not

expected to recur for either HI or SMI Part B due to more moderate

inflation rates and the conversion of Medicare’s remaining cost-based

reimbursement mechanisms to prospective payment systems. In

addition, the reduction in Medicare price updates for most categories

of providers that affected the growth rates over the last several years

will continue to reduce growth rates throughout the projection period.

Appendices

208

E. MEDICARE COST-SHARING AND PREMIUM AMOUNTS

HI beneficiaries who use covered services may be subject to deductible

and coinsurance requirements. A beneficiary is responsible for an

inpatient hospital deductible amount, which is deducted from the

amount payable by the HI trust fund to the hospital, for inpatient

hospital services furnished in a spell of illness. When a beneficiary

receives such services for more than 60 days during a spell of illness,

he or she is responsible for a coinsurance amount equal to one-fourth

of the inpatient hospital deductible for each of days 61–90 in the

hospital. After 90 days in a spell of illness, each individual has

60 lifetime reserve days of coverage, for which the coinsurance amount

is equal to one-half of the inpatient hospital deductible. A beneficiary

is responsible for a coinsurance amount equal to one-eighth of the

inpatient hospital deductible for each of days 21–100 of skilled nursing

facility services furnished during a spell of illness. No cost sharing is

required for home health or hospice services.

Most persons aged 65 and older and many disabled individuals under

age 65 are insured for HI benefits without payment of any premium.

The Social Security Act provides that certain aged and disabled

persons who are not insured may voluntarily enroll, subject to the

payment of a monthly premium. In addition, since 1994, voluntary

enrollees may qualify for a reduced premium if they have at least

30 quarters of covered employment.

Table V.E1 shows the historical levels of the HI deductible,

coinsurance amounts, and premiums, as well as projected values for

future years based on the intermediate set of assumptions used in

estimating the operations of the trust funds. The values listed in the

table for future years are estimates, and the actual amounts are likely

to be somewhat different as experience emerges.

Cost Sharing and Premiums

209

Table V.E1.—HI Cost-Sharing and Premium Amounts

Inpatient daily coinsurance

Monthly premium

Year

Inpatient hospital

deductible

Days 61–90

Lifetime

reserve days

SNF daily

coinsurance

Standard

Reduced

Historical data:

1970

$52

$13

$26

$6.50

—

1975

11.50

$40

—

1980

180

22.50

—

1985

400

100

200

50.00

174

—

1990

592

148

296

74.00

175

—

1995

716

179

358

89.50

261

$183

2000

776

194

388

97.00

301

166

2005

912

228

456

114.00

375

206

2010

1,100

275

550

137.50

461

254

2015

1,260

315

630

157.50

407

224

2016

1,288

322

644

161.00

411

226

2017

1,316

329

658

164.50

413

227

2018

1,340

335

670

167.50

422

232

2019

1,364

341

682

170.50

437

240

2020

1,408

352

704

176.00

458

252

2021

1,484

371

742

185.50

471

259

2022

1,556

389

778

194.50

499

274

2023

1,600

400

800

200.00

506

278

Intermediate estimates:

2024

1,652

413

826

206.50

509

280

2025

1,712

428

856

214.00

536

295

2026

1,772

443

886

221.50

563

310

2027

1,832

458

916

229.00

593

326

2028

1,896

474

948

237.00

625

344

2029

1,964

491

982

245.50

659

362

2030

2,028

507

1,014

253.50

692

381

2031

2,100

525

1,050

262.50

729

401

2032

2,168

542

1,084

271.00

770

424

Amounts shown are effective for calendar years.

Amounts shown for 1970–1980 are for the 12-month periods ending June 30; amounts shown for 1985

and later are for calendar years.

The Federal Register notice

100

announcing the HI deductible and

coinsurance amounts for 2023 included an estimate of the aggregate

cost to HI beneficiaries for the changes in the deductible and

coinsurance amounts from 2022 to 2023. At the time of the notice’s

publication, it was estimated that in 2023 there would be 5.90 million

inpatient deductibles paid at $1,600 each, 1.43 million inpatient days

subject to coinsurance at $400 per day (for hospital days 61 through

90), 0.73 million lifetime reserve days subject to coinsurance at

$800 per day, and 27.93 million extended care days subject to

coinsurance at $200.00 per day. Similarly, it was estimated that in

2022 there would be 5.41 million deductibles paid at $1,556 each,

1.32 million days subject to coinsurance at $389 per day (for hospital

days 61 through 90), 0.67 million lifetime reserve days subject to

coinsurance at $778 per day, and 28.38 million extended care days

subject to coinsurance at $194.50 per day. The total increase in cost to

beneficiaries was estimated to be $1.2 billion due to (i) the increase in

100

See https://www.govinfo.gov/content/pkg/FR-2022-09-29/pdf/2022-21180.pdf.

Appendices

210

the inpatient deductible and coinsurance amounts and (ii) the increase

in the number of deductibles and daily coinsurance amounts paid.

Table V.E2 displays the SMI cost-sharing and premium amounts for

Parts B and D. The projected values for future years are based on the

intermediate set of assumptions used in estimating the operations of

the Part B and Part D accounts. As a result, these values are

estimates, and the actual amounts are likely to be somewhat different

as experience emerges. The Part B premiums for 2010 and 2011 also

reflect significant additional increases designed to offset the loss of

revenues attributable to the hold-harmless provision, as described

later in this appendix. Similarly, the 2017 premium was increased due

to loss of revenues from the very low Social Security cost-of-living

adjustment and the hold-harmless provision.

Table V.E2.—SMI Cost-Sharing and Premium Amounts

Part B

Part D

Calendar year

Standard

monthly

premium

Annual

deductible

Base

beneficiary

premium

Deductible

Initial benefit

limit

Catastrophic

threshold

Historical data:

1970

$4.00

$50

—

1975

6.70

—

1980

8.70

—

1985

15.50

—

1990

28.60

—

1995

46.10

100

—

2000

45.50

100

—

2005

78.20

110

—

2010

110.50

155

$31.94

$310

$2,830

$4,550

2015

104.90

147

33.13

320

2,960

4,700

2016

121.80

166

34.10

360

3,310

4,850

2017

134.00

183

35.63

400

3,700

4,950

2018

134.00

183

35.02

405

3,750

5,000

2019

135.50

185

33.19

415

3,820

5,100

2020

144.60

198

32.74

435

4,020

6,350

2021

148.50

203

33.06

445

4,130

6,550

2022

170.10

233

33.37

480

4,430

7,050

2023

164.90

226

32.74

505

4,660

7,400

Intermediate estimates:

2024

174.80

240

34.70

545

5,030

8,000

2025

185.00

257

36.79

540

—

2,000

2026

196.40

274

38.99

545

—

2,000

2027

210.60

294

41.33

535

—

1,950

2028

224.30

313

43.81

510

—

1,850

2029

240.10

335

46.44

495

—

1,800

2030

253.40

354

47.04

490

—

1,800

2031

268.80

376

47.51

495

—

1,800

2032

285.60

399

49.08

500

—

1,850

Amounts shown for 1970–1980 are for the 12-month periods ending June 30; amounts shown for 1985

and later are for calendar years.

The Part B deductible was fixed by statute through 2005 and is to be indexed by average per beneficiary

Part B expenditures thereafter.

As required by the provisions of the Inflation Reduction Act 2022 (IRA), the initial benefit limit will end at

the catastrophic threshold beginning in 2025, and the catastrophic threshold will be reduced to $2,000 in

that year. Thereafter, the catastrophic threshold will be indexed by program growth.

These amounts have already been finalized.

Cost Sharing and Premiums

211

The Part B monthly premiums displayed in table V.E2 are the

standard premium rates paid by most Part B enrollees. However, there

are three provisions that alter the premium rate for certain Part B

enrollees. First, there is a premium surcharge for those beneficiaries

who enroll after their initial enrollment period.

Second, beginning in 2007, there is a higher income-related premium

for those individuals whose modified adjusted gross income exceeds a

specified threshold. Table V.E3 displays, for 2007 through 2032, the

income-related premium adjustment amounts, the number of

beneficiaries affected, and the aggregate additional premium amounts

collected, based on the intermediate set of assumptions. In 2022,

approximately 4.4 million beneficiaries paid a Part B income-related

premium.

Table V.E3.—Part B Income-Related Premium Information

Calendar

year

Income-related monthly adjustment amount

Beneficiaries

affected

(millions)

Aggregate

premiums

(billions)

35%

50%

65%

80%

85%

Historical data:

2007

$12.30

$30.90

$49.40

$67.90

—

1.7

$0.7

2008

25.80

64.50

103.30

142.00

—

2.0

1.8

2009

38.50

96.30

154.10

211.90

—

2.2

2.9

2010

44.20

110.50

176.80

243.10

—

1.9

2.7

2011

46.10

115.30

184.50

253.70

—

1.6

2.3

2012

40.00

99.90

159.80

219.80

—

1.9

2.4

2013

42.00

104.90

167.80

230.80

—

2.2

2.9

2014

42.00

104.90

167.80

230.80

—

2.6

3.4

2015

42.00

104.90

167.80

230.80

—

2.9

3.8

2016

48.70

121.80

194.90

268.00

—

3.3

5.2

2017

53.50

133.90

214.30

294.60

—

3.5

6.0

2018

53.50

133.90

214.30

294.60

—

3.7

7.0

2019

54.10

135.40

216.70

297.90

$325.00

4.3

8.4

2020

57.80

144.60

231.40

318.10

347.00

4.7

10.0

2021

59.40

148.50

237.60

326.70

356.40

4.8

10.5

2022

68.00

170.10

272.20

374.20

408.20

4.4

11.1

2023

65.90

164.80

263.70

362.60

395.60

5.2

13.4

Intermediate estimates:

2024

69.90

174.70

279.60

384.40

419.40

5.0

13.7

2025

74.00

184.90

295.80

406.90

443.90

5.2

15.3

2026

78.50

196.30

314.10

431.90

471.20

5.5

17.3

2027

84.20

210.50

336.80

463.20

505.30

5.9

19.6

2028

89.70

224.30

358.90

493.50

538.30

6.2

22.1

2029

96.00

240.00

384.00

528.10

576.10

6.5

25.0

2030

101.30

253.30

405.30

557.30

608.00

6.9

27.7

2031

107.50

268.80

430.10

591.40

645.10

7.2

30.7

2032

114.20

285.50

456.80

628.20

685.30

7.5

34.1

Amount is based on the applicable percentage of program cost represented by the premium and also

reflects the impact of the 3-year transition in 2007 and 2008. The Bipartisan Budget Act of 2018 created

an additional premium level for 2019 and later.

Represents the total amount paid by affected beneficiaries in excess of the Part B standard premium.

In 2023 the initial threshold is $97,000 for an individual tax return and

$194,000 for a joint return. The thresholds were not indexed to

inflation in the years 2011 through 2019 but are indexed thereafter.

