5 TABLE 2.-STATEMENT OF OPERATIONS OF THE SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND DURING Transferred from the old-age and survivors insurance and disability insurance trust funds, the railroad retirement account, and the civil service retirement and disability fund. By certain persons not receiving monthly benefits. The negative figure for fiscal year 1973 represents a transfer from the supplementary medical insurance trust fund to the general fund of the Treasury and results from a downward adjustment in the interest due on delayed transfers in fiscal year 1972. 4 For explanation, see text. Beginning March 1972 incentive reimbursement payments are being made on a current basis from each of the two trust funds, supplementary medical insurance and hospital insurance, so that no transfer was necessary in fiscal year 1973. • Includes administrative expenses of the carriers and intermediaries. 7 A positive figure represents a transfer from the supplementary medical insurance trust fund to the other social security trust funds. A negative figure represents a transfer to the supplementary medical insurance trust fund from the other social security trust funds. 6 TABLE 3. COMPARISON OF ACTUAL AND ESTIMATED OPERATIONS OF THE SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND, FISCAL YEAR 1973 Note: In interpreting the figures in the above table, reference should be made to the accompanying text. ADVISORY COUNCIL ON SOCIAL SECURITY The Secretary of Health, Education, and Welfare on April 23, 1974, announced the appointment of an Advisory Council on Social Security under the provisions of section 706 of the Social Security Act. The Council, which consists of a Chairman and 12 members representing organizations of employers and of employees, self-employed persons, and the public, is making a comprehensive study of the old-age and survivors insurance, disability insurance, hospital insurance, and supplementary medical insurance programs. The Council is required to review the status of the old-age and survivors insurance trust fund, the disability insurance trust fund, the hospital insurance trust fund, and the supplementary medical insurance trust fund in relation to the long-term commitments of the programs. The Council will review the scope of coverage, the adequacy of benefits, and other aspects of these four programs, including their impact on public assistance. The Council is required to submit its final reports to the Secretary of Health, Education, and Welfare no later than January 1, 1975. After the Council's reports are transmitted by the Secretary to the Congress and to the Board of Trustees of each of the trust funds, the Council will cease to exist. The Council's report and recommendations with respect to the supplementary medical insurance program will be included in the next annual report of the Board of Trustees. 7 EXPECTED OPERATIONS AND STATUS OF THE TRUST FUND DURING THE PERIOD JULY 1, 1973, TO JUNE 30, 1976 The projected cash income, disbursements, and balance of the trust fund during the period July 1, 1973 to June 30, 1976 are summarized in table 5, along with a summary of the past transactions of the trust fund through June 30, 1973. Income to the program is projected to increase by about 29% in fiscal year 1974 over fiscal 1973, due to the increase in the premium rate from $5.80 per month for fiscal 1973 to $6.30 per month for fiscal 1974, increased enrollment in the program, and increased government contributions for disabled enrollees. An increase of 13% is projected for fiscal 1975. Benefit expenditures for fiscal year 1974 are expected to increase by 21% over those for fiscal 1973. This increase is due largely to the extension of medicare coverage to the disabled. Benefit payments for fiscal year 1975 are expected to increase 25% over those for fiscal year 1974. The estimate of benefit payments for fiscal year 1974 assume an average increase in reasonable charges of 2% above the 1973 level consistent with the guidelines issued by the price commission. The fiscal 1975 screens are to be updated in the usual manner. TABLE 5.-ESTIMATED PROGRESS OF SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND (CASH BASIS), FISCAL YEARS 1974-76, AND ACTUAL DATA FOR 1967-73 The payments shown as being from the general fund of the Treasury include certain interest-adjustment items. 2 Represents only a cash balance; financial status of the program depends on total net assets and liabilities of the program. 3 Administrative expenses shown include those paid in fiscal 1966 and 1967. • Includes some 1973 administrative expense. Trust fund withdrawals for administrative expenses are expected to increase to $441 million in fiscal year 1974. This increase is due largely to an understatement of $26 million in the administrative expenses allocated to the Supplementary Medical Trust Fund in fiscal 1973, which will be reversed in fiscal 1974 and to the coverage of new beneficiaries. Fiscal 1975 administrative expenses are expected to increase to $445 million. The trust fund balance is projected to increase from $746 million at the beginning of fiscal 1974 to $1151 million at the end of that year, and to $1327 million at the end of fiscal 1975. 