Boards of Trustees for the Federal Hospital Insurance & Federal Supplementary Medical Insurance Trust Funds Issue Annual Report to Congress (Part 1 of 12)

WASHINGTON, June 8 (TNSrep) -- The Boards of Trustees for the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds issued a 263-page annual report to Congress on June 2, 2022.

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CONTENTS

I. INTRODUCTION...1

II. OVERVIEW...8

A. Highlights...8

B. Medicare Data for Calendar Year 2021...12

C. Medicare Assumptions...14

D. Financial Outlook for the Medicare Program...20

E. Financial Status of the HI Trust Fund...26

F. Financial Status of the SMI Trust Fund...33

G. Conclusion...42

III. ACTUARIAL ANALYSIS...45

A. Introduction...45

B. HI Financial Status...46

1. Financial Operations in Calendar Year 2021...46

2. 10-Year Actuarial Estimates (2022-2031)...53

3. Long-Range Estimates...62

4. Long-Range Sensitivity Analysis...74

C. Part B Financial Status...79

1. Financial Operations in Calendar Year 2021...79

2. 10-Year Actuarial Estimates (2022-2031)...87

3. Long-Range Estimates...101

D. Part D Financial Status...103

1. Financial Operations in Calendar Year 2021...103

2. 10-Year Actuarial Estimates (2022-2031)...107

3. Long-Range Estimates...115

IV. ACTUARIAL METHODOLOGY AND PRINCIPAL ASSUMPTIONS118

A. Hospital Insurance...118

B. Supplementary Medical Insurance...130

1. Part B...130

2. Part D...143

C. Private Health Plans...154

D. Long-Range Medicare Cost Growth Assumptions...164

V. APPENDICES...172

A. Medicare Amendments since the 2021 Report...172

B. Total Medicare Financial Projections...176

C. Illustrative Alternative Projections...188

D. Average Medicare Expenditures per Beneficiary...193

E. Medicare Cost-Sharing and Premium Amounts...196

F. Medicare and Social Security Trust Funds and the Federal Budget...204

G. Infinite Horizon Projections...211

H. Fiscal Year Historical Data and Projections through 2031...218

I. Glossary...231

J. List of Tables...251

J. List of Figures...255

J. Statement of Actuarial Opinion...256

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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 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./1

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 2022 report is the 57th that the Board has submitted.

With one exception, the projections are based on the current-law provisions of the Social Security Act. The one exception is that the Part A projections disregard payment reductions that would result from the projected depletion of the Medicare HI trust fund. Under...

1 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.

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...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.

Beginning in 2020, the Medicare program was dramatically affected by the COVID-19 pandemic. The amount of payroll taxes expected to be collected by the HI trust fund was greatly reduced due to the economic effects of the pandemic on labor markets. 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; notably, the 3-day inpatient stay requirement to receive skilled nursing facility services was waived, payments for inpatient admission related to COVID-19 were increased by 20 percent, and the use of telehealth was greatly expanded. More than offsetting these additional costs in 2020, spending for non-COVID care declined significantly (compared to both actual 2019 spending and pre-pandemic expectations for 2020).

Spending for services other than COVID-19 was significantly lower than expected in 2020 and 2021. This decline was more pronounced for elective services. In addition, Medicare beneficiaries whose deaths were identified as related to COVID had costs that were much higher than the average Medicare beneficiary prior to the onset of the pandemic. As a result, compared to the pre-pandemic Medicare population, the surviving Medicare population had lower morbidity, on average, reducing costs by an estimated 1.5 percent in 2020 and 2.9 percent in 2021. This morbidity effect is expected to continue over the next few years but is assumed to decrease over time before ending in 2028.

Overall, the projections are based primarily on actual experience through 2019. However, program costs in 2020 and 2021 were used to help inform the development of adjustment factors by type of service, which account for the impact of COVID-19 through 2028. These factors are based on (i) projections of the pandemic; (ii) direct costs associated with the testing and treatment of COVID-19; (iii) projections for non-COVID costs; and (iv) costs for the vaccines. Certain services, such as prescription drugs, durable medical equipment, physician-administered drugs, and hospice, are not materially affected by the pandemic.