Individuals exceeding the threshold will pay premiums covering 35, 50,

Appendices

212

65, 80, or, beginning in 2019, 85 percent of the average program cost

for aged beneficiaries, depending on their income level, compared to

the standard premium covering 25 percent. Effective in 2018, the

Medicare Access and CHIP Reauthorization Act of 2015 lowered

certain income thresholds used for determining the income-related

monthly adjustment amounts to be paid by beneficiaries, resulting in

a greater number of beneficiaries paying the higher amounts. In

addition, beginning in 2020, the legislation adjusted the methodology

used to index the thresholds, and accordingly more beneficiaries will

be subject to the income-related premiums. The Bipartisan Budget Act

of 2018 (BBA 2018) established an additional premium level beginning

in 2019 for individuals with incomes at or above $500,000 (and couples

with incomes at or above $750,000), and they will pay a premium

covering 85 percent of the average program cost. These new thresholds

will not be indexed until 2028 and later.

Third, Part B premiums may also vary from the standard rate because

a hold-harmless provision can lower the premium rate for individuals

who have their premiums deducted from their Social Security benefits.

On an individual basis, this provision limits the dollar increase in the

Part B premium to the dollar increase in the individual’s Social

Security benefit. As a result, the person affected pays a lower Part B

premium, and the net amount of the individual’s Social Security

benefit does not decrease despite the greater increase in the premium.

Most services under Part B are subject to an annual deductible and

coinsurance. The annual deductible was set by statute through 2005.

Thereafter, it increases with the increase in the Part B aged actuarial

rate to approximate the growth in per capita Part B expenditures.

101

After meeting the deductible, the beneficiary pays an amount equal to

the product of the coinsurance percentage and the remaining allowed

charges. The coinsurance percentage is 20 percent for most services.

However, since the coinsurance payment for a service paid under the

outpatient hospital prospective payment system is capped at the

inpatient hospital deductible amount, the average coinsurance

percentage for these services was about 18 percent in 2018 and is

expected to gradually decline in the projection period. For those

services not subject to the deductible or coinsurance (clinical laboratory

101

The current mechanism to index the Part B deductible has technical computational

issues mainly due to the timing of the calculation. The Part B deductible for any given

year is indexed by the increase in the monthly aged actuarial rate for that same year,

which represents estimated monthly per capita expenditures. However, these

expenditures are dependent on the Part B deductible, which is not known until the

actuarial rate is determined. The result is circularity in the modeling process.

Cost Sharing and Premiums

213

tests, home health agency services, and most preventive care services),

the beneficiary pays nothing.

The Part D average premiums displayed in table V.E2 are the

estimated base beneficiary premiums. Starting in 2009, the national

average monthly bid amount is based on the enrollment-weighted

average. The actual premium that a beneficiary pays varies according

to the plan in which the beneficiary enrolls. The average paid premium

has always been lower than the base beneficiary premium; the average

paid premium was $32.34 in 2022 and is projected to be $32.26 in 2023.

Since beneficiaries may switch plans each year once the premium rates

become known, the Trustees assume that the estimated average

premium rate paid by beneficiaries will continue to be somewhat less

than the base beneficiary premium in future years.

Similar to Part B, there are two provisions that affect the premium

rate for certain Part D beneficiaries. First, there is a Part D late

enrollment penalty for those beneficiaries enrolling after their initial

enrollment period. Second, starting in 2011, individuals whose

modified adjusted gross income exceeds the same thresholds applicable

to the Part B premium pay an income-related premium in addition to

the premium charged by the plan in which the individual enrolled. The

amount of the income-related premium adjustment is dependent on the

individual’s income level, and the extra premium amount is the

difference between 35, 50, 65, 80, or 85 percent and 25.5 percent,

102

applied to the national average monthly bid amount adjusted for

reinsurance. In addition, the changes to the income ranges and

threshold methodology that were previously described for Part B also

apply to Part D. Table V.E4 displays, for 2011 through 2032, the Part D

income-related premium adjustment amounts, the number of

beneficiaries affected, and the aggregate additional premium amounts

collected, based on the intermediate set of assumptions. In 2022,

approximately 3.6 million beneficiaries paid a Part D income-related

premium.

102

Beginning in 2030, the base beneficiary premium percentage will be reset according

to the specifications of the Inflation Reduction Act of 2022 (IRA).

Appendices

214

Table V.E4.—Part D Income-Related Premium Information

Calendar

year

Income-related monthly adjustment amount

Beneficiaries

affected

(millions)

Aggregate

premiums

(billions)

35%

50%

65%

80%

85%

Historical data:

2011

$12.00

$31.10

$50.10

$69.10

—

0.9

$0.3

2012

11.60

29.90

48.10

66.40

—

1.1

0.4

2013

11.60

29.90

48.30

66.60

—

1.5

0.5

2014

12.10

31.10

50.20

69.30

—

1.8

0.7

2015

12.30

31.80

51.30

70.80

—

2.1

0.9

2016

12.70

32.80

52.80

72.90

—

2.5

1.0

2017

13.30

34.20

55.20

76.20

—

2.7

1.2

2018

13.00

33.60

54.20

74.80

—

2.9

1.4

2019

12.40

31.90

51.40

70.90

$77.40

3.4

1.6

2020

12.20

31.50

50.70

70.00

76.40

3.8

1.8

2021

12.30

31.80

51.20

70.70

77.10

3.9

1.8

2022

12.40

32.10

51.70

71.30

77.90

3.6

1.8

2023

12.20

31.50

50.70

70.00

76.40

4.4

2.2

Intermediate estimates:

2024

12.90

33.30

53.80

74.20

81.00

4.3

2.3

2025

13.70

35.30

57.00

78.60

85.80

4.6

2.6

2026

14.50

37.50

60.40

83.30

91.00

4.9

3.0

2027

15.40

39.70

64.00

88.30

96.40

5.2

3.2

2028

16.30

42.10

67.90

93.60

102.20

5.5

3.7

2029

17.30

44.60

71.90

99.30

108.40

5.8

4.1

2030

27.70

60.70

93.60

126.60

137.60

6.1

6.3

2031

28.00

61.30

94.60

127.90

139.00

6.4

6.6

2032

28.90

63.30

97.70

132.10

143.60

6.7

7.1

Amount is based on the applicable percentage of program cost represented by the premium. The

Bipartisan Budget Act of 2018 created an additional premium level for 2019 and later.

Represents the total amount paid by affected beneficiaries in excess of the Part D plan premium.

The income-related monthly adjustment amounts will increase more rapidly beginning in 2030 due to the

new base beneficiary premium percentage specified by the IRA.

In addition, there are Part D premium and cost-sharing subsidies for

those beneficiaries with incomes less than 150 percent of the Federal

poverty level and with assets, including burial expenses, in 2023 that

amount to less than $16,660 for an individual and $33,240 for a couple.

The asset thresholds are indexed in subsequent years by the Consumer

Price Index (CPI-U). Under the current statutory adjustment formula,

the asset figures for 2023 increase for both an individual and a couple

as a result of increases in the CPI-U.

Under standard Part D coverage, there is an initial deductible. After

meeting the deductible, the beneficiary pays 25 percent of the

remaining costs up to the initial benefit limit. Beyond this limit, prior

to 2011, the beneficiary paid all the drug costs until his or her total out-

of-pocket expenditures reached the catastrophic threshold. (This total

includes the deductible and coinsurance payments for expenses up to

the initial benefit limit.) The coverage gap was to be gradually closed

beginning in 2011 until 2020, and then BBA 2018 required the

coverage gap for brand-name drugs to close 1 year earlier, in 2019.

Starting in 2020, for all drugs, beneficiaries pay 25 percent of the costs

between the deductible and the catastrophic threshold under the

standard coverage. In 2023, after reaching the catastrophic threshold,

Cost Sharing and Premiums

215

the beneficiary pays the greater of (i) 5 percent of the drug cost or

(ii) $4.15 for generic or preferred multiple-source drugs or $10.35 for

preferred single-source drugs. The latter copayment amounts from

2023 are indexed annually by per enrollee Part D average costs.

Beneficiaries qualifying for the Part D low-income subsidy pay

substantially reduced premium and cost-sharing amounts. Many

Part D plans offer alternative coverage that differs from the standard

coverage described above. The majority of beneficiaries have not

enrolled in the standard benefit design but rather in plans with low or

no deductibles, flat copayments for covered drugs, and, in some cases,

partial coverage in the coverage gap.

Appendices

216

F. MEDICARE AND SOCIAL SECURITY TRUST FUNDS AND

THE FEDERAL BUDGET

One can view the financial operations of Medicare and Social Security

in the context of the programs’ trust funds or in the context of the

overall Federal budget. The financial status of the trust funds differs

fundamentally from the impact of these programs on the budget, and

people often misunderstand the relationship between these two

perspectives. Each perspective is appropriate and important for its

intended purpose; this appendix attempts to clarify their roles and

relationship.

By law, the annual reports of the Medicare and Social Security Boards

of Trustees to Congress include a statement of the financial status of

the programs’ trust funds—that is, whether these funds have sufficient

revenues and assets to enable the payment of benefits and

administrative expenses. This trust fund perspective is important

because the existence of trust fund assets provides the statutory

authority to make such payments without the need for an

appropriation from Congress. Under current law, Medicare and Social

Security benefits can be paid only if the relevant trust fund has

sufficient income or assets.

The trust fund perspective does not encompass the interrelationship

between the Medicare and Social Security trust funds and the overall

Federal budget. The budget is a comprehensive display of all Federal

activities, whether financed through trust funds or from the general

fund of the Treasury. This broader focus may appropriately be termed

the budget perspective or government-wide perspective and is officially

presented in the Budget of the United States Government

103

and in the

Financial Report of the United States Government.

104

Payroll taxes, income taxes on Social Security benefits, Medicare

premiums, and special State payments to Medicare finance the

majority of Medicare and Social Security costs. In addition to these

earmarked receipts from workers, employers, beneficiaries, and States,

and interest payments on their accumulated assets, the trust funds

(principally the SMI trust fund) rely on Federal general fund revenues

for some of their financing. The financial status of a trust fund

appropriately considers all sources of financing provided for that fund,

including the availability of trust fund assets that Medicare or Social

Security can use to meet program expenditures. From a budget

103

https://www.whitehouse.gov/wp-content/uploads/2023/03/budget_fy2024.pdf

104

https://fiscal.treasury.gov/files/reports-statements/financial-report/2022/02-16-2023-

FR-(Final).pdf

Trust Funds and Federal Budget

217

perspective, however, general fund transfers represent a draw on other

Federal resources for which there is no earmarked source of revenue

from the public. For this appendix, interest payments to the trust funds

and asset redemptions, both of which occur due to the postponed use of

earmarked revenues, are classified as draws on other Federal

resources, since they require payments from the Treasury general

fund. The budget perspective does not reflect that publicly held debt

and interest payments to the public are both lower because the trust

funds hold some of the debt.

