	Health Insurance (HI) Trust Fund

		What It Is

Medicare is the nation's health insurance program for individuals aged 65 and over and certain disabled persons. Medicare consists of four distinct parts: Part A or Hospital Insurance (HI); Part B or Supplementary Medical Insurance (SMI); Part C or Medicare Advantage (MA); and Part D, the prescription drug benefit. Medicare's financial operations are accounted for through two trust funds, the HI trust fund and the SMI trust fund, which are maintained by the Department of the Treasury. The Part A program is financed primarily through payroll taxes levied on current workers and their employers; these are credited to the HI trust fund. The Part B and D programs are financed primarily through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. For beneficiaries enrolled in MA, Part C payments are made on their behalf in appropriate portions from the HI and SMI trust funds. Projected Insolvency Date

The 2009 report projects that, under intermediate assumptions, the HI trust fund will become insolvent in 2017, two years earlier than projected in the 2008 report. The 2009 report projects insolvency nine years earlier than did the 2003 report, issued prior to the enactment of Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. The legislation increased spending under Parts A, B, and C. In addition, it added a new prescription drug benefit under Part D; spending for this benefit is recorded as a separate account in the SMI trust fund. Required Response

There is concern that over time the economy will be unable to support the increasing reliance on general revenues which in large measure comes from taxes paid by the under-65 population. Specifically, a determination must be made as to whether general revenue financing will exceed 45% of total Medicare outlays within the next seven years (on a fiscal year basis). MMA (Sections 802-804) requires that if an excess general revenue funding determination is made for two successive years, the President must submit a legislative proposal to respond to the warning. Because the Medicare trustees issued such a warning in 2008, the MMA required that the President submit legislation to Congress responding to the warning within the 15-day period, beginning on the date of the budget submission to Congress this year.
Medicare is the nation's health insurance program for individuals aged 65 and over and certain disabled persons. Medicare consists of four distinct parts: Part A or Hospital Insurance (HI); Part B or Supplementary Medical Insurance (SMI); Part C or Medicare Advantage (MA); and Part D, the prescription drug benefit. The Part A program is financed primarily through payroll taxes levied on current workers and their employers; these are credited to the HI trust fund. The Part B program is financed through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. Beneficiaries can choose to receive all their Medicare services, except hospice, through managed care plans under the MA program; payment is made on their behalf in appropriate parts from the HI and SMI trust funds. A separate account in the SMI trust fund accounts for the Part D drug benefit; Part D is financed through general revenues and beneficiary premiums.
The HI and SMI trust funds are overseen by a board of trustees that makes annual reports to Congress. The 2009 report projects that under intermediate assumptions, the HI trust fund will become insolvent in 2017, two years earlier than projected in 2008. The HI fund fails to meet both the short- and long-range tests for financial adequacy. Because of the way it is financed, the SMI fund does not face insolvency; however, the trustees project that SMI expenditures will continue to grow rapidly.
The trustees stress the importance of considering the Medicare program as a whole. There is concern that over time the economy will be unable to support the increasing reliance on general revenues, which in large measure come from taxes paid by the under-65 population. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) requires that if the Medicare trustees project that 45% or more of Medicare's funding will come from general tax revenues within the current fiscal year or next six years, for two years in a row, the President must submit legislation to slow spending. For the fourth consecutive year, the 2009 Trustees Report estimated that general revenue funding will exceed 45% of total Medicare expenditures within seven years (in 2014). As a result of this new warning, in 2010, the President will be required to submit a legislative proposal to Congress that would lower the ratio below the 45% level.
This CRS report will be updated upon receipt of the 2010 trustees' report or as circumstances warrant.