Because of the large wave of COVID-19 cases in late 2021 through early 2022, the Trustees estimate that non-COVID-related spending will be lower than previously expected for the beginning of 2022. For the latter part of 2022 and 2023, the return of deferred care that is assumed to be more intensive, and thus more costly, results in spending that increases to a level that is closer to the pre-pandemic expectations. The Trustees assume that health care spending patterns will return to pre-pandemic levels in 2024 but that the lingering morbidity effects will continue through 2028.

The estimates also incorporate the costs of the COVID-19 vaccines, which consist of both the payments for the vaccines themselves and the payments for their administration. The Trustees expect vaccine utilization to decrease somewhat over time, reflecting the likely reduction in the required number of doses and the possibility that the seriousness of COVID-19 will decrease.

It should be noted that there is an unusually large degree of uncertainty with these COVID-related impacts and that future projections could change significantly as more information becomes available. Moreover, as a result of developments that have occurred since the assumptions for this report were selected in mid-February 2022, uncertainty has increased regarding the path of the COVID-19 pandemic and the economy. 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. The Trustees assume that the accelerated and advance payments will be fully repaid by September of 2022, resulting in no net changes to trust fund expenditures, but the AAP program significantly affects the timing of expenditures from 2020 through 2022.

While the COVID-19 pandemic has significantly affected Medicare short-term financing and spending, it is not expected to have a large effect on the financial status of the trust funds after 2028. As discussed throughout the report, the key measures of the financial adequacy for each trust fund shown in this year's report are fairly comparable to those included in last year's report. This consistency is partly due to the offsetting effects of lower income and expenditures in the HI trust fund and partly due to the expectation that the effects of the pandemic will last only several years. The pandemic is an example of the inherent uncertainty in projecting health care financing and spending over any duration.

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 in economy-wide private nonfarm business total factor productivity/2 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.

2 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.

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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.

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./3

3 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-alternativescenario-2022.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.

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Figure I.1.--Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections

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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 2028 in this report, HI revenues are projected to cover 90 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/4payment updates 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/5 to payment updates that reflect the Medicare Economic Index; and (iii) the 5-percent bonuses for qualified physicians in advanced alternative payment models (advanced APMs) and the $500-million payments for physicians in the merit-based incentive...

4 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).

5 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.

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...payment system (MIPS) would continue indefinitely rather than expire in 2025. 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 3.9 percent of GDP in 2021 to 6.2 percent in 2046. Costs then rise more slowly before leveling off at around 6.5 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 6.5 percent of GDP in 2046 and 8.6 percent in 2096.

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.

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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 2021

In 2021, Medicare covered 63.8 million people: 55.5 million aged 65 and older, and 8.3 million disabled. About 43 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 2021 were $839.3 billion, and total income was $887.6 billion, which consisted of $882.3 billion in non-interest income and $5.3 billion in interest earnings. Assets held in special issue U.S. Treasury securities increased by $48.3 billion to $325.7 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 2028, 2 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 in the beginning of the short-range period mainly due to the pandemic but are projected to become larger after 2023 due to higher projected provider payment updates.

In 2021, HI income exceeded expenditures by $8.5 billion due in part to repayments of the accelerated and advance payments that were made in 2020. These repayments are assumed to continue until September of 2022, when the outstanding balance is expected to be fully repaid, resulting in another surplus in 2022. After that, the Trustees project deficits in all future years until the trust fund becomes depleted in 2028. The assets were $142.7 billion at the beginning of 2022, representing about 40 percent of expenditures projected for 2022, 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 3.4 percent. Over the next 5 years, projected average annual growth rates for expenditures and noninterest income are 9.2 percent and 7.1 percent, respectively.

The SMI trust fund is expected to be adequately financed over the next 10 years and beyond because income from premiums and general revenue for Parts B and D are reset each year to cover expected costs and ensure a reserve for Part B contingencies. The monthly Part B premium for 2022 is $170.10.