At the beginning of the Medicare program, general fund and interest

payments were relatively small. These amounts have been increasing,

and the expected future growth of Medicare and Social Security will

make their interaction with the Federal budget increasingly

important. As the difference between earmarked and total trust fund

revenues grows, the financial operations of Social Security and

Medicare can appear markedly different depending on which of the two

perspectives one uses.

105

Illustration with Actual Data for 2022

Table V.F1 illustrates the trust fund and budget perspectives using

actual data on Federal financial operations for fiscal year (FY) 2022.

The first three columns show revenues and expenditures for HI, SMI,

and OASDI, respectively, and the fourth (“Combined”) column is the

sum of these three columns. The sixth (“Total”) column shows total

revenues and expenditures for the total Federal budget, and the fifth

(“Other”) column presents all other Federal programs (including the

general fund account of the Treasury) and is calculated as the

difference between the amounts in the “Total” column and the amounts

in the “Combined” column. The table shows earmarked revenues from

the public separately from revenues from other government accounts

(general revenue transfers and interest credits). Note that the

transfers and interest credits received by the trust funds are the key

differences between the two perspectives.

105

A more complete treatment of this topic appears in a May 2009 Treasury report titled

“Social Security and Medicare Trust Funds and the Federal Budget” at

https://home.treasury.gov/system/files/226/ep_budget_trust_fund_perspectives_2009.pdf.

Additional information is available in a Health Care Financing Review article titled

“Medicare Financial Status, Budget Impact, and Sustainability: Which Concept Is

Which?” at http://www.cms.gov/Research-Statistics-Data-and-Systems/Research/

HealthCareFinancingReview /Downloads/05-06Winpg127.pdf and in a Social Security

Bulletin article titled “Social Security Trust Fund Cash Flows and Reserves” at

https://www.ssa.gov/policy/docs/ssb/v75n1/ v75n1p1.html.

Appendices

218

Table V.F1.—Annual Revenues and Expenditures

for Medicare and Social Security Trust Funds and the Total Federal Budget,

Fiscal Year 2022

[In billions]

Trust funds

Other

Revenue and expenditures categories

SMI

OASDI

Combined

Total

Revenues from public:

Payroll and benefit taxes

$376.5

—

$1,135.4

$1,511.9

—

$1,511.9

Premiums

4.7

$144.6

—

149.4

—

149.4

Other taxes, fees, and payments

1.2

16.5

0.0

17.7

$3,218.5

3,236.2

Total

382.4

161.1

1,135.4

1,678.9

3,218.5

4,897.4

Total expenditures to public

344.7

573.4

1,218.6

2,136.8

4,136.5

6,273.3

Net Results for Budget Perspective

37.7

−412.3

−83.3

−457.9

−918.0

−1,375.9

Revenues from other government accounts:

Transfers

1.1

406.4

0.0

407.5

n/a

Interest credits

3.1

3.2

67.7

74.1

n/a

Total

4.2

409.6

67.7

481.6

n/a

Net Results for Trust Fund Perspective

41.9

−2.6

−15.5

23.7

n/a

The “Total” column presents revenues and expenditures for the total Federal budget in fiscal year 2022.

The total revenue and outlay amounts can be found in Historical Table 1.1 of the FY 2024 President’s

Budget, and the figure $1,375.9 billion is the difference between these amounts and represents the

estimated total Federal budget deficit for fiscal year 2022. Amounts reported for the “Trust funds” columns

represent actual operations based on information in the Monthly Treasury Statement and are presented

throughout the Trustees Reports. “Other” amounts are calculated as the difference between the amounts

in the “Total” column and the amounts in the “Combined” column under “Trust funds.”

Includes Part D premiums paid directly to plans, which are not displayed on Treasury statements and are

estimated.

Includes Part D State payments, Part B drug fees, and other miscellaneous items.

The OASDI figure includes $5.5 billion transferred to the Railroad Retirement Board.

Notes: 1. For comparison, HI taxable payroll, OASDI taxable payroll, and GDP were $11,368 billion,

$9,069 billion, and $25,422 billion, respectively, in 2022.

2. Totals do not necessarily equal the sums of rounded components.

3. n/a indicates not applicable.

4. 0.0 indicates an amount of less than $50 billion.

The trust fund perspective reflects both categories of revenues for each

trust fund. For HI, revenues from the public plus transfers/credits from

other government accounts were $41.9 billion more than total

expenditures in FY 2022, as shown at the bottom of the first column.

106

For the SMI trust fund, the statutory revenues from beneficiary

premiums, State payments, general revenue transfers, and interest

earnings collectively were $2.6 billion less than expenditures in

FY 2022. Note that it is appropriate to view the general revenue

transfers from other government accounts as financial resources from

the trust fund perspective since they are available to help meet trust

fund outlays. For OASDI, total trust fund revenues from all sources

106

The Department of the Treasury invests surplus revenues from the public over

expenditures to the public in special Treasury securities, which thereby represent a loan

from the trust funds to the general fund of the Federal Government. These loans reduce

the amount that the general fund has to borrow from the public to finance a deficit (or

likewise increase the amount of debt paid off if there is a surplus). Interest is credited to

the trust funds while the securities are being held. Trust fund securities can be redeemed

at any time if needed to help meet program expenditures.

Trust Funds and Federal Budget

219

(including $67.7 billion in interest payments and $0.0 billion in general

fund reimbursements) were $15.5 billion less than expenditures.

From the government-wide or budget perspective, only earmarked

revenues received from the public—principally taxes on payroll and

benefits, plus premiums—and expenditures made to the public are

important for the final balance.

107

For HI, the difference between such

revenues ($382.4 billion) and total expenditures made to the public

($344.7 billion) was $37.7 billion in FY 2022, indicating that HI had a

positive effect on the overall budget in FY 2022. For SMI, beneficiary

premiums, fees on brand-name prescription drugs to Part B, and State

payments to Part D of Medicare were the only sources of revenues from

the public in FY 2022 and represented only about 28 percent of total

expenditures. The remaining $412.3 billion in FY 2022 outlays

represented a substantial net draw on the Federal budget in that

year.

108

For OASDI, the difference between revenues from the public

($1,135.4 billion) and total expenditures ($1,218.6 billion) was

$83.3 billion, indicating that OASDI also had a negative effect on the

overall budget last year if the effects of past trust fund cash flows on

interest payments from the Federal Government to the public are not

taken into account.

Thus, from the trust fund perspective, HI had an annual surplus in

FY 2022, and SMI and OASDI both had a deficit. From the budget

perspective, HI had a surplus, and SMI and OASDI each required a

net draw on the budget. HI, SMI, and OASDI collectively had a trust

fund surplus of $23.7 billion in FY 2022 and a net draw of

$457.9 billion on the budget.

It is important to recognize that each viewpoint is appropriate for its

intended purpose but that one perspective cannot be used to answer

questions related to the other. In the case of SMI, the trust fund will

always be in balance and there will always be a net draw on the Federal

budget. In the case of HI, trust fund surpluses in a given year may

occur with either a positive or negative direct impact on the budget for

that year. Conversely, a positive or negative budget impact from HI

107

For this purpose, the public includes State governments since they are outside of the

Federal Government.

108

Three types of trust fund transactions constituted this net budget obligation:

$406.4 billion was drawn in the form of general revenue transfers, and another

$3.2 billion in interest payments, while $2.6 billion was transferred from the general

fund to the trust fund through the redemption of special-issue Treasury securities in an

amount equal to the trust fund deficit for the year.

Appendices

220

offers minimal insight into whether its trust fund has sufficient total

revenues and assets to permit payment of benefits.

The next section illustrates the magnitude of the long-range difference

between projected expenditures and revenues for Medicare and Social

Security from both the trust fund and budget perspectives.

Future Obligations of the Trust Funds and the Budget

Table V.F2 collects from the Medicare and OASDI Trustees Reports

the present values of projected future revenues and expenditures over

the next 75 years. For HI and OASDI, tax revenues from the public are

projected to fall short of statutory expenditures by $4.6 trillion and

$25.3 trillion, respectively, in present value terms.

109

Table V.F2.—Present Values of Projected Revenue and Cost Components

of 75-Year Open-Group Obligations for HI, SMI, and OASDI

[In trillions, as of January 1, 2023]

Revenue and expenditure categories

SMI

OASDI

Combined

Revenues from public:

Payroll and benefit taxes

$30.7

—

$87.4

$118.1

Premiums

0.4

$17.5

—

18.0

Other taxes and fees

0.1

1.1

—

1.3

Total

31.3

18.7

87.4

137.4

Total expenditures to public

35.9

67.2

112.7

215.7

Net Results for Budget Perspective

−4.6

−48.5

−25.3

−78.4

Revenues from other government accounts:

Transfers

0.0

48.4

0.0

48.4

Interest credits

n/a

Total

0.0

48.4

0.0

48.4

Trust fund assets on January 1, 2023

0.2

2.8

3.2

Net Results for Trust Fund Perspective

−4.4

0.1

−22.4

−26.8

Includes Part B revenues from fees on manufacturers and importers of brand-name prescription drugs

and Part D State payments.

Notes: 1. For comparison, the present values of HI taxable payroll, OASDI taxable payroll, and GDP are

$776.2 trillion, $655.0 trillion, and $1,766.2 trillion, respectively, over the next 75 years. This

present value of GDP is calculated using HI-specific interest discount factors and differs

slightly from the corresponding amount shown in the OASDI Trustees Report.

2. Medicare present values are calculated using HI-specific discount factors, while OASDI

amounts use OASDI-specific discount factors.

3. Totals do not necessarily equal the sums of rounded components.

4. n/a indicates not applicable.

5. 0.0 indicates an amount of less than $50 billion.

From the budget perspective, these are the additional amounts that

would be necessary in order to pay HI and OASDI benefits and other

costs at the level scheduled over the next 75 years. From the trust fund

perspective, the amounts needed are smaller by the value of the

109

Interest income is not a factor in this table, as dollar amounts are in present value

terms.

Trust Funds and Federal Budget

221

accumulated assets in the respective trust funds—$0.2 trillion for HI

and $2.8 trillion for OASDI—that could be drawn down to cover a part

of the projected shortfall in tax revenues. Three points about this

comparison in table V.F2 are important to note:

• The trust fund and budget perspectives differ in the treatment of

the starting trust fund assets. Those accumulated reserves are

credited to the trust fund programs under the trust fund

perspective but are not under the budget perspective.

• The amounts shown in table V.F2 assume payment of full

scheduled benefits, which is not permissible under current law

after trust fund depletion. For both the budget and trust fund

perspectives, the 75-year HI and OASDI deficits reflect the

financial imbalance after trust fund depletion. By law, however,

once assets are depleted, expenditures cannot be made except to

the extent covered by ongoing tax receipts and other trust fund

income.

• In practice, the long-range HI and OASDI deficits would likely be

addressed by future legislation to reduce expenditures, increase

payroll or other earmarked tax revenues, or some combination of

such measures. For Medicare, in particular, lawmakers have

frequently enacted legislation to slow the growth of expenditures.

