Part D provides optional outpatient prescription drug coverage through private plans. For example, the Patient Protection and Affordable Care Act (ACA, P.L. Medicare Trust Funds

Medicare's financial operations are accounted for through two trust funds maintained by the Department of the Treasury—the Hospital Insurance (HI) trust fund for Part A and the Supplementary Medical Insurance (SMI) trust fund for Parts B and D. For beneficiaries enrolled in Medicare Advantage (Part C), payments are made on their behalf in appropriate portions from the HI and SMI trust funds. The HI and SMI trust funds are overseen by a Board of Trustees that provides annual reports to Congress. Income from these sources is credited to the SMI trust fund and any SMI revenues that exceed SMI spending accumulate in the SMI trust fund; however, SMI trust fund balances are generally small. Part B Financing

Medicare Part B is financed mostly by federal general revenues, and beneficiary premiums are set at a rate to cover 25% of estimated Part B program costs for the aged. Part D Financing

Medicare Part D is primarily financed through a combination of beneficiary premiums and federal general revenues. The Secretary of the Treasury is the Managing Trustee, and the Administrator of the Centers for Medicare & Medicaid Services (CMS) is designated the Secretary of the Board. The 2014 report of the Medicare Trustees was issued July 28, 2014. As such, the actuaries of CMS conducted a separate analysis that provides projections based on an "illustrative alternative" to current law. Additionally, unlike in prior years' projections, these growth rates assume that the scheduled physician payment reductions of about 21% in April 2015 will not go into effect. The 2014 Trustees report estimates that the HI trust fund will become insolvent in 2030, four years later than projected in last year's report (see Figure 4 ). Instead, the long-term financial soundness of the Medicare program is generally determined using one or more of the following measures:
A comparison of the program's income and its cost as a percentage of taxable payroll (how much would need to be added to the payroll tax to keep HI solvent—this measure is only applicable to the HI trust fund); A determination of the present value of the program's unfunded liabilities over a particular period (the amount in today's dollars that would be needed to be in the trust fund for the program to remain financially sound for a specified period); and/or A comparison of expected benefit costs with GDP, the most frequently used measure of the total output of the U.S. economy (the amount spent on Medicare compared to the size of the economy in general). The 2014 Trustees report projects that in the short term, as a result of the expected continued economic recovery and changes made by the ACA, the cost rate will continue to decline through 2017. Under current law, the Trustees expect Medicare costs to increase from 3.5% of GDP in 2013 to 5.3% of GDP in 2035 and to 6.9% in 2088. For example, forecasts are based on the assumption that health spending will outpace GDP growth in the future because it has consistently done so in the past.
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 outpatient 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 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, beneficiary premiums, and state contributions. The HI and SMI trust funds are overseen by a Board of Trustees that provides annual reports to Congress.
The 2014 report of the Medicare Board of Trustees estimates that the HI trust fund will become insolvent in 2030, four years later than it had predicted in the 2013 report. Because of the way that it is financed, the SMI fund cannot face insolvency; however, the Trustees project that SMI expenditures will continue to grow rapidly, and thus place increasing demands on Medicare beneficiaries and all taxpayers. Additionally, unlike in prior years, the projections in the 2014 report assume that reductions in physician payment rates scheduled under current law will not occur, because these reductions have usually been overridden by Congress. The Trustees estimate that total Medicare costs will increase from 3.5% of GDP in 2013 to 6.9% in 2088.
Although the Medicare Trustees report that the financial outlook for the Medicare program appears to have improved as a result of changes made by the Patient Protection and Affordable Care Act as amended (ACA, P.L. 111-148), they caution that the projections in the report are somewhat uncertain, due to the potential for future expenditure reductions not to materialize. As it has done each year subsequent to the enactment of ACA, the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary issued a supplemental analysis that provides illustrative alternative projections based on the assumption that certain ACA provisions affecting Medicare provider payments will be phased out.