Part B and Part D costs have averaged annual growth rates of 6.7 percent and 1.0 percent, respectively, over the last 5 years, as compared to growth of 4.2 percent for GDP. The Trustees project that cost growth over the next 5 years will average 10.3 percent for Part B and 7.4 percent for Part D, faster than the projected average annual GDP growth rate of 5.3 percent over the period.

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/6 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 2024Budget and (ii) requires Congress to consider the legislation on an expedited basis. This is the sixth consecutive year that a determination of excess general revenue Medicare funding has been issued, and the fifth consecutive year that a Medicare funding warning has been issued.

Long-Range Results

For the 75-year projection period, the HI actuarial deficit has decreased to 0.70 percent of taxable payroll from 0.77 percent in last year's report. (Under the illustrative alternative projections, the HI actuarial deficit would be 1.56 percent of taxable payroll.) Several factors contributed to the change in the actuarial deficit, most notably changes to private health plan assumptions (+0.07 percent) and changes to economic and demographic assumptions (+0.06 percent). These improvements are partially offset by changes to hospital...

6 Dedicated financing sources consist of HI payroll taxes, the HI share of income taxes on Social Security benefits, Part D State transfers, Part B drug fees, and beneficiary premiums.

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...assumptions (-0.03 percent), changes to other provider assumptions (-0.02 percent), and other minor changes (-0.01 percent).

Part B outlays were 1.9 percent of GDP in 2021, and the Board projects that they will grow to about 3.6 percent by 2096 under current law. The long-range projections as a percent of GDP are slightly higher than those projected last year, with outpatient hospital services and physician-administered drugs contributing to the difference. (Part B costs in 2096 would be 4.7 percent under the illustrative alternative scenario.)

The Board estimates that Part D outlays will increase from 0.5 percent of GDP in 2021 to about 0.8 percent by 2096. The long-range expenditure projections as a percent of GDP are slightly lower for the current report due to (i) higher GDP assumptions and (ii) lower spending attributable to slower price growth and higher direct and indirect remuneration (DIR), which are partially offset by higher enrollment.

General revenue transfers and premium income comprise the vast majority of SMI income. Transfers from the general fund 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 general revenues were 1.8 percent of GDP in 2021 and are projected to increase to approximately 3.1 percent in 2096. (SMI general revenues in 2096 would be 3.8 percent under the illustrative alternative scenario.)

Conclusion

Total Medicare expenditures were $839 billion in 2021. The Board estimates that the COVID-19 pandemic has had significant effects on the short-term financing and spending of the Medicare program, but the financial status of the trust funds has not materially changed. 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 3.9 percent in 2021 to 6.5 percent by 2096 (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 8.6 percent of GDP in 2096. Growth under either of these scenarios would substantially increase the strain on the nation's workers, the economy, Medicare beneficiaries, and the Federal budget.

Highlights

The Trustees project that HI tax income and other dedicated revenues will fall short of HI incurred expenditures in all future years. (There are surpluses in 2022 and 2023, on a cash basis, attributable to repayments of the Accelerated and Advance Payments Program.) 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 general revenue 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 with a sense of urgency to address these challenges.

B. MEDICARE DATA FOR CALENDAR YEAR 2021

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 2021, 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 48 percent of total A and B benefit outlays in 2021.

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Table II.B1.--Medicare Data for Calendar Year 2021

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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).

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 79 percent of program costs in 2021./7

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.

7 Transfers from the general fund were higher than usual in 2021 due to a provision of the Continuing Appropriations Act, 2021 and Other Extensions Act, which required a transfer to Part B to cover the premium income that was lost in 2021 as a result of the specification of the aged actuarial rate calculation.

G. CONCLUSION

Total Medicare expenditures were $839 billion in 2021, 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 3.9 percent to a projected 6.5 percent by 2096. 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, deficits are expected for the remainder of the 75-year projection period. The projected trust fund depletion date is 2028, 2 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 in the beginning of the short-range period mainly due to the pandemic but are projected to become larger after 2023 due to higher projected provider payment updates.