The situation for SMI is somewhat different. SMI expenditures for

Part B and Part D are projected to exceed premium and other

dedicated revenues by $48.5 trillion. To keep the SMI trust fund

solvent for the next 75 years will require general fund transfers of this

amount, and these transfers represent a formal budget requirement.

From the trust fund perspective, the present value of projected total

premiums and general revenues is about equal to the present value of

future expenditures.

From the 75-year budget perspective, the present value of the

additional resources that would be necessary to meet projected

expenditures, for the three programs combined, is $78.4 trillion.

110

put this very large figure in perspective, it would represent 4.4 percent

of the present value of projected GDP over the same period

110

As noted previously, the long-range HI and OASDI financial imbalances could instead

be partially addressed by expenditure reductions, thereby reducing the need for

additional revenues. Similarly, SMI expenditure reductions would reduce the need for

general fund transfers.

Appendices

222

($1,766 trillion). The components of the $78.4-trillion total are as

follows:

Unfunded Medicare and OASDI obligations

(trust fund perspective)

111

...................................

$26.8 trillion

(1.5% of GDP)

HI, SMI, and OASDI asset redemptions............

3.2 trillion

(0.2% of GDP)

SMI general revenue financing...........................

48.4 trillion

(2.7% of GDP)

These resource needs would be in addition to the payroll taxes, benefit

taxes, and premium payments. As noted, the asset redemptions and

SMI general revenue transfers represent formal budget commitments,

but no provision exists for covering the HI and OASDI trust fund

deficits once assets are depleted.

As discussed throughout this report, the Medicare projections shown

here could be substantially understated as a result of other potentially

unsustainable elements of current law. Although this issue does not

affect the nature of the budget and trust fund perspectives described

in this appendix, it is important to note that actual long-range present

values for HI expenditures and SMI expenditures and revenues could

exceed the amounts shown in table V.F2 by a substantial margin.

111

Additional revenues and/or expenditure reductions totaling $26.8 trillion, together

with $3.2 trillion in asset redemptions, would cover the projected financial imbalance

but would leave the HI and OASDI trust funds depleted at the end of the 75-year period.

The long-range actuarial deficits for HI and OASDI include a cost factor to allow for a

normal level of fund assets. See section III.B3 in this report, and section IV.B4 in the

OASDI Trustees Report, for the numerical relationship between the actuarial deficit and

the unfunded obligations of each program.

Infinite horizon projections

223

G. INFINITE HORIZON PROJECTIONS

Consistent with the practice of previous reports, this report focuses on

the 75-year period 2023–2097 for the evaluation of the long-range

financial status of the Medicare program. The estimates are for the

open-group population—all persons, some of whom are not yet born,

who will participate during the period as either taxpayers or

beneficiaries, or both—and consist of payments from, and on behalf of,

employees now in the workforce, as well as those who will enter the

workforce over the next 75 years.

Experts have noted that limiting the projections to 75 years

understates the magnitude of the long-range unfunded obligations

because summary measures (such as the actuarial balance and open-

group unfunded obligations) reflect the full amount of taxes paid by the

next two or three generations of workers, but not the full amount of

their benefits. One approach to addressing the limitations of 75-year

summary measures is to extend the projection horizon indefinitely, so

that the overall results reflect the projected costs and revenues after

the first 75 years.

112

Such extended projections can also help indicate

whether the financial imbalance would be improving or continuing to

worsen beyond the normal 75-year period.

Table V.G1 presents estimates of HI unfunded obligations that extend

to the infinite horizon. The extension assumes that the HI program and

the demographic and economic trends used for the 75-year projection

continue indefinitely except that average HI expenditures per

beneficiary increase at the same rate as GDP per capita less the

productivity adjustments after 2097. If the slower HI price updates

under current law were able to continue indefinitely, then the HI

financial imbalance would actually improve beyond the 75-year

period.

113

Specifically, under these assumptions, extending the

calculations beyond 2097 subtracts $19.7 trillion in unfunded

obligations from the amount estimated through 2097. Over the infinite

horizon, the HI program thus has a projected surplus of $15.3 trillion.

112

The calculation of present values, in effect, applies successively less weight to future

amounts over time, through the process of interest discounting. For example, the weights

associated with the 25th, 75th, and 200th years of the projection would be about

36.5 percent, 3.7 percent, and 0.01179 percent, respectively, of the weight for the first

year. In this way, it is possible to calculate a finite summary measure for an infinite

projection period.

113

It is important to note that the actual future costs for Medicare may exceed the

projections shown in this report, possibly by substantial amounts. See section V.C for

details on the illustrative alternative projections.

Appendices

224

Table V.G1.—Unfunded HI Obligations from Program Inception

through the Infinite Horizon

[Present values as of January 1, 2023; dollar amounts in trillions]

As a percentage of:

Present

value

HI taxable

payroll

GDP

Unfunded obligations through the infinite horizon

−$15.3

−0.9 %

−0.3 %

Unfunded obligations from program inception through 2097

4.4

0.6

0.3

Present value of future expenditures less income, reduced by the amount of trust fund assets at the

beginning of the period.

Notes: 1. The present values of future HI taxable payroll for 2023–2097 and for 2023 through the infinite

horizon are $776.2 trillion and $1,777.0 trillion, respectively.

2. The present values of GDP for 2023–2097 and for 2023 through the infinite horizon are

$1,766.2 trillion and $4,590.3 trillion, respectively. (These present values differ slightly from

the corresponding amounts shown in the OASDI Trustees Report due to the use of HI-specific

interest discount factors.)

It is possible to separate the projected HI unfunded obligation over the

infinite horizon into the portions associated with current participants

versus future participants. The first line of table V.G2 shows the

present value of future expenditures less future taxes for current

participants, including both beneficiaries and covered workers.

Subtracting the current value of the HI trust fund (the accumulated

value of past HI taxes less outlays) results in a closed-group unfunded

obligation of $14.4 trillion. In contrast, the projected difference

between taxes and expenditures for future participants is a surplus of

$29.7 trillion.

The year-by-year HI deficits described in section III.B have shown that

HI taxes will not be adequate to finance the program on a pay-as-you-

go basis (whereby payroll taxes from today’s workers provide benefits

to today’s beneficiaries).

114

The unfunded obligations shown in

table V.G2 for current participants further indicate that their HI taxes

are not adequate to cover their own future costs when they become

eligible for HI benefits—and that this situation has also occurred for

workers in the past. For future workers, however, the compounding

effects of the lower HI price updates would, if they were able to

continue indefinitely, lower costs to the point that scheduled HI taxes

would be more than sufficient. In practice, lawmakers could address

the projected aggregate HI deficits by raising additional revenue or

reducing benefits (or some combination of these actions). The impact of

such changes on the unfunded obligation amounts for current versus

future participants would depend on the specific policies selected.

114

As noted previously, the HI trust fund also receives small amounts of income in the

form of income taxes on OASDI benefits, interest, and general fund reimbursements for

certain uninsured beneficiaries.

Infinite horizon projections

225

Table V.G2.—Unfunded HI Obligations for Current and Future Program Participants

through the Infinite Horizon

[Present values as of January 1, 2023; dollar amounts in trillions]

As a percentage of:

Present

value

HI taxable

payroll

GDP

Future expenditures less income for current participants...............................

$14.6

0.8 %

0.3 %

Less current trust fund

(income minus expenditures to date for past and current participants)......

0.2

0.0

Equals unfunded obligations for past and current participants

.....................

14.4

0.8

0.3

Plus expenditures less income for future participants for the infinite horizon

−29.7

−1.7

−0.6

Equals unfunded obligations for all participants for the infinite future ............

−15.3

−0.9

−0.3

This concept is also referred to as the closed-group unfunded obligation.

Notes: 1. The estimated present value of future HI taxable payroll for 2023 through the infinite horizon

is $1,777.0 trillion.

2. The estimated present value of GDP for 2023 through the infinite horizon is $4,590.3 trillion.

See note 2 in table V.G1.

3. Totals do not necessarily equal the sums of rounded components.

Tables V.G3 and V.G4 show the infinite horizon estimates for Part B.

The extension assumes that the demographic and economic trends

used for the 75-year projection continue indefinitely and that the

productivity adjustments to payment updates for some providers

remain unchanged. To simplify and stabilize the modeling for the

infinite horizon, the Trustees project that average Part B expenditures

per beneficiary will increase at about the same rate as GDP per capita

minus 0.3 percentage point in every year, reflecting the mix of costs by

provider category after 2097 and the payment rate updates applicable

to each category.

Table V.G3 shows an estimated present value of Part B expenditures

through the infinite horizon of $138.1 trillion, of which $56.6 trillion

would occur during the first 75 years. Because such amounts,

calculated over extremely long horizons, can be difficult to interpret,

they are also shown as percentages of the present value of future GDP.

So expressed, the corresponding figures are 3.0 percent and

3.2 percent, respectively. The table also indicates that beneficiary

premiums will finance approximately 28 percent of expenditures for

each time period and that fees related to brand-name prescription

drugs will finance about 0.1 percent. Government contributions pay for

the remaining 72 percent.

Appendices

226

Table V.G3.—Unfunded Part B Obligations from Program Inception

through the Infinite Horizon

[Present values as of January 1, 2023; dollar amounts in trillions]

Present value

As a

percentage

of GDP

Unfunded obligations through the infinite horizon

$0.0

0.0 %

Expenditures

138.1

3.0

Income

138.1

3.0

Beneficiary premiums

38.5

0.8

Government contributions

99.5

2.2

Fees related to brand-name prescription drugs

0.1

0.0

Unfunded obligations from program inception through 2097

0.0

Expenditures

56.6

3.2

Income

56.6

3.2

Beneficiary premiums

15.7

0.9

Government contributions

40.9

2.3

Fees related to brand-name prescription drugs

0.1

0.0

Present value of future expenditures less income, reduced by the amount of trust fund assets at the

beginning of the period.

Notes: 1. The present values of GDP for 2023–2097 and for 2023 through the infinite horizon are

$1,766.2 trillion and $4,590.3 trillion, respectively. See note 2 of table V.G1.

2. Totals do not necessarily equal the sums of rounded components.

Table V.G4 shows corresponding present values separately for current

versus future beneficiaries. As indicated, about 34 percent of the

projected total, infinite-horizon cost is attributable to current

beneficiaries, with the remaining 66 percent attributable to

beneficiaries becoming eligible for Part B benefits after

January 1, 2023.

Infinite horizon projections

227

Table V.G4.—Unfunded Part B Obligations

for Current and Future Program Participants through the Infinite Horizon

[Present values as of January 1, 2023; dollar amounts in trillions]

Present

value

As a

percentage

of GDP

Future expenditures less income for current participants.................................

−$0.1

0.0 %

Expenditures..................................................................................................

46.6

1.0

Income ...........................................................................................................

46.7

1.0

Beneficiary premiums ................................................................................

13.0

0.3

Government contributions .........................................................................

33.6

0.7

Fees related to brand-name prescription drugs ........................................

0.0

Less current trust fund

(Income minus expenditures to date for past and current participants) .......