8 ACTUARIAL STATUS OF THE TRUST FUND 1. Actuarial soundness of the supplementary medical insurance program The concept of actuarial soundness, as it applies to the Supplementary Medical Insurance System, is closely related to the concept as it applies to private group insurance. The Supplementary Medical Insurance System is essentially yearly renewable term insurance; and in testing its actuarial soundness, it is not appropriate to look beyond the period for which the premium rate and the level of general revenue financing have been established. The primary test of actuarial soundness relates to the adequacy of the income for fiscal years not yet completed, but for which the premium rate and the level of general revenue financing have been established. The income for such years should be sufficient to meet the benefits incurred and associated administrative expenses for the period. The law requires the Secretary of Health, Education, and Welfare to establish the income on this basis. A second test of actuarial soundness is whether the trust fund assets, at the end of the period for which the premium rate and the level of general revenue financing have been established, will be as large as the liabilities-particularly those for services (and associated administrative expenses) that have been performed but for which reimbursement has not yet been made. This test will be met if the primary test of actuarial soundness has been met for all prior periods but it may not be met, even though the financing is currently adequate and the primary test is therefore met, if in the past the income was inadequate to meet incurred benefits and administrative expenses. It is considered desirable that this second test be met, because of the possibility that the financing of the Supplementary Medical Insurance Program might some time be changed, in which event any deficit would become a burden upon the new financing. In addition to the tests of actuarial soundness, a crucial test of the adequacy of the trust fund is that it is never in serious danger of becoming exhausted. This test of adequacy can be met even in the event that neither test of actuarial soundness as described above is met, since the existence of the fund may permit (at least temporarily) the payment of benefits even though the premium rate is inadequate. 2. Incurred experience of the supplementary medical insurance program Both of the tests of actuarial soundness of the Supplementary Medical Insurance program noted above rely on the incurred experience of the program. Cash disbursements for benefits and administrative expenses by themselves are misleading, due to the relatively large liabilities outstanding at any time for benefits and processing costs that must be paid for services already performed. These liabilities result from the lag between the time that services are performed and the time that benefits for them are paid, due to the tendency of enrollees to accumulate bills and submit them together (especially at the end of the year), and the time required by carriers to process and adjudicate the bills received. The liability outstanding at any time for benefits for services performed for which no payment has been made may be referred to as "benefits incurred but unpaid." Estimates of the amount of benefits incurred but unpaid as of the end of each fiscal year, and of the administrative expenses related to 9 processing these benefits, appear in table 6. Also included in table 6 are estimates of premiums voluntarily paid in advance and the government matching contributions for such premiums. Since they are paid for services to be performed in a subsequent fiscal year, they are a liability of the program on the valuation date. Offsetting these liabilities are premiums due and uncollected, government matching contributions due but not yet transferred to the trust fund by the Treasury, and the cash and securities in the trust fund. The incurred experience of the program for any period is obtained by adjusting the cash flow of premiums, matching government contributions, interest, benefit payments, and administrative expenses to an accrual basis by adding the net increase in each asset or liability item during that period to the corresponding item on a "cash" basis. This procedure produces the estimated incurred income and disbursements shown in table 7. TABLE 6.-SUMMARY OF ESTIMATED ASSETS AND LIABILITIES OF THE SUPPLEMENTARY MEDICAL INSURANCE PROGRAM, AT THE END OF FISCAL YEARS 1967-75 TABLE 7.-ESTIMATED INCOME AND DISBURSEMENTS INCURRED UNDER SUPPLEMENTARY MEDICAL INSURANCE PROGRAM, FISCAL YEARS 1967-75 1969 699 -232 699 1,500 151 21 1970. 903 904 -78 1971. 936 937 -320 1972 1,253 1,253 +182 1973 1,340 1,342 +140 Projected: 1,427 1,430 +143 1974. 1975. 1 Includes interest for any delay in transfer of Government contributions. |