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

(Continued from Part 11 of 12)

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G. INFINITE HORIZON PROJECTIONS

Consistent with the practice of previous reports, this report focuses on the 75-year period 2022-2096 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./105

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 2096. 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./106

Specifically, under these assumptions, extending the calculations beyond 2096 subtracts $17.6 trillion in unfunded obligations from the amount estimated through 2096. Over the infinite horizon, the HI program thus has a projected surplus of $12.7 trillion.

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

Notes: 1. The present values of future HI taxable payroll for 2022-2096 and for 2022 through the infinite horizon are $752.7 trillion and $1,710.4 trillion, respectively.

2. The present Values of GDP f or 2022-2096 and f or 2022 through the infinite horizon are $1,724.4 trillion and $4,500.5 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.)

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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 $14.5 trillion. In contrast, the projected difference between taxes and expenditures for future participants is a surplus of $27.2 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)./107

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.

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

Notes: 1. The estimated present value of future HI taxable payroll for 2022 through the infinite horizon is $1,710.4 trillion.

2. The estimated present value of GDP for 2022 through the infinite horizon is $4,500.5 trillion. See note 2 in table V.G1.

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

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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 2096 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 $140.0 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 3.1 percent and 3.3 percent, respectively. The table also indicates that beneficiary premiums will finance approximately 30 percent of expenditures for each time period and that fees related to brand-name prescription drugs will finance about 0.1 percent. General revenues pay for the remaining 70 percent.

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

Notes: 1. The present values of GDP f or 2022-2096 and f or 2022 through the infinite horizon are $1,724.4 trillion and $4,500.5 trillion, respectively. See note 2 of table V.G1.

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

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Table V.G4 shows corresponding present values separately for current versus future beneficiaries. As indicated, about 33 percent of the projected total, infinite-horizon cost is attributable to current beneficiaries, with the remaining 67 percent attributable to beneficiaries becoming eligible for Part B benefits after January 1, 2022.

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

Notes: 1. The estimated present value of GDP for 2022 through the infinite horizon is $4,500.5 trillion. See note 2 of table V.G1.

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

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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 after 2096.

Table V.G5 shows an estimated present value of Part D expenditures through the infinite horizon of $39.7 trillion, of which $11.6 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 0.9 percent and 0.7 percent of GDP, respectively. The table also indicates that, for each time period, beneficiary premiums would finance approximately 17 percent of expenditures and State transfers would finance 14 percent, with general revenues paying for the remaining 69 percent.

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

Notes: 1. The present values of GDP f or 2022-2096 and f or 2022 through the infinite horizon are $1,724.4 trillion and $4,500.5 trillion, respectively. See note 2 of table V.G1.

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

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Table V.G6 shows corresponding projections separately for current versus future beneficiaries. As indicated, about 21 percent of the projected total, infinite-horizon cost is attributable to current beneficiaries, with the remaining 79 percent attributable to beneficiaries becoming eligible for Part D benefits after January 1, 2022.

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

Notes: 1. The estimated present value of GDP f or 2022 through the infinite horizon is $4,500.5 trillion. See note 2 of table V.G1.

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

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

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