0.2

0.0

Equals unfunded obligations for past and current participants

.......................

−0.3

0.0

Expenditures..................................................................................................

46.4

1.0

Income ...........................................................................................................

46.5

1.0

Beneficiary premiums ................................................................................

12.8

0.3

Government contributions .........................................................................

33.4

0.7

Fees related to brand-name prescription drugs ........................................

−0.2

0.0

Plus expenditures less income for future participants for the infinite horizon ..

0.1

0.0

Expenditures..................................................................................................

91.5

2.0

Income ...........................................................................................................

91.4

2.0

Beneficiary premiums ................................................................................

25.5

0.6

Government contributions .........................................................................

65.9

1.4

Fees related to brand-name prescription drugs ........................................

0.1

0.0

Equals unfunded obligations for all participants for the infinite future ..............

−0.2

0.0

Expenditures..................................................................................................

137.9

3.0

Income ...........................................................................................................

137.9

3.0

Beneficiary premiums ................................................................................

38.3

0.8

Government contributions .........................................................................

99.3

2.2

Fees related to brand-name prescription drugs ........................................

−0.1

0.0

This concept is also referred to as the closed-group unfunded obligation.

Notes: 1. The estimated present value of GDP for 2023 through the infinite horizon is $4,590.3 trillion.

See note 2 of table V.G1.

2 Totals do not necessarily equal the sums of rounded components.

Tables V.G5 and V.G6 present revenue and expenditure estimates for

Part D that extend to the infinite horizon. The extension assumes that

the demographic and economic trends used for the 75-year projection

continue indefinitely except that average Part D expenditures per

beneficiary would increase at the same rate as GDP per capita minus

0.1 percentage point in every year after 2097.

Table V.G5 shows an estimated present value of Part D expenditures

through the infinite horizon of $30.6 trillion, of which $10.6 trillion

would occur during the first 75 years. To put the estimates in

perspective, they are also shown as percentages of the present value of

future GDP. Expressed in this way, the corresponding figures are

0.7 percent and 0.6 percent of GDP, respectively. The table also

indicates that, for each time period, beneficiary premiums would

finance approximately 18 percent of expenditures and State payments

would finance 10 percent, with government contributions paying for

the remaining 72 percent.

Appendices

228

Table V.G5.—Unfunded Part D Obligations from Program Inception

through the Infinite Horizon

[Present values as of January 1, 2023; dollar amounts in trillions]

Present value

As a

percentage

of GDP

Unfunded obligations through the infinite horizon

$0.0

0.0 %

Expenditures

30.6

0.7

Income

30.6

0.7

Beneficiary premiums

5.4

0.1

State payments

3.1

0.1

Government contributions

22.1

0.5

Unfunded obligations from program inception through 2097

0.0

Expenditures

10.6

0.6

Income

10.6

0.6

Beneficiary premiums

1.8

0.1

State payments

1.1

0.1

Government contributions

7.6

0.4

Present value of future expenditures less income, reduced by the amount of trust fund assets at the

beginning of the period.

Notes: 1. The present values of GDP for 2023–2097 and for 2023 through the infinite horizon are

$1,766.2 trillion and $4,590.3 trillion, respectively. See note 2 of table V.G1.

2 Totals do not necessarily equal the sums of rounded components.

Table V.G6 shows corresponding projections separately for current

versus future beneficiaries. As indicated, about 27 percent of the

projected total, infinite-horizon cost is attributable to current

beneficiaries, with the remaining 73 percent attributable to

beneficiaries becoming eligible for Part D benefits after

January 1, 2023.

Infinite horizon projections

229

Table V.G6.—Unfunded Part D Obligations

for Current and Future Program Participants through the Infinite Horizon

[Present values as of January 1, 2023; dollar amounts in trillions]

Present

value

As a

percentage

of GDP

Future expenditures less income for current participants.................................

$0.0

0.0 %

Expenditures..................................................................................................

8.2

0.2

Income ...........................................................................................................

8.2

0.2

Beneficiary premiums ................................................................................

1.5

0.0

State payments ..........................................................................................

0.8

0.0

Government contributions .........................................................................

5.9

0.1

Less current trust fund

(Income minus expenditures to date for past and current participants) .......

0.0

Equals unfunded obligations for past and current participants

.......................

0.0

Expenditures..................................................................................................

8.2

0.2

Income ...........................................................................................................

8.2

0.2

Beneficiary premiums ................................................................................

1.4

0.0

State payments ..........................................................................................

0.8

0.0

Government contributions .........................................................................

5.9

0.1

Plus expenditures less income for future participants for the infinite horizon ..

0.0

Expenditures..................................................................................................

22.4

0.5

Income ...........................................................................................................

22.4

0.5

Beneficiary premiums ................................................................................

4.0

0.1

State payments ..........................................................................................

2.3

0.0

Government contributions .........................................................................

16.2

0.4

Equals unfunded obligations for all participants for the infinite future ..............

0.0

Expenditures..................................................................................................

30.6

0.7

Income ...........................................................................................................

30.6

0.7

Beneficiary premiums ................................................................................

5.4

0.1

State payments ..........................................................................................

3.1

0.1

Government contributions .........................................................................

22.0

0.5

This concept is also referred to as the closed-group unfunded obligation.

Notes: 1. The estimated present value of GDP for 2023 through the infinite horizon is $4,590.3 trillion.

See note 2 of table V.G1.

2. Totals do not necessarily equal the sums of rounded components.

Appendices

230

H. FISCAL YEAR HISTORICAL DATA AND PROJECTIONS

THROUGH 2032

Tables V.H1, V.H2, and V.H3 present detailed operations of the HI

trust fund, along with Part B and Part D of the SMI trust fund, for

fiscal year 2022. These tables are similar to the calendar-year

operation tables displayed in sections III.B, III.C, and III.D.

Table V.H1.—Statement of Operations of the HI Trust Fund during Fiscal Year 2022

[In thousands]

Total assets of the trust fund, beginning of period...............................................................

$136,102,210

Revenue:

Payroll taxes ...............................................................................................................

$343,729,110

Income from taxation of OASDI benefits ....................................................................

32,775,000

Interest on investments...............................................................................................

3,078,091

Premiums collected from voluntary participants.........................................................

4,466,691

Premiums collected from Medicare Advantage participants ......................................

259,826

ACA Medicare shared savings program receipts .......................................................

52,841

Transfer from Railroad Retirement account ...............................................................

505,300

Reimbursement, transitional uninsured coverage ......................................................

82,000

Interfund interest receipts, CMS .................................................................................

1,408

Interfund interest payments to OASDI

......................................................................

−514

Interest on reimbursements, Railroad Retirement .....................................................

10,566

Other ...........................................................................................................................

1,314

Reimbursement, union activity ...................................................................................

1,000

General fund transfer, program management ............................................................

661,876

Fraud and abuse control receipts:

Criminal fines..........................................................................................................

8,551

Civil monetary penalties .........................................................................................

23,912

Civil penalties and damages, Department of Justice.............................................

415,819

Asset forfeitures, Department of Justice ................................................................

138,948

3% administrative expense reimbursement, Department of Justice .....................

16,318

General fund appropriation fraud and abuse, FBI .................................................

152,924

General fund transfer, discretionary.......................................................................

237,945

Total revenue ...................................................................................................................

$386,618,927

Expenditures:

Net benefit payments

................................................................................................

$339,553,524

Administrative expenses:

Treasury administrative expenses .........................................................................

132,958

Salaries and expenses, SSA

................................................................................

1,090,684

Salaries and expenses, CMS

...............................................................................

1,466,078

Salaries and expenses, Office of the Secretary, HHS ...........................................

104,427

Medicare Payment Advisory Commission .............................................................

7,975

Medicare Access Children’s Health Insurance Program (CHIP) ...........................

−4

Administration for Community Living State Health Insurance Program ................

39,559

Fraud and abuse control expenses:

HHS Medicare integrity program .......................................................................

1,048,978

HHS Office of Inspector General.......................................................................

269,952

Department of Justice .......................................................................................

65,755

FBI .....................................................................................................................

79,737

HCFAC Discretionary, CMS ..............................................................................

695,518

HCFAC Other HHS Discretionary, CMS ...........................................................

34,495

HCFAC Department of Justice Discretionary, CMS .........................................

97,111

HCFAC Office of Inspector General Discretionary, CMS .................................

55,856

Total administrative expenses ....................................................................................

5,189,079

Total expenditures ...........................................................................................................

$344,742,603

Net addition to the trust fund ................................................................................................

41,876,324

Total assets of the trust fund, end of period ........................................................................

$177,978,534

FY Operations and Projections

231

Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust

funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from

the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A

positive figure represents a transfer to the HI trust fund from the other trust funds. A negative figure

represents a transfer from the HI trust fund to the other funds.

Reflects repayments of $39.7 billion made through the Medicare Accelerated and Advance Payments

Program from providers to Part A.

For facilities, goods, and services provided by SSA.

Includes expenses of the Medicare Administrative Contractors.

Note: Totals do not necessarily equal the sums of rounded components.

Table V.H2.—Statement of Operations of the Part B Account

in the SMI Trust Fund during Fiscal Year 2022

[In thousands]

Total assets of the Part B account in the trust fund, beginning of period

$165,129,538

Revenue:

Premiums from enrollees:

Enrollees aged 65 and over .........................................................

$111,854,417

Disabled enrollees under age 65 .................................................

14,947,196

Total premiums .................................................................................

126,801,613

Premiums collected from Medicare Advantage participants ............

358,786

Government contributions:

Enrollees aged 65 and over .........................................................

344,409,811

Disabled enrollees under age 65 .................................................

4,318,243

Repayment amount

....................................................................

−2,097,439

Adjustment for exempted amounts

.............................................

−6,429,010

Repayment of the Medicare Accelerated and Advance Payments

(AAP) Program transfer

..........................................................

−26,468,134

Union activity ................................................................................

1,404

Total government contributions ........................................................

313,734,875

Other .................................................................................................

1,256

Interest on investments ....................................................................

3,122,737

Interfund interest receipts & payments

...........................................

−2,420

Annual fees—branded Rx manufacturers and importers .................

2,803,931

ACA Medicare shared savings program receipts .............................

149,056

Total revenue .........................................................................................

$446,969,834

Expenditures:

Net Part B benefit payments

...........................................................

$438,286,607

Administrative expenses:

Transfer to Medicaid

...................................................................

1,251,727

Treasury administrative expenses ...............................................

319

Salaries and expenses, CMS

.....................................................

2,144,406

Salaries and expenses, Office of the Secretary, HHS .................

104,427

Salaries and expenses, SSA .......................................................

1,556,816

Medicare Payment Advisory Commission ...................................

5,317

Railroad Retirement administrative expenses .............................

11,266

Railroad Retirement administrative expenses, OIG ....................

1,566

Railroad Retirement administrative expenses, SMAC ................

25,613

ACL State Health Insurance Assistance Program

.....................

39,559

MACRA

.......................................................................................