The HI actuarial deficit in this year's report is 0.70 percent of taxable payroll, down from 0.77 percent in last year's report. This result is largely due to changes in private health plan assumptions and economic and demographic assumptions that were partially offset by changes in hospital and other provider 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.

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 revenue 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 2.4 percent to 4.5 percent under current law. The projected Part B costs as a share of GDP are, in the near term, slightly lower than the estimates in the 2021 report due to somewhat higher GDP assumptions, and they are slightly higher in the long term than projected last year, with outpatient hospital services and physician-administered drugs contributing to the difference. The Part D projections as a percentage of GDP are slightly lower than in last year's report primarily due to (i) higher GDP assumptions and (ii) lower spending attributable to slower price growth and higher direct and indirect remuneration (DIR), which are partially offset by higher enrollment.

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,32 can help illustrate the potential magnitude of the understatement. For example, the total cost of Medicare in 2096would be 8.6 percent of GDP under the alternative projections (versus 6.5 percent under current law), and the HI actuarial deficit would be 1.56 percent of taxable payroll (versus 0.70 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 only 90 percent of estimated expenditures in 2028 and 80 percent in 2046. By the end of the 75-year projection period, HI revenues could pay 93 percent of HI costs. 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 with a sense of urgency to address these challenges.

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TABLES

II.B1.-- Medicare Data for Calendar Year 2021...12

II.C1.-- Key Assumptions, 2046-2096...15

II.D1.-- Components of Increase in Medicare Incurred

Expenditures by Part...22

II.E1.-- Estimated Operations of the HI Trust Fund under Intermediate Assumptions, Calendar Years 2021-2031...27

II.F1.-- Estimated Operations of the SMI Trust Fund under Intermediate Assumptions, Calendar Years 2021-2031...34

II.F2.-- Average Annual Rates of Growth in SMI and the Economy...38

II.F3.-- SMI General Revenues as a Percentage of Personal and Corporate Federal Income Taxes...41

III.B1.-- Statement of Operations of the HI Trust Fund during Calendar Year 2021...47

III.B2.-- Tax Rates and Maximum Tax Bases...49

III.B3.-- Comparison of Actual and Estimated Operations of the HI Trust Fund, Calendar Year 2021...52

III.B4.-- Operations of the HI Trust Fund during Calendar Years 1970-2031...56

III.B5.-- Estimated Operations of the HI Trust Fund during Calendar Years 2021-2031, under Alternative Sets of Assumptions...59

III.B6.-- Ratio of Assets at the Beginning of the Year to Expenditures during the Year for the HI Trust Fund...61

III.B7.-- HI Cost and Income Rates...64

III.B8.-- HI Actuarial Balances under Three Sets of Assumptions...69

III.B9.-- Components of 75-Year HI Actuarial Balance under Intermediate Assumptions (2022-2096) ...70

III.B10.--Change in the 75-Year Actuarial Balance since the 2021 Report...73

III.B11.--Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various Real-Wage Assumptions...75

III.B12.--Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various CPI-Increase Assumptions...76

III.B13.--Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various Real-Interest Assumptions...77

III.B14.--Estimated HI Income Rates, Cost Rates, and Actuarial Balances, Based on Intermediate Estimates with Various Health Care Cost Growth Rate Assumptions...78

III.C1.-- Statement of Operations of the Part B Account in the SMI Trust Fund during Calendar Year 2021...80

III.C2.-- Standard Part B Monthly Premium Rates, Actuarial Rates, and Premium Rates as a Percentage of Part B Cost...83

List of Tables

III.C3.-- Comparison of Actual and Estimated Operations of the Part B Account in the SMI Trust Fund, Calendar Year 2021...87

III.C4.-- Operations of the Part B Account in the SMI Trust Fund (Cash Basis) during Calendar Years 1970-2031...91

III.C5.-- Growth in Part B Benefits (Cash Basis) through December 31, 2031...93

III.C6.-- Estimated Operations of the Part B Account in the SMI Trust Fund during Calendar Years 2021-2031, under Alternative Sets of Assumptions...94