9,734

Total administrative expenses ..........................................................

5,150,749

Total expenditures .................................................................................

$443,437,356

Net addition to the trust fund .................................................................

3,532,479

Total assets of the Part B account in the trust fund, end of period ...........

$168,662,016

Appendices

232

Represents transfers from Part B to the general fund of the Treasury of amounts collected from

beneficiaries for repayment of (i) the 2016 and 2021 transfers for the premium income lost and (ii) the

forgone income-related premium income in those years as a result of the specification of the aged actuarial

rate. The repayment amounts reflect the $3.00 that is added to the Part B premium otherwise determined.

This addition will continue until the total amount of the forgone income-related premium income plus

transfers is fully repaid.

The additional premium repayment amounts (footnote 1 repayment amounts) are not to be matched by

general revenue contributions; however, since CMS is not able to separate the additional repayment

premium amounts from the standard premium amounts, the additional repayment premium amounts are

matched. An adjustment for exempted amounts is therefore necessary to transfer these erroneous Federal

matching amounts back to the general fund.

Represents transfers from Part B to the general fund of the Treasury of amounts recovered from providers

for repayment of AAP program payments. (Provider repayment amounts to Part B are described in

footnote 5.)

Reflects interest adjustments on the reallocation of administrative expenses among the Medicare trust

funds, the OASDI trust funds, and the general fund of the Treasury. Estimated payments are made from

the trust funds and then are reconciled, with interest, the next year when the actual costs are known. A

positive figure represents a transfer to the Part B account of the SMI trust fund from the other trust funds.

A negative figure represents a transfer from the Part B account in the SMI trust fund to the other funds.

Reflects repayments of $21.7 billion made through the AAP program from providers to Part B.

Represents amount transferred from the Part B account in the SMI trust fund to Medicaid to pay the Part B

premium for certain qualified individuals.

Includes expenses of the Medicare Administrative Contractors.

Reflects amount transferred from the Part B account of the SMI trust fund to the Administration for

Community Living (ACL) for administration of the State Health Insurance Assistance Program, as

authorized by the Consolidated Appropriations Act of 2014.

Represents amounts transferred from the Part B account of the SMI trust fund for administration of

provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

Note: Totals do not necessarily equal the sums of rounded components.

Table V.H3—Statement of Operations of the Part D Account

in the SMI Trust Fund during Fiscal Year 2022

[In thousands]

Total assets of the Part D account in the trust fund, beginning of period

$8,677,647

Revenue:

Premiums from enrollees

Premiums deducted from Social Security benefits ....................

$5,291,219

Premiums paid directly to plans

................................................

12,173,422

Total premiums ...............................................................................

17,464,641

Government contributions:

Prescription drug benefits ..........................................................

91,769,576

Prescription drug administrative expenses

882,000

Total government contributions ......................................................

92,651,576

Payments from States ....................................................................

13,329,690

Interest on investments ..................................................................

113,457

DOJ/OIG/MA settlements

..............................................................

229,345

Total revenue .......................................................................................

$123,788,710

Expenditures:

Part D benefit payments

................................................................

$129,462,202

Part D administrative expenses......................................................

508,667

Total expenditures ...............................................................................

$129,970,869

Net addition to the trust fund ...............................................................

−6,182,159

Total assets of the Part D account in the trust fund, end of period .........

$2,495,488

Premiums paid directly to plans are not displayed on Treasury statements and are estimated. These

premiums have been added to the benefit payments reported on the Treasury statement to obtain an

estimate of total Part D benefits. Direct data on such benefit amounts are not yet available.

Reflects amounts transferred to the Part D account for settlements related to Department of Justice (DOJ)

civil and criminal court cases, Office of the Inspector General (OIG) civil monetary penalties, and Medicare

Advantage (MA) civil monetary penalties.

Note: Totals do not necessarily equal the sums of rounded components.

FY Operations and Projections

233

Tables V.H4, V.H5, V.H6, V.H7, and V.H8 present estimates of the

fiscal-year operations of total Medicare, the HI trust fund, the SMI

trust fund, the Part B account in the SMI trust fund, and the Part D

account in the SMI trust fund, respectively. These tables correspond to

the calendar-year trust fund operation tables shown in section V.B and

in section III.

Table V.H4.—Total Medicare Income, Expenditures, and Trust Fund Assets

during Fiscal Years 1970–2032

[In billions]

Fiscal year

Total income

Total expenditures

Net change in

assets

Assets at end of

year

Historical data:

1970

$7.5

$7.1

$0.3

$2.7

1975

16.9

14.8

2.1

11.3

1980

35.7

35.0

0.7

19.0

1985

75.5

71.4

4.1

31.9

1990

125.7

109.7

16.0

110.2

1995

173.0

180.1

−7.1

143.4

2000

248.9

219.3

29.6

214.0

2005

349.4

336.9

12.5

294.6

2010

500.7

521.2

−20.5

350.9

2015

629.9

638.1

−8.3

265.3

2016

687.7

694.5

−6.8

258.6

2017

721.0

707.4

13.6

272.1

2018

744.4

711.3

33.1

305.3

2019

782.8

782.1

0.7

306.0

2020

833.7

915.4

−81.7

224.3

2021

928.6

843.0

85.6

309.9

2022

957.4

918.2

39.2

349.1

Intermediate estimates:

2023

1,016.3

1,007.0

9.2

358.4

2024

1,080.2

1,033.6

46.6

405.0

2025

1,173.4

1,166.8

6.6

411.6

2026

1,264.5

1,261.4

3.1

414.6

2027

1,359.7

1,362.7

−3.0

411.6

2028

1,453.7

1,541.3

−87.6

324.0

2029

1,556.4

1,509.9

46.5

370.6

2030

1,655.2

1,696.0

−40.9

329.7

2031

1,755.6

1,811.6

−56.0

273.7

2032

1,863.0

1,930.1

−67.2

206.6

Includes net payments of $103.9 billion made through the Medicare Accelerated and Advance Payments

(AAP) Program in fiscal year 2020 and subsequent net repayments of $36.8 billion, $61.3 billion, and

$5.7 million in fiscal years 2021 through 2023, respectively.

Includes (i) a transfer of $37.8 billion in fiscal year 2021 from the general fund of the Treasury to Part B,

which occurred in November of 2020 for the outstanding balance of the AAP program, as required by the

Continuing Appropriations Act, 2021 and Other Extensions Act, and (ii) subsequent recoveries from

providers that were transferred from Part B to the general fund of the Treasury in the amounts of

$8.5 billion, $26.5 billion, and $2.9 billion in fiscal years 2021 through 2023, respectively.

Note: Totals do not necessarily equal the sums of rounded components.

Table V.H5.—Operations of the HI Trust Fund during Fiscal Years 1970–2032

[In billions]

Income

Expenditures

Trust fund

Fiscal

year

Payroll

taxes

Income

from

taxation of

benefits

Railroad

Retirement

account

transfers

Reimburse-

ment for

uninsured

persons

Premiums

from

voluntary

enrollees

Payments

for military

wage

credits

Interest

and

other

2,3

Total

Benefit

payments

3,4

Adminis-

trative

expenses

Total

Net

change

Balance at

end of year

Historical data:

1970

$4.8

—

$0.1

$0.6

—

$0.0

$0.1

$5.6

$4.8

$0.1

$5.0

$0.7

$2.7

1975

11.3

—

0.1

0.5

$0.0

0.0

0.6

12.6

10.4

0.3

10.6

2.0

9.9

1980

23.2

—

0.2

0.7

0.0

0.1

1.1

25.4

23.8

0.5

24.3

1.1

14.5

1985

46.5

—

0.4

0.8

0.0

0.1

3.2

50.9

47.8

0.8

48.7

4.1

21.3

1990

70.7

—

0.4

0.1

7.9

79.6

65.9

0.8

66.7

12.9

95.6

1995

98.1

$3.9

0.4

0.5

1.0

0.1

11.0

114.8

113.6

1.3

114.9

0.0

129.5

2000

137.7

8.8

0.5

1.4

0.0

10.8

159.7

127.9

2.4

130.3

29.4

168.1

2005

169.0

8.8

0.4

0.3

2.3

0.0

16.2

196.9

181.3

2.9

184.1

12.8

277.7

2010

183.6

13.8

0.5

−0.1

3.3

0.0

16.9

218.0

245.6

3.3

249.0

−31.0

278.9

2015

237.7

20.2

0.6

0.2

3.3

0.0

10.4

272.4

273.2

5.5

278.7

−6.4

195.9

2016

250.5

23.0

0.7

0.2

3.2

0.0

9.6

287.1

285.6

5.1

290.6

−3.5

192.4

2017

259.7

24.2

0.6

0.1

3.5

0.0

10.3

298.5

290.3

3.0

293.3

5.3

197.6

2018

264.6

24.2

0.6

0.1

3.5

0.0

9.8

302.8

292.1

5.1

297.2

5.7

203.3

2019

281.4

23.8

0.6

0.1

3.8

0.0

9.5

319.3

318.4

5.4

323.7

−4.5

198.8

2020

295.9

26.9

0.6

0.1

4.0

0.0

8.6

336.1

395.8

4.8

400.6

−64.5

134.3

2021

299.1

25.0

0.6

0.1

4.1

0.0

4.8

333.7

326.8

5.1

331.9

1.8

136.1

2022

343.7

32.8

0.5

0.1

4.5

0.0

5.1

386.6

339.6

5.2

344.7

41.9

178.0

Intermediate estimates:

2023

359.6

35.6

0.5

0.1

4.8

0.0

6.8

407.5

390.7

5.1

395.8

11.6

189.6

2024

368.1

40.0

0.6

0.0

5.0

0.0

7.3

421.0

396.6

5.2

401.7

19.3

208.9

2025

389.8

43.1

0.6

0.0

5.3

0.0

7.7

446.5

439.7

5.4

445.1

1.3

210.2

2026

410.2

50.0

0.6

0.0

5.7

0.0

8.2

474.7

473.3

5.7

478.9

−4.2

206.0

2027

428.9

57.9

0.6

0.0

6.1

0.0

8.4

502.0

509.6

5.9

515.5

−13.5

192.5

2028

451.6

62.9

0.6

0.0

6.5

0.0

8.2

529.8

571.6

6.2

577.7

−47.9

144.6

2029

470.6

68.2

0.6

0.0

7.0

0.0

7.6

554.0

566.3

6.5

572.8

−18.8

125.8

2030

491.7

74.1

0.6

0.0

7.5

0.0

6.2

580.1

631.2

6.8

637.9

−57.8

68.0

2031

513.1

80.5

0.6

0.0

8.0

0.0

4.2

606.4

673.9

7.0

680.9

−74.6

−6.6

2032

533.9

87.4

0.7

0.0

8.5

0.0

1.9

632.4

716.8

7.4

724.2

−91.8

−98.4

234

Appendices

Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on

September 30 of each year.

Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust fund, receipts from the fraud and abuse control

program, and a small amount of miscellaneous income.

See footnote 2 of table III.B4.

Includes costs of Peer Review Organizations from 1983 through 2001 (beginning with the implementation of the prospective payment system on

October 1, 1983) and costs of Quality Improvement Organizations beginning in 2002.

Includes costs of experiments and demonstration projects. Beginning in 1997, includes fraud and abuse control expenses.

Includes repayment of loan principal, from the OASI trust fund, of $1.8 billion.

For 1998 through 2003, includes monies transferred to the SMI trust fund for home health agency costs.

Reflects a larger-than-usual downward adjustment of $1.8 billion for prior-year allocations among Part A, Part B, and Part D.

Includes net payments of $65.5 billion made through the Medicare Accelerated and Advance Payments Program in fiscal year 2020 and subsequent net

repayments of $22.2 billion, $39.7 billion, and $3.6 billion in fiscal years 2021 through 2023, respectively.

Estimates for 2031 and later are hypothetical since the HI trust fund would be depleted in those years.

Note: Totals do not necessarily equal the sums of rounded components.

235

FY Operations and Projections

Appendices

236

Table V.H6.—Operations of the SMI Trust Fund (Cash Basis)

during Fiscal Years 1970–2032

[In billions]

Income

Expenditures

Trust fund

Fiscal

year

Premium

income

Govern-

ment

contribu-

tion

Payments

from

States

Interest

and

other

3,4

Total

Benefit

payments

4,5

Adminis-

trative

expense

Total

Net

change

Balance

at end

of year

Historical data:

1970

$0.9

—

$0.0

$1.9

$2.0

$0.2

$2.2

−$0.3

$0.1

1975

1.9

2.3

—

0.1

4.3

3.8

0.4

4.2

0.2

1.4

1980

2.9

6.9

—

0.4

10.3

10.1

0.6

10.7

−0.5

4.5

1985

5.5

17.9

—

1.2

24.6

21.8

0.9

22.7

1.8

10.6

1990

11.5

33.2

—

1.4

46.1

41.5

1.5

43.0

3.1

14.5

1995

19.2

37.0

—

1.9

58.2

63.5

1.7

65.2

−7.0

13.9

2000

20.5

65.6

—

3.2

89.2

87.2

1.8

89.0

0.2

45.9

2005

35.9

115.2

—

1.4

152.5

149.8

2.9

152.7

−0.2

16.9

2010

61.4

213.7

$4.5

3.2

282.7

268.7

3.5

272.2

10.5

72.0

2015

79.4

263.5

8.8

5.9

357.5

355.8

3.6

359.4

−1.9

69.4

2016

86.1

299.5

9.8

5.3

400.6

399.5

4.4

403.9

−3.3

66.2

2017

94.8

309.6

11.1

6.9

422.4

409.3

4.9

414.1

8.3

74.5

2018

106.2

316.7

11.7

7.0

441.6

409.4

4.7

414.1

27.5

102.0

2019

113.5

331.8

12.2

6.1

463.6

453.5

4.9

458.4

5.2

107.2

2020

122.0

357.5

11.7

6.4

497.6

509.6

5.2

514.8

−17.2

90.0

2021

129.2

448.2

11.9

5.7

594.9

505.7

5.3

511.1

83.8

173.8

2022

144.3

406.4

13.3

6.8

570.8

567.7

5.7

573.4

−2.6

171.2

Intermediate estimates:

2023

151.6

434.3

14.7

8.2

608.8

605.6

5.6

611.2

−2.4

168.8

2024

160.7

471.5

18.7

8.3

659.2

626.0

5.9

631.9

27.4

196.1

2025

173.3

525.6

19.6

8.5

726.9

715.5

6.2

721.7

5.2

201.3

2026

188.9

572.0

20.1

8.9

789.9

775.9

6.6

782.5

7.3

208.7

2027

207.7

620.0

20.4

9.5

857.7

840.2

7.0

847.3

10.5

219.1

2028

227.5

665.7

20.2

10.4

923.9

956.1

7.5

963.5

−39.7

179.5

2029

249.4

721.6

20.0

11.4

1,002.4

929.2

7.9

937.1

65.3

244.8

2030

271.5

770.9

20.0

12.6

1,075.1

1,049.8

8.3

1,058.1

17.0

261.8

2031

292.6

822.6

20.3

13.8

1,149.3

1,121.9

8.8

1,130.7

18.6

280.3

2032

314.9

879.7

20.8

15.2

1,230.6

1,196.7

9.2

1,205.9

24.6

305.0

Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980

and later consist of the 12 months ending on September 30 of each year.

Includes Part B general fund matching payments, Part D subsidy costs, and certain interest-adjustment

items.

Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of

the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest

inadvertently earned as a result of Part A hospice costs that were misallocated to the Part B trust fund

account.

See footnote 2 of table III.B4.

See footnote 3 of table III.B4.

The financial status of SMI depends on both the assets and the liabilities of the trust fund (see

table III.C8).

Includes the impact of the Medicare Catastrophic Coverage Act of 1988.

Benefit payments less monies transferred from the HI trust fund for home health agency costs.

Reflects a larger-than-usual upward adjustment of $1.4 billion for prior-year allocations among Part A,

Part B, and Part D.

Includes net Part B payments of $38.4 billion made through the Medicare Accelerated and Advance

Payments (AAP) Program in fiscal year 2020 and subsequent net repayments of $14.6 billion, $21.7 billion,

and $2.1 billion in fiscal years 2021 through 2023, respectively.

Includes (i) a transfer of $37.8 billion in fiscal year 2021 from the general fund of the Treasury to Part B,

which occurred in November of 2020 for the outstanding balance of the AAP program, as required by the

Continuing Appropriations Act, 2021 and Other Extensions Act, and (ii) subsequent recoveries from

providers that were transferred from Part B to the general fund of the Treasury in the amounts of

$8.5 billion, $26.5 billion, and $2.9 billion in fiscal years 2021 through 2023, respectively.

Note: Totals do not necessarily equal the sums of rounded components.

FY Operations and Projections

237

Table V.H7.—Operations of the Part B Account in the SMI Trust Fund (Cash Basis)

during Fiscal Years 1970–2032

[In billions]

Income

Expenditures

Account

Fiscal

year

Premium

income

Government

contribution

Interest

and

other

3,4

Total

Benefit

payments

4,5

Adminis-

trative

expense

Total

Net

change

Balance at

end of

year

Historical data:

1970

$0.9

$0.0

$1.9

$2.0

$0.2

$2.2

−$0.3

$0.1

1975

1.9

2.3

0.1

4.3

3.8

0.4

4.2

0.2

1.4

1980

2.9

6.9

0.4

10.3

10.1

0.6

10.7

−0.5

4.5

1985

5.5

17.9

1.2

24.6

21.8

0.9

22.7

1.8

10.6

1990

11.5

33.2

1.4

46.1

41.5

1.5

43.0

3.1

14.5

1995

19.2

37.0

1.9

58.2

63.5

1.7

65.2

−7.0

13.9

2000

20.5

65.6

3.2

89.2

87.2

1.8

89.0

0.2

45.9

2005

35.9

114.0

1.4

151.3

148.6

2.9

151.5

−0.2

16.9

2010

54.8

161.1

3.2

219.0

205.1

3.3

208.4

10.7

71.3

2015

67.1

195.8

5.8

268.8

272.0

3.2

275.2

−6.4

63.9

2016

72.5

223.1

5.3

300.8

295.1

4.0

299.1

1.7

65.6

2017

79.7

231.0

6.9

317.5

304.1

5.0

309.1

8.5

74.1

2018

90.4

244.3

6.9

341.7

316.8

4.2

321.0

20.7

94.8

2019

97.8

263.9

5.7

367.4

358.2

4.4

362.6

4.7

99.5

2020

106.3

285.2

5.9

397.3

409.9

4.8

414.6

−17.3

82.2

2021

112.4

366.1

5.4

483.9

396.1

4.8

400.9

82.9

165.1

2022

126.8

313.7

6.4

447.0

438.3

5.2

443.4

3.5

168.7

Intermediate estimates:

2023

133.3

342.9

7.8

484.0

479.0

5.0

484.0

0.1

168.8

2024

141.4

372.8

8.0

522.1

500.7

5.3

506.0

16.1

184.9

2025

153.5

413.7

8.0

575.2

565.8

5.6

571.3

3.9

188.8

2026

167.4

454.0

8.5

629.9

617.3

5.9

623.3

6.6

195.4

2027

184.0

497.1

9.1

690.2

673.8

6.3

680.1

10.1

205.5

2028

201.3

541.5

9.9

752.8

772.1

6.8

778.9

−26.0

179.5

2029

220.6

589.4

11.0

821.0

762.9

7.2

770.1

51.0

230.4

2030

238.9

634.7

12.2

885.7

861.7

7.6

869.2

16.5

246.9

2031

257.9

682.2

13.5

953.6

927.5

8.0

935.5

18.1

265.0

2032

278.5

733.0

15.0

1,026.4

994.2

8.4

1,002.5

23.9

288.9

Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980

and later consist of the 12 months ending on September 30 of each year.

General fund matching payments, plus certain interest-adjustment items.

Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of

the trust fund and other miscellaneous income. In 2008, includes an adjustment of $0.8 billion for interest

earned as a result of Part A hospice costs that were misallocated to the Part B trust fund account.

See footnote 2 of table III.B4.

See footnote 3 of table III.B4.

The financial status of Part B depends on both the assets and the liabilities of the trust fund (see

table III.C8).

Includes the impact of the Medicare Catastrophic Coverage Act of 1988.

Benefit payments less monies transferred from the HI trust fund for home health agency costs.

Reflects a larger-than-usual upward adjustment of $1.7 billion for prior-year allocations among Part A,

Part B, and Part D.

See footnote 10 of table V.H6.

See footnote 11 of table V.H6.

Note: Totals do not necessarily equal the sums of rounded components.