III.C7.-- Estimated Part B Income and Expenditures (Incurred Basis) for Financing Periods through December 31, 2022...97

III.C8.-- Summary of Estimated Part B Assets and Liabilities as of the End of the Financing Period, for Periods through December 31, 2022...98

III.C9.-- Actuarial Status of the Part B Account in the SMI Trust Fund under Three Cost Sensitivity Scenarios for Financing Periods through December 31, 2022...100

III.C10.--Part B Expenditures (Incurred Basis) as a Percentage of the Gross Domestic Product...101

III.D1.-- Statement of Operations of the Part D Account in the SMI Trust Fund during Calendar Year 2021...104

III.D2.-- Comparison of Actual and Estimated Operations of the Part D Account in the SMI Trust Fund, Calendar Year 2021...107

III.D3.-- Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Calendar Years 2004-2031...110

III.D4.-- Growth in Part D Benefits (Cash Basis) through December 31, 2031...111

III.D5.-- Estimated Operations of the Part D Account in the SMI Trust Fund during Calendar Years 2021-2031, under Alternative Sets of Assumptions...113

III.D6.-- Part D Expenditures (Incurred Basis) as a Percentage of the Gross Domestic Product...116

IV.A1.-- Components of Historical and Projected Increases in HI Inpatient Hospital Payments...120

IV.A2.-- Relationship between Increases in HI Expenditures and Increases in Taxable Payroll...124

IV.A3.-- Aggregate Part A Reimbursement Amounts on an Incurred Basis...127

IV.A4.-- Summary of HI Alternative Projections...128

IV.B1.-- Increases in Total Allowed Charges per Fee-for-Service Enrollee for Practitioner Services...133

IV.B2.-- Incurred Reimbursement Amounts per Fee-for-Service Enrollee for Practitioner Services...134

IV.B3.-- Increases Costs per Fee-for-Service Enrollee for Institutional Services...138

IV.B4.-- Incurred Reimbursement Amounts per Fee-for-Service Enrollee for Institutional Services...139

IV.B5.-- Fee-for-Service Enrollment and Incurred Reimbursement for Beneficiaries under Age 65 with End-Stage Renal Disease...140

IV.B6.-- Aggregate Part B Reimbursement Amounts on an Incurred Basis...142

IV.B7.-- Part D Enrollment...147

IV.B8.-- Key Factors for Part D Expenditure Estimates...149

IV.B9.-- Incurred Reimbursement Amounts per Enrollee for Part D Expenditures...151

IV.B10.--Aggregate Part D Reimbursements on an Incurred Basis...152

IV.B11.--Part D Assumptions under Alternative Scenarios for

Calendar Years 2021-2031...153

IV.C1.-- Private Health Plan Enrollment...157

IV.C2.-- Medicare Payments to Private Health Plans, by Trust Fund...161

IV.C3.-- Incurred Expenditures per Private Health Plan Enrollee...162

V.B1.-- Total Medicare Income, Expenditures, and Trust Fund Assets during Calendar Years 1970-2031...17

V.B2.-- Hl and SMI Incurred Expenditures as a Percentage of the Gross Domestic Product...179

V.B3.-- Medicare Enrollment...181

V.B4.-- Medicare Sources of Income as a Percentage of Total Non-Interest Income...182

V.B5.-- Comparative Growth Rates of Medicare, Private Health Insurance, National Health Expenditures, and GDP...185

V.D1.-- HI and SMI Average per Beneficiary Costs...195

V.E1.-- HI Cost-Sharing and Premium Amounts...197

V.E2.-- SMI Cost-Sharing and Premium Amounts...198

V.E3.-- Part B Income-Related Premium Information...199

V.E4.-- Part D Income-Related Premium Information...202

V.F1.-- Annual Revenues and Expenditures for Medicare and Social Security Trust Funds and the Total Federal Budget, Fiscal Year 2021...206