Appendices

238

Table V.H8.—Operations of the Part D Account in the SMI Trust Fund (Cash Basis)

during Fiscal Years 2004–2032

[In billions]

Income

Expenditures

Account

Fiscal

year

Premium

income

Govern-

ment

contribu-

tion

Payments

from

States

Interest

and

other

Total

Benefit

payments

Adminis-

trative

expense

Total

Net

change

Balance

at end of

year

Historical data:

2004

—

$0.2

—

$0.2

—

$0.2

—

2005

—

1.2

—

1.2

—

1.2

—

2006

$2.6

28.3

$3.6

$0.0

34.6

33.7

$0.2

33.9

$0.7

2007

3.9

41.4

7.0

0.0

52.3

51.4

1.0

52.4

−0.1

0.6

2008

4.8

35.5

7.0

0.0

47.4

46.8

0.4

47.2

0.2

0.8

2009

5.8

43.5

7.5

0.0

56.9

56.6

0.2

56.8

0.0

0.9

2010

6.6

52.6

4.5

0.0

63.7

63.6

0.3

63.8

−0.2

0.7

2011

7.5

56.3

6.5

0.0

70.4

70.6

0.4

71.0

−0.7

0.0

2012

8.2

45.3

8.3

0.0

61.8

60.6

0.4

61.0

0.8

2013

9.5

50.3

8.7

0.0

68.5

68.0

0.4

68.3

0.1

1.0

2014

11.0

52.9

8.7

0.0

72.7

72.2

0.4

72.6

0.1

1.1

2015

12.3

67.6

8.8

0.0

88.7

83.8

0.4

84.2

4.5

5.6

2016

13.6

76.4

9.8

0.0

99.8

104.4

0.4

104.8

−5.0

0.6

2017

15.1

78.7

11.1

0.1

104.9

105.2

−0.1

105.1

−0.2

0.4

2018

15.8

72.4

11.7

0.1

99.9

92.6

0.5

93.1

6.8

7.2

2019

15.8

67.9

12.2

0.4

96.2

95.3

0.5

95.7

0.5

7.7

2020

15.7

72.3

11.7

0.6

100.3

99.7

0.4

100.2

0.1

7.8

2021

16.8

82.1

11.9

0.3

111.0

109.6

0.5

110.2

0.9

8.7

2022

17.5

92.7

13.3

0.3

123.8

129.5

0.5

130.0

−6.2

2.5

Intermediate estimates:

2023

18.3

91.3

14.7

0.5

124.8

126.7

0.6

127.3

−2.5

0.0

2024

19.3

98.7

18.7

0.4

137.1

125.3

0.6

125.9

11.2

2025

19.8

111.9

19.6

0.4

151.7

149.7

0.6

150.4

1.4

12.6

2026

21.5

117.9

20.1

0.4

159.9

158.6

0.6

159.3

0.7

13.3

2027

23.8

122.9

20.4

0.4

167.6

166.5

0.7

167.2

0.4

13.6

2028

26.2

124.2

20.2

0.4

171.0

184.0

0.7

184.7

−13.6

0.0

2029

28.7

132.2

20.0

0.5

181.4

166.3

0.7

167.0

14.3

2030

32.7

136.2

20.0

0.5

189.4

188.1

0.8

188.9

0.5

14.8

2031

34.7

140.5

20.3

0.3

195.7

194.4

0.8

195.2

0.5

15.3

2032

36.4

146.7

20.8

0.2

204.1

202.6

0.8

203.4

0.7

16.0

Includes, net of payments from States, all government transfers required to fund benefit payments,

inflation rebates as specified under the Inflation Reduction Act of 2022 (IRA), administrative expenses,

and State expenses for making low-income eligibility determinations.

Payments from States with respect to the Federal assumption of Medicaid responsibility for drug

expenditures for full-benefit dually eligible individuals.

Includes payments to Part D plans, government subsidies under the IRA, payments to retiree drug

subsidy plans, payments to States for making low-income eligibility determinations, Part D drug premiums

collected from beneficiaries, and transfers to Medicare Advantage plans and private drug plans. Includes

amounts for the Transitional Assistance program of $0.2, $1.1, and $0.2 billion in 2004–2006, respectively.

As noted in section III.D2, a new policy was developed in 2015 under which amounts from the Treasury

are transferred into the Part D account 5 business days before the benefit payments to the plans, rather

than on the day the benefit payments are due—typically the first business day of a month—as had

previously been the case. Accordingly, for any year in which October 1 does not occur on a weekend, the

Part D account includes a balance at the end of the previous fiscal year that is more substantial than it

would have been prior to implementation of the new policy. For 2021 and 2022, the balances were larger

due to delayed settlement of the year-end reconciliation amounts from November to January.

Reflects a larger-than-usual downward adjustment of $0.3 billion for prior-year allocations among Part A,

Part B, and Part D.

Note: Totals do not necessarily equal the sums of rounded components.

Table V.H9 shows the total assets of the HI trust fund and their

distribution by interest rate and maturity date at the end of fiscal years

2021 and 2022. The assets at the end of fiscal year 2022 totaled

FY Operations and Projections

239

$178.0 billion: $177.4 billion in the form of U.S. Government

obligations and an undisbursed balance of $0.6 billion.

Table V.H9.—Assets of the HI Trust Fund, by Type,

at the End of Fiscal Years 2021 and 2022

September 30, 2021

September 30, 2022

Investments in public-debt obligations sold only to the trust funds (special issues):

Certificates of indebtedness:

1.375 percent, 2022 ....................................

$20,456,569,000.00

——

1.500 percent, 2022 ....................................

4,476,456,000.00

——

3.375 percent, 2023 ....................................

——

$12,739,587,000.00

Bonds:

1.500 percent, 2023 ....................................

16,491,861,000.00

——

1.875 percent, 2025–2026..........................

23,379,464,000.00

2.000 percent, 2025 ....................................

8,357,018,000.00

2.250 percent, 2026–2029..........................

45,482,280,000.00

2.875 percent, 2027–2028..........................

17,524,027,000.00

3.000 percent, 2024–2031..........................

——

69,914,529,000.00

Total investments .................................................

$136,167,675,000.00

$177,396,905,000.00

Undisbursed balance

..........................................

−65,465,191.30

581,628,803.41

Total assets ..........................................................

$136,102,209,808.70

$177,978,533,803.41

Certificates of indebtedness and bonds are carried at par value, which is the same as book value.

Negative figures represent an extension of credit against securities to be redeemed within the following

few days.

The effective annual rate of interest earned by the assets of the HI

trust fund during the 12 months ending on December 31, 2022 was

2.4 percent. Interest on special issues is paid semiannually on June 30

and December 31. The interest rate on public-debt obligations issued

for purchase by the trust fund in June 2022 was 3.0 percent, payable

semiannually.

Table V.H10 shows a comparison of the total assets of the SMI trust

fund, Parts B and D combined, and their distribution at the end of

fiscal years 2021 and 2022. At the end of 2022, assets totaled

$171.2 billion: $168.0 billion in the form of U.S. Government

obligations and an undisbursed balance of $3.2 billion.

Appendices

240

Table V.H10.—Assets of the SMI Trust Fund, by Type,

at the End of Fiscal Years 2021 and 2022

September 30, 2021

September 30, 2022

Investments in public-debt obligations sold only to the trust funds (special issues):

Certificates of indebtedness:

1.375 percent, 2022 ....................................

$23,780,936,000.00

——

1.500 percent, 2022 ....................................

2,047,769,000.00

——

3.375 percent, 2023 ....................................

——

$5,243,788,000.00

Bonds:

0.750 percent, 2024 ....................................

1,387,558,000.00

——

1.500 percent, 2024 ....................................

9,696,849,000.00

——

1.500 percent, 2025–2036..........................

72,984,524,000.00

72,762,640,000.00

1.875 percent, 2029–2031..........................

13,543,136,000.00

2.250 percent, 2026–2034..........................

32,660,243,000.00

2.500 percent, 2026 ....................................

5,305,162,000.00

2.875 percent, 2025–2033..........................

9,270,982,000.00

3.000 percent, 2025–2037..........................

——

29,178,424,000.00

Total investments .................................................

$170,677,159,000.00

$167,964,375,000.00

Undisbursed balance ...........................................

3,130,026,316.35

3,193,129,491.51

Total assets ..........................................................

$173,807,185,316.35

$171,157,504,491.51

Certificates of indebtedness and bonds are carried at par value, which is the same as book value.

The effective annual rate of interest earned by the assets of the SMI

trust fund for the 12 months ending on December 31, 2022 was

1.8 percent. Interest on special issues is paid semiannually on June 30

and December 31. The interest rate on special issues purchased by the

account in June 2022 was 3.0 percent, payable semiannually.

Glossary

241

I. GLOSSARY

Accelerated and Advance Payments (AAP) Program. A Medicare

loan program that allows the Centers for Medicare & Medicaid

Services (CMS) to make accelerated payments to Part A and Part B

providers, and advance payments to Part B suppliers, when there is a

disruption in claims submission and/or claims processing. CMS can

also offer these payments in circumstances such as national

emergencies or natural disasters in order to accelerate cash flow to the

affected health care providers and suppliers.

Accountable care organizations (ACOs). Groups of clinicians,

hospitals, and other health care providers that choose to come together

to deliver coordinated, high-quality care to the Medicare patients they

serve.

Actuarial balance. The difference between the summarized income

rate and the summarized cost rate over a given valuation period.

Actuarial deficit. A negative actuarial balance.

Actuarial rates. One-half of the Part B expected monthly benefit and

administrative costs for each aged enrollee adjusted for interest earned

on the Part B account assets attributable to aged enrollees and a

contingency margin (for the aged actuarial rate), and one-half of the

expected monthly benefit and administrative costs for each disabled

enrollee adjusted for interest earned on the Part B account assets

attributable to disabled enrollees and a contingency margin (for the

disabled actuarial rate), for the duration the rate is in effect.

Actuarial status. A measure of the adequacy of the financing as

determined by the difference between assets and liabilities at the end

of the periods for which financing was established.

Administrative expenses. Expenses incurred by the Department of

Health and Human Services and the Department of the Treasury in

administering HI and SMI and the provisions of the Internal Revenue

Code relating to the collection of contributions. Such administrative

expenses, which are paid from the HI and SMI trust funds, include

expenditures for contractors to determine costs of, and make payments

to, providers, as well as salaries and expenses of CMS.

Advanced alternative payment model (advanced APM). An APM

that meets certain standards for risk-bearing, use of health

information technology, and quality.

Appendices

242

Aged enrollee. An individual, aged 65 or over, who is enrolled in HI

or SMI.

Allowed charge. Individual charge determined by a Medicare

Administrative Contractor for a covered Part B medical service or

supply.

Alternative payment model (APM). A program or model (except for

a health care innovation award model) implemented by the Center for

Medicare and Medicaid Innovation at CMS; a demonstration under the

Health Care Quality Demonstration Program; an ACO model

participating in the Medicare shared savings program; or a Medicare

demonstration required by law.

Annual out-of-pocket threshold. The amount of out-of-pocket

expenses that must be paid for prescription drugs before significantly

reduced Part D beneficiary cost sharing is effective. Amounts paid by

a third-party insurer are not included in testing this threshold, but

amounts paid by State or Federal assistance programs are included.

Assets. Treasury notes and bonds guaranteed by the Federal

Government, and cash held by the trust funds for investment purposes.

Assumptions. Values relating to future trends in certain key factors

that affect the balance in the trust funds. Demographic assumptions

include fertility, mortality, net immigration, marriage, divorce,

retirement patterns, disability incidence and termination rates, and

changes in the labor force. Economic assumptions include

unemployment, average earnings, inflation, interest rates, and

productivity. Three sets of economic assumptions are presented in the

Trustees Report:

(1) The low-cost alternative, with relatively rapid economic

growth, low inflation, and favorable (from the standpoint of

program financing) demographic conditions;

(2) The intermediate assumptions, which represent the

Trustees’ best estimates of likely future economic and

demographic conditions; and

(3) The high-cost alternative, with slow economic growth, more

rapid inflation, and financially disadvantageous

demographic conditions.