V.F2.-- Present Values of Projected Revenue and Cost

Components of 75-Year Open-Group Obligations for HI,

SMI, and OASDI...208

V.G1.-- Unfunded HI Obligations from Program Inception through the Infinite Horizon...212

V.G2.-- Unfunded HI Obligations for Current and Future Program Participants through the Infinite Horizon...213

V.G3.-- Unfunded Part B Obligations from Program Inception through the Infinite Horizon...214

V.G4.-- Unfunded Part B Obligations for Current and Future Program Participants through the Infinite Horizon...215

V.G5.-- Unfunded Part D Obligations from Program Inception through the Infinite Horizon...216

V.G6.-- Unfunded Part D Obligations for Current and Future Program Participants through the Infinite Horizon...217

V.H1.-- Statement of Operations of the HI Trust Fund during Fiscal Year 2021...219

V.H2.-- Statement of Operations of the Part B Account in the SMI Trust Fund during Fiscal Year 2021...220

V.H3.-- Statement of Operations of the Part D Account in the SMI Trust Fund during Fiscal Year 2021...222

V.H4.-- Total Medicare Income, Expenditures, and Trust Fund Assets during Fiscal Years 1970-2031...223

V.H5.-- Operations of the HI Trust Fund during Fiscal Years 1970-2031...224

V.H6.-- Operations of the SMI Trust Fund (Cash Basis) during Fiscal Years 1970-2031...226

V.H7.-- Operations of the Part B Account in the SMI Trust Fund (Cash Basis) during Fiscal Years 1970-2031...227

V.H8.-- Operations of the Part D Account in the SMI Trust Fund (Cash Basis) during Fiscal Years 2004-2031...228

V.H9.-- Assets of the HI Trust Fund, by Type, at the End of Fiscal Years 2020 and 2021...229

V.H10.--Assets of the SMI Trust Fund, by Type, at the End of Fiscal Years 2020 and 2021...230

FIGURES

I.1.-- Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections...6

II.D1.-- Medicare Expenditures as a Percentage of the Gross

Domestic Product...21

II.D2.-- Medicare Sources of Non-Interest Income and Expenditures as a Percentage of the Gross Domestic Product...23

II.E1.-- HI Trust Fund Balance at Beginning of Year as a Percentage of Annual Expenditures...28

II.E2.-- Long-Range HI Non-Interest Income and Cost as a Percentage of Taxable Payroll, Intermediate Assumptions...31

II.F1.-- SMI Expenditures and Premiums as a Percentage of the Gross Domestic Product...37

II.F2.-- Comparison of Average Monthly SMI Benefits, Premiums, and Cost Sharing to the Average Monthly Social Security Benefit...39

III.B1.-- HI Expenditures and Income...54

III.B2.-- HI Trust Fund Balance at the Beginning of the Year as a Percentage of Annual Expenditures...62

III.B3.-- Estimated HI Cost and Income Rates as a Percentage of Taxable Payroll...65

III.B4.-- Workers per HI Beneficiary...67

III.B5.-- Present Value of Cumulative HI Taxes Less

Expenditures through Year Shown, Evaluated under Current-Law Tax Rates and Legislated Expenditures...71

III.B6.-- Comparison of HI Cost and Income Rate Projections: Current versus Prior Year's Reports...72

III.C1.-- Part B Aged and Disabled Monthly Per Capita Income...84

III.C2.-- Premium Income as a Percentage of Part B Expenditures...92

III.C3.-- Actuarial Status of the Part B Account in the SMI Trust Fund through Calendar Year 2022...100

III.C4.-- Comparison of Part B Projections as a Percentage of the Gross Domestic Product: Current versus Prior Year's Reports...102

III.D1.-- Comparison of Part D Projections as a Percentage of the Gross Domestic Product: Current versus Prior Year's Reports...117

V.B1.-- Projected Difference between Total Medicare Outlays and Dedicated Financing Sources, as a Percentage of Total Outlays...184

V.C1.-- Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections...192

The report is posted at: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf

(Continues with Part 2 of 12)

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